The entire financial industry is agog over the prospects the burgeoning millennial market brings to their business. According to a recent Forbes article, there are 80 million millennials in the U.S., and everyone from retailers to financial institutions are scrambling to capture their business.
However, there's another segment of the population where the market, while at half the size, is a more willing participant in retirement and estate planning. In fact, they're already retired, and many have estates.
According to the U.S. Census Bureau's most recent figures (2010), there were 40.3 million people aged 65 and older in the U.S. That's the largest the age group has ever been, according to Census Bureau research, and it's a group that will continue to grow, with researchers estimating an over-65 population of 88.5 million by 2050.
Now is the time for selling to seniors. A myriad of events past and present are causing seniors more than enough anxiety: recession-related financial strain, chronic health concerns, even lapsed insurance policies. Economic uncertainty among the general populace is also contributing to the feeling of financial uncertainty, as evidenced by the C6 Real Misery Index, a six-factor model designed to provide a more realistic picture of "misery" in today's economy, especially for the middle class.
Senior concerns
That economic uncertainty post-recession stems from a number of changes seniors had to face — decreased home values, a reduction in their investments, and an increased need to draw on savings accounts.
Those factors, says Michael Bapis, cause seniors the most concern. Bapis, managing director and partner at The Bapis Group at HighTower Advisors in New York, says common concerns for seniors are these: "Am I going to run out of money? Do I have enough money to live on?" Plus, he sees a more concentrated focus on long-term care. "Who's going to take care of me and who's going to have the money to do so?"
Not to mention the changes to Social Security that impact retirees. Changes that took effect in 2016 include a $24-per-month decline in monthly benefits. That, combined with the news that there are no cost-of-living adjustments and no change in the maximum amount of earnings subject to the Social Security tax, squeeze the income stream of the senior client even more.
Robert Steen, advice generation director of retirement & complex planning at USAA in San Antonio, says the news had brought the issue back to the forefront. "It raised the consciousness to 'Is it going to be there for me?' We're not just talking about it now. We're seeing budgets that are starting to change the landscape."
Beyond Social Security, Steen says seniors are experiencing other changes that impact their income. President Obama's proposed budget recommendations for fiscal year 2016-17 threaten to eliminate stretch provisions within the IRAs that apply to anyone but the owner. Further proposals attempting to simplify minimum required distribution rules for IRA account owners could require Roth IRAs to be drawn on at age 70 ½ while the owner is still alive.. Plus, there is inflation risk associated with the continued increasing longevity in this country, says Jeff Bogart, owner and registered investment advisor at Sila Wealth Advisory in Mayfield Heights, Ohio. "What we're concerned about is mild inflation every year — two-and-a-half, three percent — and what that does to their purchasing power. Over a 30-year period it could reduce their spendable income by almost two-thirds to 90 percent. From an investment standpoint, do we choose investments that outpace inflation? Also, how much risk do they have and how much can they take?"
Overcoming mistakes
Perhaps some seniors make mistakes because they don't fully understand the risks associated with some financial choices. Bogart says he's seen seniors get into debt at a time when they least need it. Also, not accounting enough for inflation when they're younger can haunt retirees later on, as can gambling or speculative investment options. Another common mistake Steen has seen involves the opposite side of the issue — retirees who are pinching pennies. "They're not having the fulfilling lifestyle they could have because they're worried about running out of money."
That, Steen says, is because they most likely don't understand their risk tolerance. "I like to ask the question, 'What is your capacity if the market suddenly dropped 30 percent? Would that make you lose your house, or substantially eat into your essential expenses?' We have people who are very risk tolerant, but their capacity for risk may be very low. The reverse is true, as well — we have people who are very risk averse, but their capacity for risk is much larger."
Yet the mistakes are not one-sided: experts agree that advisors are taking some missteps that could be costing their seniors. Ajay Gupta, CEO of Gupta Wealth Management in San Diego, says advisors are letting their biases get in the way. Instead of sticking with the same tried-and true options, he thinks advisors need to look for alternatives. "As they're building an equity portfolio, they need to have a bias toward not just dividend-paying companies, but also companies that have a track record of raising dividends consistently," he says. "They may not be the companies that are highest-yielding, but they are consistently raising the dividend payment."
Also, Gupta says advisors need to be more aggressive with the numbers they're using for inflation, and look beyond the traditional measurements. "It's not just about what the CPI (consumer price index) is, it's not an inflation or a deflation — it's a 'me-flation.' Me-flation means are the things I'm spending money on going up or down? They need to get seniors talking about what they're spending their money on."
