Boomers & Retirement Savings: The Good, the Bad and the Ugly, Part 1

Their cautious attitude and the relative guarantees underlying two-thirds of their retirement income (Social Security and defined benefit plans) led many members of that generation to stay away from equity markets. They appeared less interested in having control of their retirement assets and instead were more comfortable allowing the government and their employer to provide the guarantees and security they sought.

In addition, they had the benefit of a growing economy, defined by good employment in the manufacturing sector as well as opportunities from programs like the GI Bill. They also benefitted from rising housing prices and a stock market that performed fairly well, helping the personal savings portion of their retirement plan to grow. As a result, they entered retirement on solid financial footing, which allowed them to indulge their kids, the baby boomers of today.

Coupled with their parents’ financial security, boomers entered the job market with the wind at their backs. The growth of the technology and service sectors in the 1980s led to an abundance of white-collar jobs that offered lucrative incentive compensation. The economy and markets were strong and although DB plans were starting to go away, the birth of the 401(k) allowed for an easy way to save for retirement. As we moved into the ‘90s, the growth of the Internet created opportunities for online trading and individuals learned more about investing on their own. The housing market continued to rise, making home equity loans attractive and boomer consumption habits increased due to enabling from the credit card industry.

As a result, baby boomers approached the management of their assets in a decidedly different way from their parents. Growing up in primarily favorable economic times, and energized by solid economic growth for most of their early working years, baby boomers were often fearless and emboldened as investors. For the better part of the 1980s, 1990s and 2000s, many boomers focused on maximizing their rate of return in order to accumulate more wealth. Guarantees, however, were not necessarily a focus. Guarantees, or the lack of them, seemed to fall from our collective memories as did the stories told in history class of the Great Depression and bank failures. This lack of focus on guarantees meant any bumps in the road could cause significant problems to the retirement security of boomers.

Next week, the author discusses the Bad and the Ugly.

• For Boomers, It’s a New Era of ‘Work Till You Drop’
• Marketing to Boomers
• Annuity Solutions for Retirement Concerns