A tidal wave of baby boomers is rolling into retirement and about 76 million people—roughly 10,000 a day—will turn 65 over the next two decades.
But as they enter their golden years, boomers—and their investment advisors—face daunting obstacles to achieving a rewarding retirement. Unlike current retirees, most boomers can't rely on pensions and Social Security to fully fund retirement. IRAs and 401(k)s have been hit hard by two major market drops, leaving many investors spooked, risk-averse and poorer. Inflation from growing government deficits is lurking on the horizon. Above all, boomers are worried about outliving their assets.
So what is the good news? With retirement imminent for so many, investment advisors and clients are taking proactive steps to prepare for retirement.
A new generation of products and strategies is coming to the marketplace that addresses the growing need for guaranteed retirement income. Targeted to fee-only advisors, these new products eliminate commissions, surrender charges and costs associated with other products; provide open access to mutual funds and ETFs; and put advisors squarely in control of managing assets.
These new retirement planning tools can protect clients' future income generation as they move from asset accumulation to generating retirement income. Three risks pose the greatest threat—both during this transition and throughout retirement:
Longevity. The good news is that Americans are living longer. Projected life expectancy, for example, rose to 78.7 years in 2010, and the U.S. Census Bureau estimates that the number of centenarians will increase nearly eight-fold to 600,000 by 2050. But for advisors working to ensure that clients don't outlive their assets, longevity poses significant risks and challenges.
Inflation. Inflation—both the short-term spikes in interest rates and the long-term erosion of purchasing power—is an ongoing and constant concern for clients planning for or already living in retirement. It needs to be a primary consideration when constructing a retirement income portfolio that's built to last.
Volatility and Sequence of Returns. As clients move into retirement, stock market volatility and sequence of returns risk grows significantly. Market losses during the transition into retirement can have a severely negative impact on the income generating potential of a client's portfolio. That's because clients will need to begin withdrawing portfolio funds immediately to produce income, severely impacting the ability of the portfolio to "catch up" during subsequent years. Protection from volatility is crucial at this transition.
"Pensionizing" Portfolios
