Challenges Retiring Baby Boomers Face

Retirees and financial planners need to keep in mind behavioral changes that can put retirement goals in jeopardy, according to a study called “Risks in advanced age.” The report says planners and clients need to work together to develop financial plans that “overcome inevitable risks in advanced age.” 

According to the study, clients exhibit myopic loss aversion, but financial advisers can help clients by reducing how often portfolio returns are reported -- for example from quarterly to annually. The study also suggests financial planners use a bucketing strategy or provide clients with a written IPS. 

The study says another risk clients face later in life is their risk perception and preferences may not be stable. The report says, "reducing retirement risk with a rising equity glide path is optimal" for clients who exhibit constant risk aversion over time.

Clients in advanced age face an inevitable decline in cognitive abilities, which leads to declining investment performance and financial literacy. At the same time clients tend to deny those declining abilities. The report suggests financial planners make clients aware of their declining abilities so the don’t make financial mistakes. 

And, lastly, people are living longer, which presents another challenge. The study says financial advisers should strive to help their clients enjoy their retirement to the fullest, but at the same time protect their clients from using up all their funds prior to death. According to the report, one solution is to purchase longevity insurance. The study says longevity insurance provides financial planners with a timeline of how long their clients’ assessments will last, but at the same time protects the client against depleting all of his or her savings if they live longer than expected. 

More and more retirement planners are making lifetime income planning the main focus of their Baby Boomer clients’ retirement plans, which is a significant shift from what the primary goals were when they were accumulating their retirement funds.