databasics; mature market: Reaping What They've Sown

American Demographics, Dec, 1999

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 thirdage.com, 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.