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On a daily basis, advisors consume a plethora of demographic data and deal with related client issues. As such, they know that the expectations and needs of a millennial client are usually far different than those held by a baby boomer.
In the essence of efficiency and simply making life easier for the advisor, it’s often sensible to group clients into the applicable generation – Gen Z, millennial, Gen X, baby boomer, etc. However, advisors rarely focus on clients that are a specific age and that’s understandable. Whether the age is 30, 60 or 80, chances are advisors have only a small number of clients that are one specific age. Conversely, broader age-based approaches are practical and don’t threaten the level of service advisors provide.
Still, there is some validity in focusing on clients that are a specific age and if advisors are going to do that, the age that makes the most sense is 55. That is to say clients that are within a few years of 55 on either side are relevant in the following discussion.
Fifty-five and thereabouts probably doesn’t surprise advisors. In theory, someone that is that age may only work another 10 years when considering the “traditional” retirement age is 65. Additionally, clients that are 55 years old are likely thinking about and needing an advisor’s assistance on when is the best age at which to claim Social Security benefits.
Why Advisors Should Focus on 55
Based in the assumption that 65 is the standard retirement age, advisors should get to work with clients that are 55 years old or close to it because data suggest today’s 55-year-olds aren’t as financially confident or prepared for retirement as their predecessors.
“Fifty-five-year-old Americans are far less financially secure than older generations, and face mental and emotional strain that extends beyond prevailing notions about the ‘midlife’ crisis,” according to the new Prudential 2024 Pulse of the American Retiree Survey. “These challenges are exacerbated by calculations that Social Security’s trust funds will be depleted as this generation reaches retirement age in 2035 — making this the first modern generation to confront retirement without full Social Security support, and in most cases without a defined benefit pension plan.”
The survey notes the “average” 55-year-old has just $50,000 in retirement savings – far less than $1 million-plus some clients believe they need for a comfortable and still well below the old standard of eight times one’s annual income.
Another interesting nugget from the Prudential survey: parents, particularly those of Gen Zers, are expecting that they’ll simply go live with their kids as they advance in age. They view it as a form of reimbursement for years of financial support. Interestingly, the conversation about the parents coming to live with adult children hasn’t taken place in many instances.
“Millennial and Gen Z adults who have counted on parental support will soon be paying their dues: nearly a quarter (24%) of 55-year-olds expect to need financial support from family in retirement — twice as many as 65- and 75-year-olds (12%). One in five (21%) also expects to need housing support, compared to 12% of 65-year-olds and 9% of 75-year-olds. Despite these expectations, nearly half of 55-year-olds (48%) who expect to need support have not discussed it with their family yet,” adds Prudential.
How Advisors Can Help
As noted above, clients that are around 55 years old, likely relied on employer-sponsored retirement plans to fund retirement savings, not defined benefit pensions. Advisors should connect with clients that are relying on 401(k)s and the like to see if those clients are appropriately allocated to assets with growth potential.
In terms of specific instruments that can help clients in their mid-50s shore up retirement savings, those that are short could be appropriate clients with whom to discuss annuities.
“Despite growing industry recognition of the importance of lifetime income strategies to retirement security, just 6% of 55-year-olds plan to use annuities in retirement, compared to 11% of 65-year-olds and 20% of 75-year-olds. Yet, 71% of 55-year-olds say they are interested in annuities, presenting the industry with a significant opportunity to strengthen their retirement security with protected income solution,” concludes Prudential.
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