mature market: Reaping What They've Sown

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Financial service companies are changing gears as the burgeoning mature market shifts from building wealth to managing assets.

Looking for a lucrative market? Forget about those fickle tweens and teens, those twentysomethings and thirtysomethings. Consider a population in which the median net worth is more than double the national average ($86,300 compared with $37,600), and in which 17 percent have a net worth of more than $250,000. This population is, of course, made up of 65-plussers, the overlooked step-children of American consumer business.

But now some marketers and advertisers are starting to take stock of senior power. After all, the mature market is expected to grow by 30 percent in the next 20 years, as the omnipresent baby boomers move into retirement mode. In fact, today's 50-plus market, which includes the leading edge of the baby boom, already accounts for 80 percent of the personal wealth in financial institutions, more than $2 trillion in income, and 50 percent of all discretionary income ($13,286 per household), according to Age Wave, a marketing firm based in Emeryville, California, that specializes in the mature market.

No wonder, then, with all that dough up for grabs, that the financial services sector is undergoing a major shift in attitude. Until now, their marketing focus has been mainly on advising clients about how to accumulate wealth. But as the first wave of the Me Generation reaches retirement age, these clients are faced with the challenge of living off all the money they've successfully socked away.

"This is the youngest, healthiest, wealthiest, best-educated, most ambitious group of retirees ever," notes Michael Stein, author of The Prosperous Retirement. And with life expectancy currently increasing by 1 percent per year, up from just 0.1 percent at the turn of this century, says Stein, many of those now retiring could spend as much time enjoying the good life as they did in the workplace. Will they know how to make their money last?

Many people already beyond retirement age will attest to the overall lack of information and financial products available that would help them manage their nest eggs. Those who have hit that so-called "retirement inflexion point" are finding that most financial-service marketers have been slow in converting their products from a wealth-building to a wealth-management mode. In fact, the financial service industry has done very little to address retirees, says Robert Powell, director of Dalbar, Inc., a financial services consulting firm in Boston. "Companies are desirous of attracting this market, but I don't see the follow-through: the large-type prospectuses or a special group of sales or marketing personnel to cater to the retired market."

However, some companies are blazing trails into the emerging nest-egg management field - some through partnerships with established senior-trusted brands. Charles Schwab & Co. recently announced a strategic alliance with SeniorNet, a nonprofit group dedicated to teaching seniors how to use computers and the Internet. Schwab will work with the group to provide Web investing seminars and information to SeniorNet members through the organization's learning centers, and will help develop content and tools for SeniorNet's Web site. Merrill Lynch is also providing sponsored financial content for, a senior-oriented Web site, says spokesperson Wendell Collins. In addition, Merrill Lynch formed the Retired and Assistive Client Services Group earlier this year in order to focus on the unique needs of today's growing number of seniors, she adds.

Recently, T. Rowe Price (TRP) introduced a service called the Retirement Income Manager aimed at helping retirees plan for future income needs. By analyzing clients' financial priorities - whether they want to max out their income, for example, or leave a little something for their heirs - as well as hundreds of market-return variables, the program estimates how much money a person can safely take out of a retirement account each month. It also calculates the likelihood of outliving one's assets. The recommendations are then reviewed by TRP financial planners, and the result is a plan with a 70 percent or greater chance of being sustained throughout retirement, TRP says. The program's $500 cost includes an annual review for those who sign TRP on as their retirement strategy advisor, and is targeted to younger retirees who've saved from $250,000 to $1 million, according to TRP spokesperson Rowena Itchon. "Over that range, somebody who has large assets is more likely to go to a [certified] financial planner. But in the mid-range, they're probably underserved. This would be an appropriate service for them."

Not all planners agree that withdrawing a monthly set-dollar amount is the best strategy for long-term retirement planning, however. Traditional income distribution methods - taking systematic withdrawals from stocks and mutual funds - can work against investors if the market happens to be down come withdrawal time, says Heywood Sloane, principal with the Diversified Services Group in Wayne, Pennsylvania. And given the lack of income to replenish losses, retired investors aren't in a very good position to weather stock market volatility.

