Since the advent of the IRA in 1974, establishing a position on the "Retirement Market Map" has been a relatively simple choice. The key objective has been to maximize wealth accumulation, and the most important "retirement" question to answer is how to help clients build and accumulate more wealth, faster. Market volatility is the risk, and time is an answer.

A More Complex Map
As boomers retire, we will experience an "unwinding" of situations: families disperse, careers end or change, businesses will be sold or passed on to others, and residential real estate will be re-deployed or even liquidated. Time is no longer an answer, but instead, a critical part of the problem.

As a result, individual clients must grapple with providing unique, customized answers to questions such as:

• What to do with my wealth, my property, and my life now?
• Do I retire, semi-retire, start a new career?
• How much income do I need, and where does it come from?
• How can I contain health risks, for me and my spouse, over the next 20 to 30 years?
• Am I financially secure, and how long will that continue?
• Should I pass anything on to my children, and if so — why, how and how much?
• Where do I go to get answers to these questions?

This substantially more complex behavioral Retirement Market Map during the "unwinding" and income phase, is an even more substantial opportunity for financial service companies. The assets that will come into play will be measured in the trillions of dollars.

The Retirement Market Map
At DSG, we use a construct outlining four "Levels of Retirement Strategy" as one way to define relative competitive positions on the Retirement Market Map. The multiple questions that clients face cut across all levels of income and wealth — compounding the complexity of the map.

The four levels, as described below, summarize how/where various companies may choose to compete in the burgeoning retirement income market. Generally, the higher strategy levels will also include the lower level activities as well. There will be limitations or trade-offs at any level: while strategies at the lower levels satisfy a narrower set of client needs, those at the higher levels will be more costly and complex to implement.

Level 1: Product Strategy
Product Strategy is the most common of the strategic levels. For companies competing at this level, the transition from accumulation products to retirement income products tends to be relatively straightforward. During the accumulation phase, market segmentation is simpler. A client has, or does not have, the assets or income to take advantage of a product solution that will help them grow wealth. Comparisons across products and services are more direct. Past performance is known and ultimately can be compared across equities, annuities, real estate, returns on a business, and so on. Companies, both manufacturers and distributors, can more readily identify their markets based on simpler measures of income, wealth, age, and geography — and target their product strategies accordingly. Product strategies are well within the experience and proficiencies of all successful product manufacturers and distributors.

A Product Strategy also offers the easiest and most direct starting point for marketing in the distribution phase. Some accumulation products can readily be converted into distribution products (e.g., annuitization of a deferred annuity), while other income-oriented products are also being developed and introduced through existing distribution. Companies that choose to compete at this level already have the advantage of familiarity and proficiency with this type of sale.

Level 2: Retirement Income Strategy
As individuals approach the Retirement Inflexion Point™, they begin to appreciate the complexity of the equation they must solve. The simple calculation of X assets, drawn down at Y rate, will last Z years is often less than satisfactory. An alternative is to make use of a retirement income strategy. This entails a survey and review of their multiple investment and (investment oriented) insurance products, portfolios, income streams, and expected expenditures — then matching income sources and anticipated expenditures to gain an understanding of what strategies will work.

The two most significant controllable variables -- working longer and adjusting expenditures to meet income -- can be incorporated in a retirement income strategy. Few companies are currently proficient in supporting a broadly offered "comprehensive" approach to retirement income strategies. Those that are, take a planning and budgeting approach, spend significant time and resource on each client, and consequently target relatively affluent individuals.

Level 3: Retirement Financial Strategy
Individuals with a retirement income strategy have a basis to progress to a retirement financial strategy. Important though it is, income is still only part of the equation, and risk management is another. Risks come in many forms, depending on the composition and complexity of the individual’s wealth and income. Solutions can cut across many financial disciplines including investment, insurance, legal, tax, real estate, and business succession advice. It represents another step past investments and income toward a more holistic approach. It requires an integrated approach to managing wealth and risk across all asset and liability classes, and planning for a variety of outcomes over extended periods of time. Still fewer, if any, large companies broadly offer help with this step. There are some individual advisors, advisory boutiques, and trust companies who, with the support of a network of partners or strategic alliances, can currently address this strategic level.

Level 4: Total Retirement Strategy
Finally, at the most comprehensive level, is the total retirement strategy. This strategy extends beyond investment, financial, and risk management to include lifestyle, housing, and health management strategies. A total retirement strategy addresses lifestyle issues across all phases and life events of retirement. It recognizes the strong inter-connection between financial options and lifestyle decisions.

Initially it may entail employment and career counseling to focus on the practicality and tradeoffs between semi-retirement, starting another career, or travel and hobbies. Later, it may focus on selections between alternative housing arrangements such as independent home(s), downsizing to smaller home, retirement communities, or other living arrangements. Still later, it may encompass health care management and gerontology alternatives during retirement and in the final years. A truly holistic approach helps retirees with understanding and selecting lifestyle alternatives within the context of their specific situation.

Ultimately all retirees develop a total retirement strategy, by design or by default. The question for manufacturers, distributors and their intermediaries is who they can serve profitably today and who do they want to serve tomorrow in a competitive marketplace.

Taking Stock
This highly fragmented market is rapidly evolving as competitors at all levels experiment, test, and learn the nuances of reaching and serving each of the many segments. Success at each strategy level requires access to different capabilities and types of expertise. It is difficult to bring all the pieces together without a team (internal and external) of partners and alliances (formal and informal).

Just as individuals need to survey and review their multiple portfolios, insurance coverage, real estate and business investments, income streams, and expected expenditures to move from the accumulation phase to a retirement income plan, so, in a sense, do companies. The surveyed items differ, but include profile of customer base, available services and products, capabilities and linkages, market positioning and materials, expertise and training for sales and client services personnel. The review should inventory the disciplines (investment, insurance, banking, trust, legal, technology, administrative, gerontology, et. al.) and delivery systems required for each of the four levels of strategy — regardless of whether or not the firm has them in place today. The inventory needs to cut across all of the ‘silos’ in an organization, particularly in larger ones, to identify where requisite disciplines and capabilities are imbedded, and how or if, they can be linked effectively.

Such an inventory will help identify gaps and assess the probabilities and costs to modify capabilities for tomorrow. Whether an investment manager, insurance carrier, retirement plan provider, distributor, financial intermediary, or a service partner, these companies and their business models will be impacted by the unwinding and repositioning from the accumulation to the distribution phase of retirement. DSG

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