Why advisers should never use the R-word

People aged 55 and over do not form one large, homogenous group, and the most successful financial planning firms will be those that learn how to accurately segment and communicate with the different parts of the market, according to Bernard Salt, a demographer and partner of KPMG.

Speaking at an event hosted by Challenger, Salt said that in the coming decade there would not only be a “volume shift” of people entering their 60s, “but also a value shift” in that age group.

“If you’re selling…to a 60-something Baby Boomer over the next decade, never use the R-word,” Salt said.

“Baby Boomers will never retire. Their parents retired; old people retire; obsolete people retire. Baby Boomers, however, will do a seachange, a treechange, they’ll engage in a portfolio lifestyle.

“The marketing, the language, the way in which you orientate to and engage the Baby Boomers over the next decade must profoundly change, as Baby Boomers re-write the narrative of how you live your life between 55 and, say, 70.”

Salt said that financial services and financial planning firms generally talk about the “the 55-plus population”.

“I think that in financial services and financial planning, you should be looking at a finer articulation of that market”

“I actually don’t think that’s the way we should be looking at this in the future. You have childhood, you have teenage years, you have household formation, you have mature families – all the demographic segments up to the age of 55 you see fine detail, and then 55-plus is lumped into one great bucket.

“I think that in financial services and financial planning, you should be looking at a finer articulation of that market.”

Salt said there are key triggers for financial decisions that occur throughout someone’s life that planners should recognise and use to define their value proposition.

“When you stand back from these four segments, it’s almost like bringing the segments into focus,” he said.

“It’s not a ‘55-plus’ bucket. You should have a separate marketing strategy, a separate set of language, a separate set of goals in order to address the financial issues that are specific to, and the values that reflect, these people and their time in life.

“Not only are there market segments beyond the age of 55 that financial planners need to be focused on, but when you think about it, I think decisions around financial planning – which bank, which superannuation scheme, do I sell my house, do I do this, do I do that? – respond to what I call ‘life triggers’.

“If you can identify what those life triggers are, particularly with these market segments, then you are better aimed to connect in with the market segments that I think are going to blossom over the next decade or so.

“These are the sorts of discussions that I think would connect with people at different times in life.” (See Box.)

“You cannot regard the 55-plus population as one big bucket, that I think financial services industry has focused on previously. We will see a finer granularity and articulation of different market segments. You need to understand which segment to focus on, understand where the triggers are, and make sure you’re delivering the right product at the right time to the right market segment.”

Salt said the simultaneous volume- and values-shift likely to take place over the next decade or so was a natural continuation of trends that started 80 years ago, or longer.

Salt says that in 1931 the average Australia lived for 63 years. The qualification age for the Age Pension was 65, “so you probably dropped dead two years before you got a pension”.

“The other thing to note is that in 1931, you’re a ‘child’ for 14 years, and then you’re an adult,” he said. “The lifeform we now know as ‘teenager’ did not exist in 1931. Childhood, adulthood, old age and death – that’s the way it worked 80 years ago, and you’re an old person at 51 or 52.”

By 1971, life expectancy had kicked out to 71 years. That meant six years of retirement (that is, after the age of 65) had to be planned for “either by the individual, or by the state”.

Salt said that simple development “underpinned the logic of financial planning, if you like; it certainly underpins the logic of superannuation”.

“There was no need to plan for retirement in our grandparent’s time, because you dropped dead in the workplace, whereas by the 1970s there was six years in retirement,” he said.

“The other shift that has occurred by 1971 is that the Baby Boomers have come along and they’ve invented a transition phase between childhood and adulthood, called the ‘teenage’ phase. And you’re now not an old person until you’re well into your 60s.

“Let’s kick it forward another 40 years, to 2011, and life expectancy for the average Aussie has kicked out to 82: 83 for women, and 79 for men. That’s 17 years in retirement that has to be planned for and provisioned for, either by the individual or by the state, although the most common age of retirement for an Australian is not 65, it’s 58. That is, 24 years in retirement. Statistically, if you make it through to 58 you’ve got more than 24 years, you’ve got about 27 years in retirement.”

Salt said Baby Boomers were unlikely to “sit at home and babysit the grandkids.” Instead, they would “re-engineer that space”.

“And that is what I think will be the major social shift we’ll see over the next decades, as Baby Boomers extend their working life beyond 55, beyond 60, perhaps beyond 65,” he said.

“Baby Boomers will do it differently – they’ll organise their work around their life, rather than their life around their work, working five days, then four days then three days then two days then one day per week.

“There’s a new concept coming out of California. They’re calling it the ‘portfolio lifestyle’: work two days a week, play golf one day a week, do some volunteering on another day of the week, do something with your spouse, invest in your relationship – it’s a bit of this, a bit of that. It’s simply a better business model than the 20^th century notion of working to the age of 65, getting a gold watch and retiring.”

LIFESTYLE TRIGGERS

Age Triggers
What drives the different age groups
40: Divorce; teenagers; work peak; work frustration
50: Divorce; kids leave home; health scare; inheritance
60: Retirement; children marry; death of friends; seachange
70: Grandchildren; children divorce; death of partner
80: Power of attorney; institutional care
90: Spirituality
Source: Bernard Salt