As if the distracting Department of Labor fiduciary-buzz over the last 10 years were not enough, the advisor community now faces the reality that retirement plan participants are also living longer in retirement. One of an advisor’s seldom-addressed concerns is that a client depletes their retirement nest egg when following the investment allocation and spending model established by the advisor.
Challenges When Prepping the Committee
Asset allocation models are stronger than ever. Liability-driven investing is now becoming a frequent topic of conversation during Investment Committee meetings. Retirement committee members used to struggle with the question, “When are our company’s plan participants financially ready to retire?” That question was historically predicated on a life expectancy of 72 to 75 years.
Today, a new question is looming — one that is not so easily answered: “Can our employees afford to retire at age 65 and live comfortably for 25 or 30 more years?” That much more difficult question is being asked by a growing number of Retirement Committee members and plan sponsors today.
According to the World Health Organization, life expectancy increased by five years between 2000 and 2015, which was the fastest increase since the 1960s.
In the United States, approximately 10,000 people turn 65 each day, and one in five Americans will be 65 or older by 2030, writes Paul Irving, Chairman of the Center for the Future of Aging at the Milken Institute and Distinguished Scholar in Residence at the University of Southern California Davis School of Gerontology.
Retirement Committees want to do the right thing, but astute committee members are realizing that “normal retirement age” is no longer normal for everyone.
Advisor Value May Include a New Deliverable
It is difficult for advisors to differentiate the investment function when so many are using TDFs or indexing. Retirement plan advisors keeping a strategic eye on the future needs of their clients may want to consider the insight of Dr. Joe Coughlin, PhD, Director of MIT’s AgeLab. Dr. Coughlin highlights a strategy where an advisor can make a meaningful contribution to a retiree or a plan participant — after the client has separated from service.
Historically, retirement was analogous to kicking back, doing very little work, if any, and spending one’s days in a rocking chair or on a beach. Today, however, there is a new line of thinking when viewing life after traditional retirement.
Dr. Coughlin opens advisors’ eyes to the needs and desires of today’s retirees and the roles that plan advisors can play. Today’s retirement greatly differs from the image of retirement that was prevalent from the 1950s through the 1990s. Since the retirement phase has become a much longer period than it traditionally had been, advisors should consider developing expertise in alternative areas that would be valuable to an aging client base.
Today’s retirees are healthy, active, connected and mobile. This translates to a new set of needs that are dramatically different from those of only 10 years ago. This, combined with longer life expectancy, means that many of today’s retirees will be doing whatever they choose to do for a much longer period than prior generations. Instead of retirement consisting of inactivity and a sedentary lifestyle, retirees are planning the next chapter, the next 8,000 days. Advisors should promote mobility, encourage a healthy lifestyle, become knowledgeable about local extended care facilities, and be cognizant of social gatherings and community contact opportunities.
As retirees stay active and mobile and figure out what they want to accomplish in their “next” 8,000 days, they will undoubtedly bring their advisors with them — into their own newly found freedom.
Steff C. Chalk is the Executive Director of The Retirement Advisor University (TRAU), The Plan Sponsor University (TPSU) and 401kTV. This column first appeared in the latest issue of NAPA Net the Magazine.