Marketing Corner – December 16th, 2015
What Will Impact Boomers in 2016?
2016 Presents Many Challenges For Boomers, But Opportunities for Advisors
Most demographers consider the Boomer generation as being born between 1946 and 1964. Within this range, there is a wide variety of individuals. Those who came of age in the 1980s will certainly have a different range of experiences than those who came of age in the 1960s. But this generation is facing a shared general concern—longer life expectancies which imperil old modes of retirement planning. As an advisor, you probably already know this, but it’s important to keep in mind as you deal with this type of client. They may not know that they should be concerned or they may not know there are strategies that can help them.
Life expectancy for a 65-year-old American is three-to-four more years longer than the previous generation at the same age. This is a significant amount, and many can expect to live longer, which drains on retirement resources. This is especially true in a long-term care situation, where funds are depleted by a medical condition that a generation ago may have resulted in death. An Insured Retirement Institute survey, released in April of 2015, found that only 27% of boomers expressed confidence they will have enough money to last throughout retirement. The same survey found that only 6 out of 10 boomers had retirement money saved.
There are 10,000 people turning 65 everyday, a staggering number that is projected to maintain until 2030 or so. According to Pew Research, there are roughly 75 million boomers as of 2015. Although this number will naturally decrease as we approach the middle of the century, for the next thirty, thirty-five years, we have a huge swath of people that are facing a retirement crisis. Part of this may be because retiring at 65 may not make sense when life expectancy is extended by nearly a half-decade for today’s swath of boomers. Certainly many advisors will advocate delayed retirement and many boomers transition into retirement by working part-time. It is important to also consider that aging parents and adult children may burden many boomers, especially those born later in the range.
In addition to the background anxiety of securing retirement, boomers will likely be concerned with the following in 2016:
There are two aspects of social security that are likely to worry boomers in 2016.
The first is that there will be no Cost of Living Adjustment (COLA). Not only is this going to impact boomers/seniors on a very fixed income, this will also affect some Medicare beneficiaries—about 30%–who will see an increase in their Part B premiums. Although a flat COLA and rise in Medicare premiums will most directly impact fixed income retirees, higher net worth clients may see the changes (or lack of changes) in the programs as turbulence. Either way, it’s a good door opener topic for advisors and agents in 2016.
The second aspect of social security that may trouble boomers is the loss of the file and suspend strategy, which ends May 1. This has been a key strategy of social security maximization, and seniors likely need a better sense of how it will impact their specific retirement plan, especially if they are pre-retirement. Again, for the advisor, this presents a good door opener.
The 30% of Medicare beneficiaries who will see an increase in the Part B premiums includes those not receiving social security benefits, those that pay an additional income related premium (i.e. IRMAA), and new Part B beneficiaries. While the premium increase is not the 52 percent hike that Medicare Trustees Report predicted, the increase is a significant 16%, from $104.90 to $121.80. In addition to the raised premium, deductibles have increased.
A report released by the CDC in 2015 demonstrates the impact of living longer. While overall deaths are down for boomers (identified in the study as aged 55-64 years old), chronic conditions such as obesity, high cholesterol, and diabetes, have risen compared to the previous decade for the age group. These conditions may lead to other long-term care incidents and conditions. As such, long-term care may (and should) be a big concern for pre-retirees.
Obviously, we can’t predict what the stock market will do, but given the inherent risk of investing and the last few years of volatility, we know that it can be unpredictable. Not only do boomers have a significant amount of their retirement funds allocated in stocks, as many as 35% are overexposed, according to a Fidelity study released in 2015. Ten percent of boomers aged 51-69 have their entire 401(k)s allocated in stocks.
What we do know is that there are things that have have far-reaching impacts, such as the fed rate, oil prices, and global market influence. Because boomers are either pre-retirement or in retirement, they have no time margin to make up any deficits. So 2016 is a good year to discuss asset reallocation and risk exposure.
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