In 1957, 4.3 million babies were born in the United States. According to the U.S. Census Bureau, this is more births than occurred in any year before or since — and those babies were born right in the middle of the baby boomer generation, the largest consumer group in America today.

Now, the first wave of boomers is crossing into retirement at the same time that the nation is finding itself in the midst of one of the biggest financial meltdowns in its entire history. How has the financial crisis affected baby boomers, and what can you do to help clients who find themselves at retirement age but are not financially prepared to retire?

Retirement woes

Paul Reed, an executive vice president with AXA Advisors, said there is a retirement planning epidemic in America, and many boomers are caught smack in the middle of it.

Most baby boomers are just caught right now, Reed said. They haven’t saved enough. [The early boomers], people born in the late ’40s and early to mid ’50s, they might still have defined benefit plans, Social Security, et cetera, so their company and the government [are] still taking care of them, even if they didn’t save enough. Unfortunately, the mid to late baby boomers thought they were going to get the same benefits, and they haven’t. Companies are getting out of defined benefits plans and 401(k)s, so people just haven’t prepared enough.

According to Dr. Greg Salsbury, an executive vice president with Jackson National, a lot of boomers have a misguided view of retirement.

Boomer borrowing and spending got way out of control. They started seeing luxuries as necessities, Salsbury said. I spoke with a [boomer] who was contending that he was literally struggling to put food on his table, and yet later his teenage daughter sat on the couch, sending text messages from her cell phone. They can’t separate what they need from the extras.

That lack of preparation and of savings, combined with unrealistic goals for retirement lifestyle, is a major cause of the current retirement crisis. And when it’s time to retire, with little or no additional income coming in and barely any savings, boomers may face a sobering reality.

To learn how you can work with your younger clients to protect them from the same dangers as the boomer market is now facing, visit Learning from the Retirement Crisis: How to Advise Your Young Clients About Retirement .

Lifestyle changes

Drew Denning, vice president of Principal Financial Group, said his research shows that the average 65-year-old has only saved $165,000 for their retirement — and, depending on the state of their defined benefit plans, they might not get much else. That adds up to about $6,000 to $7,000 per year for the remainder of their lives — quite a shock, he said, for those used to living on a six-figure income.

Part of the problem, Denning notes, is that when boomers first began saving for retirement, they didn’t consider many of the luxuries they would one day come to rely upon.

Twenty years ago, retirees didn’t have cable television, cell phones, a second home, a third car in the garage, so they didn’t save for them, he said. Now, getting rid of those extras are the kind of changes that are going to be necessary for the vast majority of boomers to make it through retirement.

For some people, though, the idea of giving up the retirement lifestyle they have fantasized about is disappointing. Those people have come up with an alternative plan to ease their retirement woes — keep working.

There is no question that all of the research data shows that people are pushing back their expected date of retirement, Salsbury said. Most people are open to or expecting to work during retirement. Unfortunately, what they are ignoring is that about 40 percent of the people who retire every year don’t do so by choice.

They are either forced to by health or by changes in the workplace. So I think there are still some incorrect expectations.

Boomers might need to adjust their expectations even further, then, looking for work outside their field and even considering part-time jobs that pay much less than what they earned before they reached the age of retirement.

Repairing the damage

But what if you have a client who didn’t save enough, wants to continue their lifestyle into retirement, and doesn’t want to work? Are they deluding themselves? Or is it possible for a boomer who is struggling financially to salvage their finances?

Dr. Bill Roiter, a clinical psychologist and the author of Beyond Work: How Accomplished People Retire Successfully, said boomers are much more hesitant to become involved with financial advisors now than they were before the financial crisis.

The new uncertainty and insecurity has reduced boomers’ willingness to make financial decisions, Roiter said. They are looking for good financial products, but they’re most concerned about trusting those that provide financial advice. Once a boomer agrees to work with an agent or advisor, what products will they want, and, more importantly, which products can help dig them out of their crisis?

For more of Roiter’s research on what boomers look for in a financial advisor, visit What Boomers Want .

Boomers want flexible options with shorter time horizons, Roiter said. As financial well-being has declined, physical, social, and personal well-being [have] climbed. The products that link financial well-being to improved physical, social, and personal well-being are of great interest to today’s boomers.

For anyone who yet hasn’t retired, Denning believes there is hope, as long as agents can help these consumers make the right choices. Agents should look at maximizing savings opportunities in the remaining years before retirement, as well as conducting a review of the client’s spending habits to see where cuts can be made. Then, he said, you need to find a reasonable retirement date given every other factor.

Denning is also a strong advocate of income annuities and retiree health insurance.

Income annuities are the only product out there that can provide the maximum level of retirement income, he said. With retiree health insurance, it used to be about 55 percent of companies that offered it, and now it’s just barely north of 25 percent. So people who are thinking about retiring before they’re eligible for Medicare need to think about whether they can afford health insurance before they hit that magical [age of] 65.

No matter what path you recommend for your boomer clients, all the experts agree that the climate is changing.

Ten or 15 years ago, we talked about asset allocation, Reed said. Now, I think the conversation is going to change from asset allocation to product allocation, and that causes a great anxiety for some because they aren’t sure what products they should be investing in. As advisors, it’s our job to help them understand the challenges ahead and help them understand what their strengths are. We have to give them confidence that they are going to be able to make it.

Reed also noted that some of the changes in the retirement conversation came about as advisors became more comfortable asking the tough questions, such as, Are you going to be able to live on less? and Do you understand that you might have to work in retirement?

Denning and Roiter both stressed the importance of all advisors — whether insurance agents or financial planners — encouraging their boomer clients to save money for retirement. According to Roiter, the traditional wisdom states that retirees need to seek a replacement income of 65 percent of their current earnings. Today, however, consumers should realistically look to replace 80 percent of their income — yet only one-third of boomers were even hitting the 65 percent mark to begin with.

Denning agrees that most boomers aren’t saving enough.

People say it’s my job to find the solution for individuals, he said, but when I say people should be saving 15 percent and they’re only saving 7 percent or 8 percent, I can’t come up with a magic number.

Even though the outlook may appear bleak, there is hope for the boomer market.

We can’t avoid a segment of the population and throw up our hands the way many of them have, because there’s too much uncertainty, Reed said.

With the right mix of products, advice, and trusted guidance, you can help your boomer clients move safely into retirement. They may need to delay retirement by a few years or sacrifice some luxuries now in order to save more for a comfortable future, but in the end, you will have satisfied clients who can recover from their shaky financial past.

Those who were hurt very badly in such a short window were hurt more than they ever have been probably in their lives, Salsbury said. They’ll have to readjust their expectations and curtail their lifestyle and spend more wisely. They’ll have to educate themselves a bit more.

Heather Trese is the associate editor of the Agent’s Sales Journal. She can be reached at HTrese@AgentMedia.com or 800-933-9449 ext. 225.