The stunning decline in property values across most of the country, a prolonged recession and plain-old negligence and shortsightedness on the part of American workers have combined to make retirement more a fantasy than a reality for tens of millions of baby boomers.
In fact, the number of people 65 and older will increase 79% between now and 2030, meaning another 75 million new retirees — or people who would love to be retired — will be looking for help with retirement income and investing. Faced also with the likelihood of more expensive health care just when they need it, many are terrified they'll run out of money long before they die.
Financial advisers charged with getting all these boomers headed toward a comfortable retirement need to open their minds to new investment strategies that defy conventional wisdom, said Dave Paulsen, Transamerica Capital Management's chief sales officer.
"The retirement landscape is unlike anything we've ever seen before, with new challenges that are changing the way retirees receive retirement income," he said.
Paulsen said financial professionals need to appreciate that there is no one-size-fits-all approach to an individual's retirement plan and traditional methods that advisers have relied on for years — including the so-called 4% rule or the "bucket" approach to retirement planning — need to be augmented with diverse and more creative tools and investment products.
"This is especially important if you consider the state of the equity markets over the past decade," he said. "Most clients can't afford another market downturn."
Health care is a huge issue for retiring boomers. According to the Department of Health and Human Services, the average long-term-care insurance premium for someone between 65 and 69 is $2,500 a year.
For anyone over 70, the average premium is more than $3,000 a year. And for those who cannot qualify for long-term-care insurance, all those long-term-care fees have to be paid in full out of pocket.
"Financial professionals will have to familiarize themselves with these new challenges in order to find effective ways to help their clients pay for these growing expenses," Paulsen said.
Finally, he said, financial planners and advisers, especially the growing ranks of those specializing in retirement planning, need to become experts at knowing and explaining Social Security rules and guidelines because it's such an integral part of most Americans' retirement income.
Advisers "must be well positioned to help their clients navigate the often-confusing aspects of the nation's Social Security system, and discuss the potential advantages of delaying these benefits," he said.
Paulsen said investors and advisers need to bone up on new products, especially the growing variety of variable annuities, to help bridge the gap between retirees' expenses and their Social Security benefits.
"Variable annuities offer guaranteed lifetime payout options, guaranteed death benefit options and tax-deferred treatment of earnings," he said. "Variable annuities can play a substantial role in a retirement income strategy, whether it's used as a method to supplement income for health care costs, or even to fill the income gap Social Security leaves behind."
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