A new wave of retirement planning
No longer just planning for retirement, boomer success will hinge on planning in retirement
Rising inflation, escalating medical costs and increasing longevity. These factors, not to mention the anything-but-frugal spending habits of boomers, are the impetus to a much larger concern. With the expectation that boomers will live longer in retirement than any generation passed and the reality that the cost of living is not getting cheaper, how will boomers afford their basic needs while continuing to live an active and consumerist lifestyle?
Financial advisors say the key to comfort for boomers is continuous asset accumulation. The days of old taught us to work, earn money and save for retirement. And once we retire – cash out. Today, advisors urge continuous planning and investing throughout retirement. More specifically, they recommend that boomers remain in the equity market during their retirement, rather than transferring to fixed vehicles.
Investing in equities
Keith Millner, senior vice president of the in-retirement business segment of Nationwide Financial Services, says that boomers’ desire to retire early coupled with increased longevity results in “a longer time period from which they have to make their principle last.” Millner advocates they remain in the equity market longer. “The equity market generally provides greater upside than the fixed products and you’re going to need that to mitigate [against inflation risk].”
But not all advisors agree. Michael Lange, CSA, LUTCF, from Barrington Ill.-based Asset Protection Specialists, feels the equity markets are too risky.
“Safety is the key,” he says. Lange suggests that boomers should invest in equity index annuities, which are not too aggressive or too conservative and “provide a higher than normal interest rate but with less risk than the stock market.”
However, Lange clarifies that there is no blanket statement that can be applied to everyone. What matters to him are the individual needs and expectations of the client.
Josh Willard, vice president of La Jolla, Calif.-based Coghlan Financial Group recommends boomers consider the volatility in the equity market and determine if they can afford to increased risk. Generally, he believes boomers should invest in the equity market, but he says, “having too much in the equities when in the distribution phase of one’s life can be dangerous when the market experiences extended down periods similar to the one we recently went through.”
Willard reinforces the need for a balanced approach to investing in equities; but explains that the need to invest may slowly decline as retirees get older. “Investing in equities may be important during the early retirement years, but less important in the later years as a person has less time to live, thus inflation becomes less of a threat while market losses become a much bigger threat,” he says.
Investing in real estate
Accumulation, however, does not have to rely solely on the equity market. Analysts suggest that boomers can use real estate as a means for future financial solidarity.
“Real estate can be an important piece of a boomer’s asset allocation,” Willard says. But he sounds caution for boomers that are using real estate as a pure investment strategy, especially with the current rampant speculation.
Debby Vinyard, CFP, owner of Marion Ill.-based Vinyard Financial Planning agrees with Willard’s assessment. Before making any major decisions, she recommends consumers consider affordability, income-generating potential, length of ownership, location and maintenance.
But both Willard and Vinyard believe that although real estate can be a good investment strategy, using it as a borrowing vehicle through reverse mortgages is not the best method to support one’s income. Vinyard says this strategy should only be used as a “last resort.”
Are boomers ready?
The big question is, do boomers get it? Do they understand that asset accumulation in retirement is necessary to continue to live the lifestyle they currently enjoy?
When it comes to understanding retirement investment strategies for the future, there are two kinds of boomers.
“Boomers who have been wise and lived within their income means ‘get it,’ she says. “Those that have a lot of debt and live paycheck to paycheck don’t ‘get it’ and won’t ‘get it’ unless they change their mindsets and saving and spending habits.”
Boomers face a huge challenge: to organize their finances, take the advice of professional planners and invest in vehicles where their assets will continue to accumulate through their retirement. If boomers oppose this challenge, a difficult future lies ahead of them, and the capacity to live out their current lifestyles in retirement will dwindle.