The next generation of retirement advice

Peter Walsh

For several years Putnam Investments has been conducting an annual survey in the US, covering subjects such as how people prepare for retirement and the issues that face them.

This year, in conjunction with brillient!, we have conducted a similar survey in Australia, and it will be interesting to see what differences and similarities there are when comparing Australian retirees with those in other countries.

Putnam’s ongoing studies show that advisers do a very good job in preparing their clients to anticipate retirement needs.

My own observations when overseas suggest that Australian planners, compared to those in other countries, are particularly well advanced.

However, our research indicates that there are a couple of trends in the US that are perhaps not as clearly defined or understood in other countries, including Australia, but which could be expected to increase worldwide over the next several years.

One of these trends is the recognition of the increasing need for long-term care, as people live much longer than previous generations.

A likely result of this is that it will cause unexpected problems for those about to retire as well as for new retirees who, for the first time, may be expected to look after not only their own offspring but also their parents.

Indeed, while 40 to 50-year-olds are often called the ‘Me’ generation, at Putnam we believe a more accurate description is the ‘We’ generation.

The Putnam research in the US indicates that the people retiring in the next decade have a greater sense of responsibility towards caring for both their children and their parents, as well as recognising the need to fund their own retirement.

Increased life expectancy means that when many people retire in the next few years they may well have one or both parents still living, many with a life expectancy of another 10 to 20 years.

In the US, there are already products on the market that cater for this — and a corresponding rise in the marketing of long-term care policies to provide funding for the care of parents of people about to retire.

Female clients in their 40s and 50s in particular appear to be interested in such products, as our surveys in the US suggest that the onus of parental care tends to fall on daughters.

Indeed, in recent years in the US there has been an upswing in the number of female clients in this 40 to 50 year age group who are already caring for their own parents. Usually, this is the age where the focus is on accumulating funds for one’s own retirement.

As other studies have shown, women tend to take more time out of the workforce than men, usually to raise children, which means they often save less for retirement. This creates particular problems for women at retirement age if they are expected to also support their parents.

Putnam’s retirement studies uncover another issue that financial planners in the US are emphasising to clients in pre-retirement mode: the impact of healthcare costs in retirement.

Rising healthcare costs, and increased healthcare needs for retirees seeking to prolong an active lifestyle, clearly have a major impact on retirement savings needs.

In this regard, we in Australia have the major benefit of a safety net that is not available in many other countries, including the US. However, I believe healthcare will be a much greater cost item in retirement here than many expect.

In countries such as Australia and the US, there will be increasing opportunities for retirees to access life-extending medical procedures and developments that improve the quality of life.

A major result of phenomena such as the need for retirees to support others (whether it is their children, or parents, or both), as well as the bigger slice of living expenses that healthcare is expected to take, is that more and more people approaching retirement age in America will continue with some income-earning work, or return to the workforce after retiring.

If this trend is seen in Australia, it becomes an additional complication that advisers will need to factor into their client programs and one that many clients approaching retirement will not necessarily have yet recognised or want to consider.

In other words, advisers and those clients who have already retired may recognise the reality that they need to continue working in some form in their retirement years, but this is less likely to have been recognised by pre-retirees yet. This makes it more difficult for their advisers to develop realistic plans for them.

It also emphasises another issue facing both advisers and their clients. Clients will need active advice and assistance for many more years than they may anticipate when they retire. It is no longer a case of developing a retirement plan that, with some adjustment from time to time, will last them the whole of their retirement.

At the same time, in the US many financial planners are approaching their own retirement, a situation that is mirrored in Australia.

These ‘baby boomer’ financial planners are seeking succession planning programs for their businesses to fund their own retirement plans. I know this is widespread in America, and the ‘changing of the guard’ is also a big issue in Australia.

Succession planning in financial planning therefore becomes a big concern for clients when they see the experts, who have helped them for the past decade or more, move into retirement. This often happens at a critical time in their own financial planning program, as they are in the same age group.

The better-prepared financial planners will have started communicating this to their clients five or six years before their own departure from the business, stressing the benefits of having a younger financial planner available to provide continuity and assistance for years to come.

However, the plan for succession needs to be articulated to clients in good time — how it will work and how it will affect them — to reinforce in clients’ minds the need for ongoing financial planning deep into retirement.

Peter Walsh is head of retail business for Putnam Investments inAustralia . The opinions expressed in this article represent the current, good faith views of the author at the time of publication and are subject to change.