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Financial firms gear up for boomers' retirement

Industry moves to accommodate wealth, needs of pivotal generation

By Anuradha Raghunathan, The Dallas Morning News

October 10, 2003

Financial services companies saw it coming. Now it's almost here.

The baby boomers are on the verge of their much-anticipated retirement roar, and 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," he said.

With 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.

"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.

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

Second, programs such as Social Security and Medicare aren't equipped to provide for 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, it's 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 the planning process. Retirement industry marketers are slowly catching on to these themes.

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 also are 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 wants 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.