One of the most exciting opportunities for insurance professionals is in retirement income planning. There are at least 3 reasons for this:
? Demand is increasing for this type of planning. This is especially true for baby boomers.
? Retirement-income planning represents an opportunity for a new look at all financial plans through an income-planning lens. So, it's a tremendous prospecting opportunity.
? Insurance professionals have a competitive advantage because of their knowledge of insurance and annuity products, which play an important part in the retirement income-planning process.
As an industry, we have spent years preparing for this opportunity. We are reminded that baby boomers, born between 1946 and 1964, will reinvent themselves and the concept of retirement. Every hour, approximately 330 Americans turn 60– almost 8,000 people each day!
From a planning standpoint, the boomers are moving from a primarily asset accumulation stage into a primarily wealth-distribution stage of planning. Many boomers will likely live longer and will lead lifestyles considerably more active than previous generations. Furthermore, they hold the purse strings to almost $15 trillion in retirement assets–money that needs to be managed to provide a lifetime of income.
To take full advantage of this opportunity, life insurance professionals need new sources of information to help educate their clients about the issues–risks and realities they face as they enter retirement. They need tools to help educate clients about the issues, which will help shape the conversation about solutions.
The National Retirement Risk Index
Recently, Boston College significantly contributed to the collective understanding of retirement income-planning problems, unveiling important implications and suggesting potential solutions. The Center for Retirement Research at Boston College, with the funding assistance of Nationwide Financial, developed the National Retirement Risk Index. This is a benchmark for our nation's retirement preparedness and reflects a broad range of factors, including savings rates, home equity, pension plan participation, plus demographic and economic trends.
The index measures the percentage of households at risk of being unable to maintain a pre-retirement standard of living. And, it projects how much income households are expected to have in retirement relative to their pre-retirement income. The index then compares this "replacement rate" to a target rate that would allow a household to maintain its pre-retirement standard of living. Households that fall more than 10% short of the target are considered "at risk."
The index reveals that more than 40% of working Americans are "at risk" and are not on track financially to retire comfortably. This assessment includes Social Security and home equity. The researchers cite many reasons, including increased longevity, the decline of traditional defined benefit pensions, lack of investing in defined contribution plans and the failure of most people to save outside of defined contribution plans.
Some implications for insurance planning and practice