"Wealth builders can rely on average returns as a reliable guide for their strategies," says Charles Kadlec, managing director, J&W Seligman & Co., Inc., an investment management and advising firm. But for "harvesters," as Seligman refers to retirees - or anyone who is managing a pool of assets over a length of time - short-term market volatility can be brutal.

To help retirees come up with a realistic withdrawal and investment plan, Seligman developed a service called Harvester. The first step is to distinguish between an investor's needs - such as taxes, mortgage payments, and medical care - and wants, that is, discretionary spending that could be postponed. Then, just enough money to cover all of an investor's needs is taken out as a fixed-dollar amount each month. For discretionary spending, though, a fixed percentage is used, so that more money is available when the market is up, but less is available when the market is down. In addition, the Harvester service suggests an appropriate portfolio of cash, bonds, and stock funds for each investor in order to balance his acceptable level of risk with enough performance to beat inflation over time.

Of course, the insurance industry has long been interested in the mature market, but the new push is to lower the age of the average buyer and tailor products to a unique generation of retirees. Long-term care (LTC) insurance is growing in popularity, notes Stein, although he adds that many Americans still are unaware of such policies. But since increased longevity comes with a greater chance that more Americans will eventually live in nursing homes, insurance providers have begun a massive marketing blitz for LTC policies, he says.

The risk of long-term liabilities for insurance companies is increasing, however, since it's even more probable that the soon-to-be seniors will opt to enter assisted-living facilities at a younger age than they would think of entering a nursing home. "The whole area of elder care is a rapidly evolving field. The fact that there are very few nursing homes being built, and what's being built are assisted-living facilities, represents an enormous change that the industry is trying to digest," Stein points out.

John Hancock Mutual Life Insurance Co. starts a large percentage of its new agent advisors in the mature market: they focus on LTC insurance training immediately after their requisite life-insurance training. The company has begun to address the long-term-care needs of today's seniors as well as their children through an informational seminar program, says Dan Ouellette, vice president of retail marketing and corporate communications.

In addition to undertaking its own custom research, as well as partnering with the National Council on Aging for its semiannual study, John Hancock recently launched an annuity product that includes an LTC feature, says Ouellette. Such combination products - which address buyers' changing needs by evolving over time (the LTC feature kicks in after seven years), without requiring buyers to constantly purchase new products - will be standard fare in the future, notes Ouellette.

Tailoring products to the unique concerns not only of new retirees as a group, but also to specific segments of the senior market, is the strategy being employed by Physicians Mutual Life Insurance Co. "We're trying to take a holistic approach," says Don Van Scyoc, a vice president in charge of the "underserved mature market" division. Van Scyoc points out that not all seniors of the same age have the same needs, which vary depending on health, income, and other factors.

To pinpoint the group's varying concerns, Physicians Mutual segmented its database of older customers by analyzing its own proprietary data as well as insights gained from in-home interviews. What it learned was that although the need for LTC insurance seems universal, many seniors interviewed said that they've managed all their lives without long-term planning and don't feel they need a full policy. Instead, says Van Scyoc, that segment of the older population may be open to buying home-healthcare benefits.

Many local offices of financial service providers have made a practice of focusing on the 65-plus market as well, particularly in the area of estate planning, notes DSG's Sloane.

MetLife, for instance, currently has 38 market "champions" across the country who specialize in the mature market, says Bruce L. Grunwald, mature market manager for MetLife's Met OASIS program. In addition to having to demonstrate a certain level of success, including at least 25 percent of their business coming from the mature market, these specialists also undergo training twice a year to sharpen their senior-oriented communication skills (such as using larger type and easier-to-see colors in printed materials) and to learn about new retirement income distribution strategies, says Grunwald. For example, when retirees reach age 70.5 and are required to start taking money from their tax-deferred IRAs and pension plans, they might be advised to avoid the tax bite by turning ownership over to their children or grandchildren, he notes.

Second-to-die insurance policies, designed to pay federal estate taxes on assets going to seniors' children or grandchildren, are also becoming increasingly popular as a way to transfer all that accumulated wealth intact to the next generation, says Grunwald. Twenty years from now, may be boning up on how to make their money last into their nineties and beyond.

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