Federal Reserve Chairman Alan Greenspan sounded the death knell, again, for the Baby Boom generation's hopes for some external help during their retirement.

Using uncharacteristically pointed language at a recent conference on the aging population, Greenspan exhorted Congress to act soon to limit future Social Security payments. Failing to respond now means that the country would face "abrupt and painful" choices down the road, he said.

The pressure on the 77 million Baby Boomers approaching retirement presents both a challenge and an opportunity to advisors.

The opportunity is that there are more potential clients as Boomers increase their savings. Advisors who find a cost-efficient way to capture those savings dollars will add clients. The challenge is that since so few have saved sufficiently, advisors are often the bearers of bad news.

"We probably have a bell curve dispersion of Boomer clients who are succeeding in becoming financially independent," says Susan Shackelford-Davis, a principal at BAM Advisor Services LLC, in St. Louis. "But the harsh truth is that many are still looking for external forces to help them reach their financial goals."

Advisors can only do so much to encourage savings, but professionals can answer some of the pressing questions that face those nearing retirement. "Probably one of greatest hungers is to find the definition of financial independence," said Shackelford-Davis. "For most, the goal is to maintain their current standard of living during retirement."

The outcome of the planning process is not always good news to clients or potential clients. Shackelford-Davis, her colleagues at BAM, and the CPAs affiliated with BAM Advisor Services employ a fairly typical method of helping clients make decisions. They get the investor's best guess of their situation, including current income, assets, and expenses. They take the cash flow that represents the desired standard of living in retirement. They create capital equivalents by applying the expected risk and return of various asset classes.

"More and more clients understand the truth that they're in control of their financial independence through their asset allocations, their savings and usage patterns," explained Shackelford-Davis. "Clients want to know the truth and some are valiant in dealing with the truth."

In reality, top financial advisors don't deal with the problem of Boomers not saving. By definition, clients seeking professional advice are those who have saved or are motivated to do so. "Everything I read says that Boomers are not saving enough," said James M. Luffman, CPA/PFS, of Chas Smith & Associates, in Lakeland, Fla. "But our clients are doing a good job of saving in their 401(k)s or investing in some sort of hedge like beachfront or lakefront rentals."

But Luffman reported that they have made changes over the last year at headquarters, and in their advice to the CPAs who affiliate with Chas Smith to offer financial services to their clients. "Starting at the end of last year, we started opening up lots of the new single 401(k)s," Luffman said.

The tax-favored savings structure allows greater annual contributions than other plans. If a husband and wife are both self-employed by a company that they own, each may put in $13,000, plus another 25 percent of income up to $50,000. That means the couple could contribute as much as $38,500 annually. "We couldn't touch a taxable account this size," said Luffman. "But with retirement savings, the investor is often transferring in some other tax-favored assets, plus they are making commitments to add to this account each year."

From little acorns ...

On a firm-wide basis, Chas Smith opened 40 accounts in December 2003, to get in before the year-end deadline. On top of that, their advisors have opened another 50 this year. Three quarters of these accounts are with clients new to the firm, and the volume of new accounts is about double the number in a normal nine-month period. The average account size is smaller than normal, but the advisors are working on the concept of planting small acorns. "Of course, we're not making money off these $13,000 accounts, but we tell CPAs to look at the big picture," Luffman stated. "This client is going to be with them for the next decade, and just this account will grow to around $200,000 with savings and some return."

The small accounts get the same advice as larger ones. While the CPA is the primary advisor, Chas Smith handles the asset management decisions and splits fees. All accounts are customized to the client's goals, but benefit from the asset allocation expertise at Chas Smith. Accounts up to $70,000 own only mutual funds; from that level to $130,000 have some exchange-traded funds and a few individual stocks. Accounts above $130,000 are separately managed.

Professional advice on investing is not always good news, especially to Boomers who haven't saved. Sticking to a consistent strategy for those who seek high returns may seem like very tough medicine. "Products are never the answer," said Davis. "There's the temptation with the promised higher returns from things like private equity or hedge funds. But studies indicate that the juicy performance numbers may not be what investors have been led to believe."

The hard truth of lowered risk premiums affects Boomers' outlook as well. Lower returns mean lower payouts and tougher choices. BAM bases client advice on the prudent withdrawal rate concept. Backed by hard data published in the February 1998 issue of the AAII Journal, in what's become known as the "Trinity Study," Shackelford-Davis and her colleagues plan for a 3.5 percent to 4 percent retirement income withdrawal. "The study suggests that the rate is between 4 and 5 percent, but for the near term, the rate must be reduced because of the lower risk premium."

Lower or no, Social Security income is a politically charged issue, but one that Boomers can't afford to ignore. Shackelford-Davis, who identified herself as one of the aforementioned generation, admits that she doesn't know if her age group has saved enough or is aware enough of the problem. "I suspect that many still hope that something other than saving money will come to bail them out," she said. "But ultimately they'll have to come to grips with the fact they need to make the choice between deferring gratification now or not living at the same standards later."

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