Wm. Scott Page

President and CEO, The Lifeline Program

Time to Rethink Retirement

Posted: 03/22/2012 1:03 pm

Baby boomers may retire destitute.

Last year, a fairly standard marketing project took a turn that has changed the way I view retirement and retirement planning. Though our company's clients are retirees, we have learned that many of the financial decisions made by this group are greatly influenced by their grown children -- baby boomers.

While in the short-term, we want to reach their 70-something parents with our retirement offerings, we quickly learned during a research project that in the long term, the children of the post-war boom are much worse off than prior generations. The baby boomers, it turns out, have saved very little for retirement -- and they, themselves, are reaching their "golden years."

Here are the facts from an Associated Press -- LifeGoesStrong.com survey last year:

• 44 percent of Americans born between 1946 and 1965 are not confident that they will have enough money to live comfortably in retirement.
• More than half (57 percent) say they lost money during the recent economic downturn.
• Many who were affected (42 percent) say that's why they're delaying their retirement.
• While more than half (55 percent) of boomers say they have at least some confidence that they will have the financial resources to live comfortably during retirement, only 11 percent are deeply confident that they are financially prepared.

Baby boomers have been hit with a rash of bad luck that prevented or slowed their savings. Company-sponsored pension plans largely disappeared during their lifetime, and 401(k) plans were too slow to catch on. In recent years, they have been whipsawed by the financial crisis which halved many portfolios just as the real estate crisis depleted home values. Further, low interest rates have stagnated traditional savings accounts. When you combine these factors together, you get a large generation of Americans with low savings rates and a nearly impossible financial mountain to climb if they want to retire.

The situation worsens, in my opinion, when this group starts looking for advice from financial professionals regarding how they should dig themselves out. The overwhelming advice is simplistic and ridiculous: Save more. How can people who have been victimized by the financial crisis and have trouble making-ends-meet be expected to do this? Boomers are in crisis, and even if they had an extra few hundred dollars to contribute to a retirement account, it wouldn't be enough.

At the same time, mainstream financial media continue to offer similar advice while also giving short shrift to untraditional savings and retirement options like reverse mortgages and life insurance settlements among others.

While these options might not be a perfect match for everyone, the current state of affairs for many seniors and boomers suggests that they may not have many other choices.

Let's look at life insurance settlements, as one example. This financial planning tool comprises the sale of an existing life insurance policy by an elderly policyholder, for more than the current cash surrender value. A unique alternative to surrendering a policy or letting it lapse, a life settlement can be offered on term, whole or universal life policies.

With a life insurance settlement, the purchasing company agrees to pay the life insurance premiums for the remainder of the policyholder's life, and in return, the purchaser receives the death benefit when the policyholder passes away.

Our company recently commissioned a survey by International Communications Research, and we found an astounding 79 percent of respondents felt that their insurance professional and financial planners should be informing their clients about life insurance settlements as a means to fund their retirement (rather than letting policy's lapse). And, more than half (55 percent) expressed concern they will have to continue working past the age of 65. After the financial option of life settlements was explained to them, nearly one third of baby boomers said they would consider such a transaction to help fund their retirement.

While boomer savings rates are low, this generation is the best-insured of all time. However, many people don't know that selling their life insurance policy is even an option. Lapse rates are estimated to be around 85 percent, so most life insurance death benefits are never paid out. Many boomers have a financial option that could help them pay for retirement but don't even know it. Though untraditional, selling an insurance policy may be the best option that boomers have.

While the overall economy appears to be on the uptick, we are facing a baby boom financial catastrophe if we don't change how we pay for retirement and explore all possible means to get there. Though financial tools like life settlements, reverse mortgages or other tactics might not be the right option for everyone, undeniably, these options need to be acknowledged and available to seniors and boomers. This year, the oldest boomers turned 65, and if we don't start to rethink retirement, a whole generation of Americans will be in economic peril during what should be their golden years.