Seven critical issues are creating a "perfect storm" of forces that threatens the secure retirement of most boomers, according to insurance executive and author Gregory Salsbury.
"My profound worry is that the boomers will be the first generation that will be worse off in retirement than the previous generation," writes Salsbury in his book, "But What If I Live? The American Retirement Crisis."
The book has just been published by Highline Media Inc., the parent company of National Underwriter Life & Health.
Salsbury says the seven key issues boomer retirement planning must address are increased life expectancy, the vanishing of traditional pensions, an uncertain future for Social Security, high taxes, rising inflation, soaring health care costs and too little savings.
Longevity, normally thought of as a blessing, becomes a serious problem to those who outlive their savings, notes Salsbury, who is executive vice president at Jackson National Life Distributors, Lansing, Mich., the U.S. subsidiary of Prudential PLC, London.
More than half of American couples age 65 and over can expect to have at least one spouse live until age 90 or more, Salsbury says. That will put a big strain on those trying to live on a fixed income.
For financial advisors, this presents a couple of major tasks.
"The first is education," he says. "The advisor has to show boomer clients how to control their expectations and educate them to the fact they cannot spend the way they have been or may have intended to."
For one thing, some boomers may need to extend their retirement age to age 68, given all the demands on their savings, he says.
Beyond that, advisors should encourage boomers to purchase variable annuities, he insists.
"Bond portfolios are fine for the affluent, but for a population that has saved some money but not enough, the advisor has a dual challenge: preserve what they have and grow it as well," Salsbury says.
Due to market volatility, mutual funds are also not an appropriate answer for most boomers in planning for a secure source of income in retirement, he cautions.
"The solution is to offer a suite of living benefits available today through variable annuities," he says. "This is a new step in retirement planning, and a large number of advisors are waking up to what living benefits provide: the guarantees or floors offered by fixed instruments plus growth of equity."
On the problem of disappearing pensions, his book cites federal data showing the percentage of workers covered by a defined-benefit pension plan has fallen from 80% in 1985 to 33% in 2003.
For its part, the insurance industry needs to fill the gap by offering low-cost VAs with a living benefit, he says.
With more than two-thirds of retirees depending on Social Security for more than half their income, it's increasingly obvious boomers wishing to maintain their lifestyle need to save more, Salsbury notes.
This creates an opportunity for advisors as more boomers realize they need professional assistance.
"The retirement income riddle is so much more complex today than previously," Salsbury says. "This makes financial advisors even more important than a couple of decades ago. Taxes, longevity and inflation make it a tough puzzle, so boomers need to save more than they have been and adjust expectations to perhaps work longer than they planned."
