generalize about the baby-boom generation, but there are seven key events that
nearly all of them will face as they move through the last third of their lives.
Unlike earlier, happier events such as getting married, having children, and
moving up the career ladder, some of these events may be anticipated with dread.
For this reason boomers may put off facing them. But lack of preparation can
make a bad situation even worse.Financial advisors who combine life planning and financial planning can do a
lot to help boomers prepare for the future. There is always the risk that your
counsel will not be welcomed by boomers who are in denial about some of these
serious life events, but you owe it to your clients to help them plan ahead.The terminology used here is rather blunt. You may wish to find more gentle
words to discuss these concepts when helping them plan for the following life
events:
1. Their parents will get old
Boomers whose parents are still living active lives will have to face the
fact that their parents will eventually get old. They should start thinking
about this now and begin gathering resources so they won’t be at a complete loss
when their parents can no longer function independently. There is nothing worse
than to discover that a parent has lost the ability to pay bills, make
nutritious meals, or seek proper medical care when a little attention and
advance planning can allow boomers to step in before their parents harm
themselves. Here are some of the things boomers should begin discussing with
their parents:
- Health status. As parents age and the possibility of medical
complications increases, boomers need to be fully aware of their parents’ health status. - Emergency planning. A plan should be in place to summon help
if an elderly parent falls ill. A personal emergency
response system can give a frail or medically unstable person 24-hour
contact with emergency services in case of a fall or other emergency. - Long-term care. Every family needs to consider the
possibility that the parents may someday become unable to function
independently. What type of
care would the parents want? What plans have they made to pay for it? - Power of attorney. By signing a durable
power of attorney for health care and a durable power of attorney
for finances, the parents can appoint someone to step in and make decisions
and execute financial transactions should they become unable to do so. Who do
the parents wish to appoint to carry out these functions? What should this
person (or people) know to be able to pick up the ball and carry out the
parents’ wishes? - Estate planning. Do the parents have a will?
Does an existing will need to be updated for new grandchildren or other family
members?
2. Their parents will die
Boomers will have both emotional and financial issues to deal with when their
parents die. Refer them to A Healing
Place for insights and resources that can help them with the emotional
issues. As far as financial matters go, they should begin preparing for the
following:
- The estate must be settled. Boomers who have never
experienced a death in the immediate family may not realize that there are many
steps involved in settling an estate. Knowing about these ahead of time will
help prepare them for their responsibilities. - Inherited assets must be managed. Financial institutions
across the nation are just waiting to swoop down on boomers who will be
receiving some trillions in inherited wealth. Don’t wait until after the
parents’ deaths to begin talking to boomers about how these assets should be
managed. Begin to incorporate the anticipated inheritance into the boomers’ own
financial plans, always keeping in mind that the timing and amount of the
inheritance can never be predicted with certainty.
3. They will fight to stay healthy
Boomers are starting to come to terms with aging, but serious illness is
still largely unexplored territory for most of them. More and more, boomers will
be paying attention to their health, either working hard to stay healthy or
managing chronic illnesses. Here is a glimpse of what’s ahead:
- Navigating the health care system. Boomers who have been
healthy all their lives will be in for a shock if they encounter insurance
deductibles, co-pays, and denied claims resulting from inadequate insurance and
lack of preparation for expenses they thought would be fully covered. For
example, a high-deductible policy may be a good financial move for a healthy
client, but he needs to be prepared to handle the deductible should an expensive
medical event occur. - High out-of-pocket costs. Even with private health insurance
and/or Medicare, many boomers will find themselves paying out-of-pocket health
care expenses. These may include premiums for Medicare Part B (outpatient care)
and Part D (prescription drugs) as well as the costs of alternative treatments
and other private-pay services for boomers who want the very best in health
care.
4. They will reach retirement age
Whether or not they ever plan to retire in the traditional sense of the
word—and many studies have shown that they won’t—the vast majority of boomers
will reach traditional retirement age. This is the age at which they may take
advantage of certain tax benefits and entitlement programs developed under the
traditional retirement system. Boomers who aren’t thinking about retirement as
such will still want to take advantage of them.
