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Are We Being Ostriches?

As a child of the 1960s, I remember watching TV, and the amazing transition from black and white to our first color TV.  It sure made watching my favorite cartoons more entertaining.  I’m not sure why, but even our black and white cartoons looked better on that new color TV set.

One particular scene played out in the cartoon world was the ostrich, putting his head in the sand when faced with danger. I never quite understood the rationale behind that, except maybe that ostriches were not smart birds, or maybe it was just their way of wanting to hide from the inevitable … but it was funny to watch nonetheless.   Here is this hulking mass that’s still exposed to the danger, yet burying its head in the sand was in some way a safety mechanism to protect the ostrich from impending danger.  If it made the ostrich feel better, then I guess the exercise wasn’t futile after all.

So what does a walk down memory lane regarding cartoons and ostriches have to do with income planning? Call it a modern day parable, but what many of us learned as children we are seeing played out in adult life, as many pre-retirees and those recently retired are putting their proverbial “heads in the sand” and ignoring important aspects of retirement income planning that put them at risk.

A recent study conducted by The American College of Financial Services found that only 20% of people surveyed could pass a basic quiz on the steps they needed to take to secure their finances after retiring.  Yet more than half of those surveyed felt well-prepared to meet their income needs in retirement and 91% at least felt “moderately confident” they could achieve a successful retirement.

Based on the disparity in the report findings, one wonders if today’s Boomers are entering retirement with their heads in the sand. 

The article citing the survey included a quote by David Littell, director of the RICP program at The American College that I found quite telling.  “No one likes getting Fs in school, but retirement income literacy is a test Americans simply can’t afford to fail.”

But the numbers tell us a different story.  The study found that 75% of those surveyed lacked basic competency regarding various asset classes, and their knowledge was “particularly dismal” regarding how best to maintain assets in retirement.

As an income planning coach, I speak to insurance agents and investment professionals regularly and what I’m hearing from them backs up a number of studies I’ve researched over the past several years.  Many of those at or near retirement are discovering, often too late, that they are NOT as prepared as they thought they were and retirement has to be either postponed, or the outcome significantly altered due to a lack of advance planning.

It’s the ostrich with its head in the sand all over again.

A article highlighted just one of the caveats this generation of pre-retirees and those recently retired are overlooking: food.  When you retire, every day becomes a Saturday, and you can do whatever you want to do.  22% of Americans today are blowing their monthly budgets by eating out … making it #1 on the “Top Ten Budget Busters” list.  When you’ve always looked forward to having the time to visit those fancy eating joints, and every day is a “weekend,” it’s easy to overlook the cost of eating out. And if you do that often enough, your wallet gets thinner and your waistline gets fatter.

It’s important to remember your clients don’t know what they don’t know.  As the American College survey attests, many of the clients you are working with today appear to have it all together. But in reality they may not.  A producer who uses our Peace of Mind University adult education program recently called to comment on the positive results he’s been seeing.

“John,” he said, “I continue to hear thanks from attendees for helping answer their retirement questions.  More importantly, they are thanking me for answering the questions they didn’t even know they were supposed to be asking.”  It’s a comment I hear often, as producers who are engaging with those at or near retirement are helping them realize there is much more to planning for retirement than they may have considered.

It’s the ostrich with its head in the sand all over again.

As I’ve shared in previous articles, today’s Boomers will spend an average of 20 to 25 years in retirement, and one in four of today’s retirees will live to at least age 90.  They will need two sources of income in retirement, one to pay the bills and another to have the money to do all those things they’ve always wanted to do in retirement. The importance of guaranteed sources of income in retirement can’t be overlooked.

That guaranteed income can come from a number of sources.  Social Security will comprise a sizeable percentage of most retiree’s income, so the importance of optimizing this resource is essential.    For those fortunate enough to have access to a workplace pension, this can provide another source of guaranteed income in retirement.

Annuities have seen a renaissance moment with the advent of the income planning conversation.  For years, consumers have liked the benefits of annuities, but negative press and a lack of understanding of how today’s annuity products work have limited their acceptability in the marketplace.  (Head in the sand?)  But that is changing.

Life insurance, once a mainstay of retirement planning, is also making a comeback.  The popularity of Index Universal Life and Single Premium Life (Simplified Issue), as well as a rebirth in the use of traditional Whole Life and Universal Life in the income planning process are creating the opportunity for tax-favored income streams in retirement.  

The popularity of “living benefits” in the life and annuity space has also received a very warm reception amongst the Boomer populace.  Realizing they will spend 20 to 25 years or longer in retirement raises the very real specter of having to deal with diminishing health that often accompanies advanced age.  Without proper planning, income dollars dedicated to paying monthly expenses must often be reallocated to pay for healthcare costs, impacting not one life but two.  Critical and chronic health care riders can provide additional dollars to pay for these uncertainties should they arise.

The most important thing you as a producer need to be doing is having the conversation with those who are at or near retirement.  Your “sweet spot” are those five years on either side of the retirement decision, as they still have a little time to plan and make any necessary adjustments so their retirement outcome can be better than it might otherwise have been.

What do they want? Answers to their questions. But remember, they don’t know what they don’t know.  The most successful producers we are seeing in the income planning market are those who are educating their clients about what healthcare, Social Security, income and legacy planning will look like in retirement – and presenting them with thought-provoking questions that challenge them to move from a plan that is “good enough” (if they have a plan at all) to one that will best meet their needs in retirement – no matter how long it lasts.

It’s also important that you establish a regular review with these clients.  Much like a check-up at the doctor’s office can be preventative medicine to ward off a potentially life-threatening illness, your financial review can identify “leaks in the dam” that could prematurely drain the retirement income reservoir.

The education you deliver helps them answer what they didn’t even know to ask, and positions you as the trusted, knowledgeable expert they need to meet with to solve their money problems.  It also makes you more referable, which helps you grow your practice.

When your clients don’t know what they don’t know, they’re an ostrich with their heads buried in the sand.  Your mission is to help them look up and see (with eyes wide open) what’s coming and prepare.

About John Terry

John Terry
A 2008 inductee into the United States Martial Arts Hall of Fame, John is a Sales Coach with Vision Advisors, an insurance FMO, and president of High Street Asset Management, a registered investment advisory firm. He is also a Master Coach with Real Life Management. John has been helping independent producers get in front of qualified prospects for more than two decades. Author and in-demand public speaker, he has entertained and educated industry professionals, as well as their clients, through his passionate, energetic delivery of timely financial topics. John is the founder of Peace of Mind University and one of the developers of Income Planning University ONLINE--two sales programs focused on helping producers connect with and educate pre-retirees. John can be reached at Vision Advisors at 800-505-8489.

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