Video: Boomer Insurance

updated 9/28/2006 4:35:13 PM ET 2006-09-28T20:35:13

When the fiscal year draws to a close at the end of this week, the Bush administration will tout a smaller budget deficit. That's largely due to an unexpected increase in tax revenue this summer.

But government accountants still warn that the deficit is unsustainable and that Social Security is still in danger. Now with 78 million baby boomers at the door of collecting from the government-sponsored retirement fund, one industry is jumping at the chance to come to the rescue.

Today, the retirement cushions of the past – including Social Security, Medicare, and defined benefit pension plans - have lost their air and left many baby boomers in danger of a hard landing.

"I think today's generation of baby boomers is going into retirement with a longer horizon and they're going to have to be more self sufficient,” said Scott Sleyster, executive vice president of Prudential Financial’s retirement services unit.

Enter the insurance industry, not life insurance, but longevity insurance.

“Today, baby boomers find themselves with a 401(k) being the dominant source of retirement assets,” said Aaron Fried, an actuary with MetLife. “And so the trick is how they turn that pool of money into income for life that they can live off.”

Major insurers like MetLife, Prudential, and Northwestern Mutual are creating modern products for boomers, like variable annuities that allow them to generate income while still protecting their nest eggs.

“What the insurance industry is really doing today is creating products that give people lifetime income solutions and guarantees,” said Sleyster. “But they also give them liquidity, they give them the ability to change their minds.”

With 78 million upcoming retirees, sitting on an estimated $7 trillion nest egg, it is a potential boomer bonanza for the insurers.

“You can kind of think of the baby boomers in retirement as the perfect storm scenario,” said Dr. Barbara O'Neill, a Rutgers University professor who specializes in personal finance.

Because life expectancy is longer and retirement benefits are in shorter supply. No wonder 56 percent of workers rank outliving their savings as their greatest retirement fear, according to a 2005 MetLife employee benefits trend study.

“Boomers used to be more concerned about accumulating money,” said O’Neill. “Now the big question on many of their minds is, ‘How do I make that money last.’”

The only problem is that while 83 percent of near retirees believe it is "very important" to generate income in retirement, barely 20 percent know how to do it, according to a workplace report on retirement planning prepared by Prudential Financial.

“I think the industry as a whole sees the need,” said Fried. “If you look at how many baby boomers are approaching retirement, you see how important it is.”

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