New Products Help Boomers Manage Retirement

By Katherine Reynolds Lewis
c.2007 Newhouse News Service

As the wave of aging Baby Boomers begins to crash on the shores of retirement, financial experts are rolling out new products and services to manage savings.

The good news is that the many companies competing for retirees' business likely will drive down the cost of retirement products as well as improving the variety of choices.

For instance, this fall Fidelity Investments and Vanguard Group each announced new sets of mutual funds structured to distribute consistent monthly payouts, aimed at helping retirees who want predictable income.

"You're going to see more products that are competing against the annuity market," said Robert Goodman, director of investments at Fairport Asset Management in Cleveland. "I'm very excited."


People soon discover retirement isn't as simple as receiving a check every other week. Not only do you need to understand which financial instruments meet your needs and offer good value, you must have a comprehensive retirement plan and continually monitor it to make sure you won't outlive your money.

"I thought it would be your golden years," said Patricia Dailey, 65, a retired teacher in Marietta, N.Y. "I thought it would be easy. It's not easy."

Dailey worked hard to understand her Medicare benefits, only to conclude that her prescription drug costs would be so high that she should continue paying for private insurance instead.

"This generation of retirees will face more complex retirement risks than ever before," said Fidelity executive Boyce Greer. The 78 million baby boomers, who will start being eligible for Social Security in January, control over $7 trillion in investments, according to Congress' Government Accountability Office.

It helps to get professional, independent advice when making decisions about retirement. But you should also look for community college or nonprofit courses that can help you plan and sort through the options.

"Some people try to sell, sell, sell and I'm a little skeptical," said George Davenport of Manlius, N.Y., 68, a retired executive director of the local YMCA.

You need to understand every transaction you enter into, and how it will affect your overall retirement plan. If something seems too complicated, ask for a better explanation or shop for a simpler solution.

"It's their personal responsibility to themselves and their family that they look under the hood," said Christine S. Fahlund, a senior financial planner with T. Rowe Price Group in Baltimore.

Fahlund recommends writing out in plain English what you expect the product to cost and accomplish each year.

There are major pitfalls associated with the three frequently mentioned retirement products: reverse mortgage, long-term care insurance, or annuity. Whether one is right for you depends on the price and your circumstances.

"They can be beneficial but they can be very devastating if they're done wrong," said Brett Wilder, Cincinnati-based wealth manager and author of "The Quiet Millionaire." "It should be in the context of a comprehensive planning program."

Financial experts typically advise against a reverse mortgage Ä a loan you don't have to repay as long as you live in your home Ä because it drains your equity, usually a retiree's only substantial asset, leaving no options if a medical or financial crisis forces you out of the home.

"Reverse mortgages, they terrify me," said Karen Schaeffer, a Rockville, Md., financial planner and chair of the Certified Financial Planning Board of Standards. "We're keeping somebody in a house they can't afford."

As for long-term care insurance, make sure you understand exactly what will be covered, any waiting period or deductible, the benefit period, and what happens if you can no longer afford the premiums. Sources like AARP offer buyer checklists.

Carol Spiegelman, a 62-year-old account coordinator for a jewelry company, doesn't think she or her husband will ever qualify for coverage under the policy they bought.

"If you have cancer you will never be able to use it because by the time you reach five out of the seven criteria, you'll be dead," Spiegelman said. "The only thing this really covers is brain: Alzheimer's, Parkinson's, spinal cord injury."

Misunderstandings about annuities, which are often loaded with complex features and options, cost Americans millions of dollars every year, according to the National Association of Insurance Commissioners. Deferred annuities in particular have led to horror stories about inappropriate products.

If you believe an annuity works as part of your overall retirement plan, it's best to look at the simplest and most common type: an immediate, fixed annuity, advised Jean Setzfand, director of financial security for AARP in Washington. Compare rates with a Web site such as www.annuityshopper.com or www.annuity.com, and read the National Association of Insurance Commissioners' education materials at www.insureuonline.org.

It's important to recognize that in exchange for an annuity's guarantee of a lifetime payment, you give up flexibility.

Indeed, any transaction that eliminates a risk to you also reduces your possible return. That's why many people put their retirement savings in a well-diversified portfolio of stock and bond mutual funds, which can be tapped for any emergency.

The rule of thumb among retirement experts is that you can spend 4 percent of savings each year, and your nest egg will continue to grow enough to offset inflation and market fluctuations, said Greg Daugherty, executive editor of Consumer Reports in Yonkers, N.Y.

In the end, no single transaction will eliminate the need for you to tally up your different sources of retirement income and expected expenses, and make sure they match. It's best to do this before you quit work, when it's easier to correct mistakes by saving more money.

"If you don't have a plan, you're probably going to fail," said Bernie Kiely, a Morristown, N.J., financial planner. "You don't get in your car and just drive, you've got to get a map first."

This article was originally published on Wednesday, November 7, 2007, by Newhouse News Service.