The coming age wave: how to help baby boomers manage their wealth.

As Social Security enters its 70th year, the program has become the topic of fierce controversy: Can the system survive under the weight of the 77 million baby boomers who will begin reaching retirement age this decade? In peril or not, do we dare risk retooling a program that more than two-thirds of all seniors depend upon for more than 50 percent of their total retirement income?

This quandary is just one component of a much larger issue. Every aspect of retirement income--from broad social policy to personal retirement--boils down to a discussion of risk management. There will always be people who, because of limited resources, poor planning or unanticipated financial crises, face insolvency at some point in their retirement. The Social Security program was never intended to be a comprehensive solution for managing this risk. We must seek broader solutions.

Just 21 percent of workers in private industry are now covered by defined benefit pension plans, which prior generations counted on for a lifetime stream of income. At the same time that the boomers can have far less confidence in company pensions and government safety nets, they are likely to live longer. For a healthy couple in their mid-60s, there is now a 50 percent chance that one spouse will live beyond his or her 92nd birthday.

For years, financial planners have been telling clients to create a retirement nest egg that will be sufficient for the average life expectancy of 85 years. However, half of the people who follow this advice may very well outlive their money.

Even if a cure for the ails of Social Security were to be enacted tomorrow, it would offer little relief for these enormous financial risks. Social Security, by itself, cannot today furnish a secure retirement for seniors: Current benefits cover only about 40 percent of the average American's post-retirement income needs. Regardless of how the Social Security program is modified--by raising the eligibility age, through progressive indexing or with the addition of private accounts--most retirees can count on further reductions to their lifetime benefits.

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No single program can address retirement income shortfalls. But we can begin by:

* Simplifying retirement investment programs. The new "automatic" 401(k) accounts, where participants delegate all decisions to professional investment managers, are proving extremely popular and have been dramatically effective in boosting long-term savings rates. These programs, offered by a growing number of employers, help define the retirement goals for each participant, select investments, specify contributions--and adjust these factors over time, as necessary. Managed 401(k) accounts put inertia to work for individuals, instead of against them, since they only need make one choice--to participate.

* Replacing lost sources of lifetime income. Traditional pension plans (and Social Security) have two huge advantages over other retirement income solutions. First, they offer a regular paycheck as long as someone lives. Second, once an individual's base retirement income is assured, he or she is better able to take greater risks--and seek better returns--in personal investment accounts.

We are just now seeing the emergence of a new generation of annuity products that, in effect, offer retirees the option of creating their own customized lifetime pension plan--a monthly paycheck they cannot outlive. One new variation, specifically designed for longevity protection, pays higher monthly benefits (up to five times the initial amount) after a predetermined number of years. With the assurance of a guaranteed lifetime income, seniors can spend down their nest egg savings more aggressively--and live much more comfortably--during the earlier, more active years of retirement.

If the acrimony over Social Security serves any good purpose, let's hope it inspires more comprehensive solutions to the broader challenge. The alternative is not pleasant: an entire generation repeating an all-too-familiar lament, "If I knew I'd live this long, I would have taken better care of myself."

Sy Sternberg is chairman and chief executive officer of New York Life Insurance.