- Social Security. Normal retirement age is
the age at which full Social Security benefits may begin. Boomers may apply for
Social Security anytime between age 62 and 70. Help them determine the best time to apply based on
their life expectancy and income needs. - Medicare. To avoid a 10% penalty on Part B premiums, boomers
should apply for Medicare at age 65 unless they are covered by a health plan at
work. Refer them to the general rules for Medicare
eligibility and enrollment. - Tax issues. The IRS calls people age 65 and older “the
elderly.” Boomers are not likely to identify with this term, but if they can
admit to turning 65, they can claim an extra standard deduction for the elderly
and/or blind. Refer clients to IRS Publication 554,
“Older Americans’ Tax Guide,” for more tax issues that will come up as they
age.
5. They will need to manage multiple sources of income
Even boomers who say they’ll “never retire” will likely have multiple sources
of income that will need to be managed. These may include the following:
- Self-employment income. Boomers who leave their primary
careers to do consulting or freelance work will need to ensure that this new
form of income is adequate to meet their needs and that they make estimated tax
payments as necessary. They will also need to consider how their earnings will
affect their Social Security benefits by understanding the retirement earnings test. - IRA distributions. Whether they start these early under a
program of substantially equal periodic payments under Section 72(t),
or wait until they are forced to take required minimum distributions at 70½,
boomers will need advice and counsel on how to plan out their IRA withdrawals
over their remaining lives. - Investment income. Clients who are used to receiving regular
paychecks from an employer will need to shift their mind-set toward paying
themselves. That means carefully managing all investment accounts to ensure
sufficient inflation-adjusted lifetime income. - Annuity income. The purchase of an immediate annuity or the
election of an annuity over a lump-sum distribution from an employer-sponsored
retirement plan is a big decision that requires careful consideration of life
expectancy, income needs, and all available resources. Boomers should start
thinking about this now, weighing the pros and cons of the various forms of
longevity insurance and getting some idea of the amount of monthly income they
may be entitled to based on available assets.
6. They will get old
They can barely imagine it now, but like their parents, boomers themselves
will get old someday. And they—and their children—will have the same issues to
face as the boomers did when their parents were getting old. What types of
assisted living arrangements will they want to consider? How will they pay for
it? What can they do now to make this phase of life more comfortable?
Another term that is commonly used under traditional retirement and
entitlement systems that boomers tend not to relate to is “disability.”
Definitions vary depending on the program, but any boomer with a chronic illness
or condition may qualify for various private or public benefits.
- Social Security disability. Rather than waiting until age 62
for early retirement benefits, it may be more advantageous for a person who
meets the definition of disabled to apply for Social Security disability benefits.
See these FAQs for additional
information. - Private or military disability benefits. Clients should also
look into any benefits that may be available through their employers or former
employers or the military.
7. They will die
Boomers seem to be somewhat more open to contemplating their own deaths than
their parents’ generation, perhaps because they still see it as a long way off.
They can be lighthearted about it, writing their own eulogies and developing the
music play list for their funerals because they don’t expect death to come upon
them anytime soon. Advisors likewise might use a lighthearted, more updated
approach when talking to boomers about death.
- Life expectancy. Refer boomers to the Real Age website, where they can take a test to find
out their “real age” along with health tips that will help them “live life to
the youngest.” - Legacy planning. As they review their lives, boomers are
starting to consider legacy planning and ethical wills. This life-centered
approach to death can lead to some of the estate-planning tasks they should be
executing now, including advance directives and wills.
Boomers are a very different generation from the silent generation and the GI
generation. They will go through the same life events as these two previous
generations, but they will approach them far differently. It will be essential
for advisors to understand the generational characteristics that impact clients’
individual attitudes and preferences and lead them into the future in a way that
is right for them.
Resources
The Baby Boomer Generation, Aging
Hipsters
Turning Silver Into Gold: How to Profit in the New Boomer Marketplace
Boomer Consumer: Ten New Rules for marketing to America’s Largest, Wealthiest
and Most Influential Group
