The Real-World Worries of Transition Boomers

How financial professionals can help stamp out the worst of their woes

by Matthew Gray, FSA, MAAA

Mr. Gray is vice president of Product Innovation at Allianz Life. He is a Fellow of the Society of Actuaries, a member of the American Academy of Actuaries, and holds a Series 7 securities license.Connect with him by e-mail:

In 2008, pre-retirees between the ages of 49 to 59 were building their retirement savings before having the rug pulled out from under them. Today, these clients are Transition Boomers, ages 55 to 65, and are five to 10 years from the start of their retirement.

Many of these clients may be ready to transition their focus from growing their retirement nest egg to generating retirement income. Before making the transition, there are common, real-world worries that financial professionals may need to address with their Transition Boomer clients. While financial professionals address these real-world concerns, they can also offer innovative products that provide options for balance and a level of protection that today’s Transition Boomers commonly seek.

Impaired Assets

Like many Americans, today’s Transition Boomers experienced huge impacts on their retirement assets when the Great Recession of 2008 hit. While this group of boomers has had some time to rebuild from the market volatility experienced in 2008, many said they still worry about their future. In the 2013 Allianz Life Investor Market Perceptions Study, 1,012 respondents with $200,000+ in investable assets were asked about their attitude toward investing. Of the respondents surveyed, more than half (54%) of respondents ages 45-68 said they sometimes worry about becoming penniless.

The Great Recession probably has much to do with this worry because of the negative impact it made on Transition Boomer’s retirement savings. Forty percent of boomers over the age of 50 who were in the labor force during the recession experienced income declines (“Boomers and the Great Recession: Struggling to Recover,” AARP Public Policy Institute, 2012). In response to the loss of income, most pre-retirees’ retirement plans changed – 80% of this group said they expect to retire at a later age than previously planned.

Even if Transition Boomers were able to rebuild from asset and income losses by working or changing their retirement game plan, financial professionals may need to quell some additional worries to ensure they do not become penniless during retirement. Specifically, Transition Boomers thought rising healthcare costs would have the greatest effect on their retirement outlook with market volatility coming in second as having the greatest negative effect (2013 Allianz Life Investor Market Perceptions Study). Financial professionals can play a key part in addressing the economic and market influences that Transition Boomers face today. They can also help Transition Boomers deal with some key retirement income risks including inflation, longevity and market volatility to help manage their retirement income needs.

Healthcare costs rising, clients living longer

Let’s first consider healthcare inflation and how it factors into the retirement income equation. Between 2000 and 2010, health care spending per person grew at an average rate of 5.6 percent per year, which outpaced both annual inflation (rising at 2.4 percent per year) and gross domestic product rates (rising at 2.9 percent per year) (AARP Public Policy Institute, “The Effects of Rising Health Care Costs on Middle-Class Economic Security,” 2013).

These rates could continue to increase as people live longer than in the previous decades. According to the U.S. Social Security Administration, about one out of every four 65-year-olds today will live past age 90, and one out of 10 will live past age 95. So, having a retirement income strategy in place will help secure the living standards for clients in the decades ahead.
Financial professionals can help Transition Boomers deal with healthcare inflation by first generating retirement income from savings to help cover their planned expenses.

Then, give clients the possibility of increasing that income during retirement through the purchase of an annuity for protection against a negative retirement HIT (increases in healthcare costs, inflation and taxes). Annuities are designed to meet long-term needs for retirement income. They provide tax deferred growth potential1 and the reassurance of a death benefit for beneficiaries during the accumulation phase and a guaranteed stream of income at retirement. In order to help protect clients from running out of money during retirement, balance is key. Clients may consider using riskier equity investments designed to accumulate enough assets for retirement and balance that with the need to protect their portfolios against large losses.

Forty percent of boomers over the age of 50 who were in the labor force during the recession experienced income declines. In response to the loss of income, most pre-retirees’ retirement plans changed - 80% of this group said they expect to retire at a later age than previously planned

On the risk side, clients may consider using equity investments while on the protection side, there are fixed income investments like high-quality, shorter-term bonds, bond mutual funds, CDs, fixed annuities, fixed index annuities or good old fashioned savings. For increasing income needs, fixed index annuities may be an option to explore because they offer the provisions that could lead to an increasing income during retirement years. The opportunity for increasing income may be built in or available through optional income riders for an additional cost. Annuity guarantees are subject to the financial strength and claims-paying ability of the issuing company.

Managing market volatility with a balanced portfolio

In addition to addressing inflation and longevity issues, financial professionals with Transition Boomer clients may need to manage market volatility as they build retirement income. Transition Boomers more often than not are seeking balance – 76% of survey respondents reported that they want to balance the potential growth of their assets with some level of protection. And, 84% said they feel they should always have some kind of protection from loss even if it reduces their potential gain. As a financial professional you may find success by offering products that give this balance. More than half, 66% of Transition Boomers, believe they would purchase a retirement product that balanced risk and potential gain in order to increase their savings (2013 Allianz Investor Market Perceptions Study).

Seeking Balance

It’s clear that Transition Boomers are looking for a balanced portfolio, and 80% assume the market will continue to be volatile as they prepare to retire in the next five to 10 years. To help them with their need for balance as Transition Boomers accumulate retirement income, financial professionals should consider products that offer both a level of protection and a chance at growth. The insurance industry is working to create innovative products that may offer this balance.

Enhanced options are available and will continue to come to fruition across the insurance industry. One product that may help address accumulation needs is the index variable annuity (IVA). This is a new type of variable annuity that may help consumers who are looking for some potential gains from market growth subject to a cap in exchange for a level of protection from down markets through a buffer.

Keep in mind that IVAs won’t be appropriate for every client and that product fees, charges and expenses on IVAs may be higher. There are a variety of choices available on IVAs in the industry such as index allocation options and traditional variable investment options. Because IVAs are meant to help with asset accumulation and provide a level of protection, they also offer a possible solution for a part of their overall portfolio for those seeking more return potential than they may get from more conservative investments. Innovative products like IVAs may play a role in helping clients create the portfolio that they seek.

Like most Americans, Transition Boomers were dealt a heavy blow when the Great Recession came. At the time, this group may not have been at the stage where they generated their retirement income. Instead, they needed to lick their wounds and build retirement savings that may have been lost. Today, Transition Boomers may be ready to make a move on the retirement savings they’ve built. It might be time to focus on their retirement income strategy over the next five to 10 years. While they may still have concerns from what they experienced, a financial professional can help put them at ease and take a step forward. Help give them balance by providing a retirement income strategy for their future.




1. Withdrawals are subject to ordinary income tax and, if taken prior to age 59 ½, may be subject to a 10% federal additional tax.
Products are issued by Allianz Life Insurance Company of North America. Variable products are distributed by its affiliate, Allianz Life Financial Services, LLC, member FINRA, 5701 Golden Hills Drive, Minneapolis, MN 55416-1297. 800.542.5427