Nearing retirement, boomers look to redefine it

Banks, brokerages insurers are vying to serve huge market

October 12, 2003|By Dallas Morning News

With baby boomers on the verge of their much-anticipated retirement roar, banks, brokerages and insurance companies are racing to reinvent themselves.

"The industry is reorienting and reassessing itself for the next major thrust," said Ken Dychtwald, author of Age Power: How the 21st Century Will Be Ruled by the New Old. "We are in a moment before the mass activity takes off."

Their hopes of early retirement dashed by the bear market, many boomers are looking to work well past 65. Many are confused, even concerned, about their financial future.

But whatever the boomer state of mind, financial institutions stand to benefit. They are positioning themselves as one-stop shops for retirement products, services and financial advice.

Experts say two trends are coming together for the industry. The first is the aging of the boomers. The second is that the boomers' parents are expected to leave them a whopping inheritance of several trillion dollars over the next few decades. If even a portion of this materializes - if the older generation lives longer and spends more - it's still big business for financial institutions.

"This group has more wealth, by far, and will continue to inherit more wealth, than any previous generation," said Libby Chambers, enterprise marketing executive for Bank of America. "They invest in equities at a rate far greater than their parents. They also have more of their personal assets tied up in homes and second homes than any previous generation."

No wonder, then, that insurance giant Allstate created a division called Allstate Financial in 2000, partly to cater to the retirement boom. The company started training auto insurance agents in retirement planning in an attempt to reach the boomers, who make up 42 percent of Allstate's 14 million-customer base.

More recently, brokerage giant Merrill Lynch rolled out a strategy called Total Merrill, in which a financial adviser provides complete financial management to a client - everything from short-term cash flow planning to retirement planning.

Experts say boomers will redefine retirement, just as they've transformed every other life stage that they've experienced. Part of the change will be fueled by the boomers' desire to remain productive. And part will come from the economic and political environments.

Boomers are facing a whole new retirement scenario. First, they are living longer. They'll have to finance almost a third of their lives after retirement, prompting fears of whether they will outlive their resources.

Second, government programs such as Social Security and Medicare are not equipped to provide for the retirement years of this many boomers. Social Security says the ratio of productive workers to retirees has fallen from 16.5 to 1 in 1950 to 3.4 to 1 today. By 2030, the ratio is projected to drop to 2.1 to 1.

Third, corporate pension programs are dwindling. And fourth, health care expenses will become a challenge as companies back off on retirement benefits.

Given these facts, boomers have to factor in more variables in their planning process. Retirement industry marketers are slowly catching on to these themes.

Companies are also looking at other life factors.

"Boomers are getting sandwiched between kids and parents," said Elaine Agather, chairman and chief executive of JP Morgan Chase Bank in Dallas. "The kids aren't leaving as quickly, and parents are living longer."

Right now, companies are focusing on helping boomers remap their financial paths to retirement.

On the product front, companies are creating investment products with names such as "risk-protected investments" and "market-neutral funds." With these instruments, money is invested in equities, but the risk is removed because the returns don't follow the ups and downs of the market.

Companies are also remarketing old products such as long-term care insurance and reverse mortgages.

Moreover, companies are trying to integrate their services so that the customer who comes in to buy auto insurance stays on to seek advice on an individual retirement account. That's why insurance companies are offering retirement planning, banks are selling life insurance, and brokerages are providing estate planning.

"What's going to separate the winners from the losers over the next couple of decades will be those companies that can sit down with the customers and help them figure out the appropriate choices," said Brian Cohen, president of the financial services division of Farmers Insurance Group.

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