Baby boomer retirement wave opens up big business opportunities

From The Washington Business Journal:

When The Who released “My Generation” in 1965, proudly sneering, “I hope I die before I get old,” the band probably wasn’t thinking about all the opportunities that come with age.

And there are plenty to be had now that the baby boomer generation The Who was talking about is, well, old.

While economists have struggled for decades to determine the challenges created by tens of millions of baby boomers reaching retirement age all at once, many businesses have begun viewing that wave as a chance to cater to a huge demographic that is looking to get the most out of its later years.

In short, there’s a lot of money to be made.

Boomers are typically thought of as those born between 1946 and 1964, meaning they’re now between the ages of 53 and 71. By 2029, when all boomers are at least 65 years old, almost 20 percent of the U.S. population will be over 65, according to U.S. Census Bureau data, and the percentage will only increase from there — to 24 percent by 2060. In 2015, that group made up less than 15 percent of the population. Meanwhile, every other age cohort is slated to shrink in size going forward.

Here in Greater Washington, 12.2 percent of the region’s population was over 65 years old in 2016, according to data from the Stephen S. Fuller Institute at George Mason University. That’s up from just 9 percent in 2000. The region saw a 4.1 percent increase in the 65-and-older population between 2015 and 2016, compared with a national average of 3.2 percent.

Together, boomers drive about $7.6 trillion in national economic activity each year, according to AARP. That’s enough for Americans over age 50 to represent the third-largest economy in the world, the group said.

To go after such a large slice of the economic pie, businesses are rethinking their approach to the market to stay competitive.

As Gluskin Sheff & Associates chief economist and strategist David Rosenberg put it in a recent white paper, “If it’s all about ‘follow the money’ … then it is ‘follow the boomers.’”

Planning ahead

With so many boomers reaching retirement age, it should come as little surprise that financial planners and wealth managers have seen an uptick in business.

Joe Ready, head of Wells Fargo’s Institutional Retirement and Trust business based in Charlotte, says the influx of new clients he’s working with are facing challenges that prior generations didn’t have to think about. For one thing, boomers are living longer, meaning they’re going to need more money to maintain the standard of living they’re used to in retirement.

A 2016 report by the Government Accountability Office said most financial planners recommend retirees should try to structure their planning so they continue to receive between 70 percent and 85 percent of their working salary each month for the rest of their life. That can be hard to do if people put off retirement planning.

Among the challenges is anticipating health care needs. Kurt Rupprecht, a wealth management adviser with Northwestern Mutual’s K Street Financial Group in the District, said rising medical and prescription drug costs, fewer employer-sponsored retiree benefits and limitations of Medicare are impacting income and retirement savings.

Long-term care is also a risk factor, he said, with long-term illnesses not covered by private insurance or Medicare requiring more Americans to prematurely deplete their assets.

Fidelity’s Benefits Consulting group estimates that a 65-year-old couple retiring in 2016 will need an average of $260,000 to cover medical expenses throughout their retirement. That’s up from $245,000 in 2015.

Add to that the increased uncertainty about tax reform, a shifting regulatory landscape and the sheer number of investment options available to retirees — everything from 401(k)s and Individual Retirement Accounts to deferred-income annuities — and people in or approaching retirement can get a little lost.

“Planning for retirement can be confusing and emotionally challenging to do on your own,” Rupprecht says. “On the flip side, I frequently hear from my clients about the mental and emotional benefits of working with an adviser and creating a personal financial plan.”

Ready says baby boomers often have a clear idea of what they want to do in their retirement. “The last thing they want to do is outlive their money,” he says.

For many boomers, there are parental considerations as well. With today’s elderly generation also living longer, that only adds to the medical and cost-of-living calculations the soon-to-be retirees have to consider.

Edward Griggs, a trust and estates attorney with Womble Carlyle Sandridge and Rice in Winston-Salem, North Carolina, said the pressure on boomers to take care of their parents has prompted many to invest more time and money into ensuring their own later years are properly planned.

“Many clients we work with have seen their parents go through the probate process unnecessarily, so they often tell us, ‘I want to avoid probate court if at all possible,’” Griggs said.

Ready says the biggest area of opportunity for financial planners is the middle market. Unlike wealthier individuals, middle-market clients typically don’t have their own financial advisers. Indeed, some don’t get any financial planning advice at all — until they’re most in need.

“I’ve found it totally depends on the individual,” Rupprecht said. “Virtually everyone out there could benefit from having a financial plan, high net worth and the middle market alike. But good intentions are only enough to be get some people to take action on their own.”

A February report by Valley Forge, Pennsylvania-based Vanguard found that 20 percent of U.S. pre-retirees were approaching retirement with only informal sources of help or no assistance at all.

Making Money in Health Care, Social Media, Travel

Other sectors are betting big on boomers, too.

Health care companies and pharmaceutical manufacturers have been marketing heavily to boomers, banking on the idea that between longer life expectancy and more intense reliance on pharmaceuticals, product demand among boomers will expand dramatically in the coming years.

The Centers for Medicare and Medicaid Services projects that prescription-drug expenditures in the United States will grow by more than 6 percent annually over the next 10 years.

One change from generations past is that much of the marketing aimed at boomers is taking place online, playing to a more digitally savvy general population. A December study by AARP found that 70 percent of boomers regularly surf the web and 55 percent own a smartphone.

Boomers have already seen the high-profile rollout of companies like Stitch, which aims to address social isolation among older adults, and Jitterbug Smart, a smartphone with built-in health and safety services. Other companies like in-home care startup Honor Technology Inc. also are positioning themselves to capitalize on the growing number of boomers reaching retirement age. The San Francisco-based company, founded in 2014, had raised $62 million in funding as of last year.

Boomers’ longevity means they’re staying active for a lot longer as well. That’s opened up opportunities for the travel industry.

Henry Harteveldt, travel industry analyst and founder of Atmosphere Research in San Francisco, says boomers are driving demand for more activity-focused travel packages. More and more travelers want to do things like learn to cook in Italy, take a painting class in France or try their hand at archaeology in Peru, Harteveldt says.

Yet a common mistake many travel companies make is to take boomers for granted, Harteveldt says. In recent years, the majority of marketing campaigns and advertisements have focused on millennials rather than boomers.

“That makes sense up to a point; you don’t want to ignore an emerging market,” Harteveldt says of the coveted millennial crowd. “But you also don’t want to ignore another group of consumers that are probably better positioned to enjoy travel and tourism.”

How those connections are made is important, too. Rupprecht of Northwestern Mutual said he’s found clients want trusted professionals who can provide “the best product solutions, planning process and technology platforms.”

“I think the fusion of technology and a personal relationship is the best way to engage with all of our clients,” he said, “including boomers.”

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