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The Next Boomer Revolution: Retirement
Bell Investment Advisors' 2007 National Survey: How affluent 60-year-olds are planning and investing for retirement
In 2007, the second wave of Baby Boomers turned 60, a milestone for a generation that revolutionized so many aspects of American life. And true to their generational nature, they are approaching retirement somewhat differently than their parents.
But they are still asking important questions about their life, such as, "What do I really want my retirement to be?" and "Do I really have enough to live the life I have planned?"
The affluent among the earliest Boomers feel positive about their lives but many have unrealistic assumptions about retirement that could affect their financial security and happiness, according to a nationwide survey commissioned by Bell Investment Advisors.
About the Survey
To explore out what affluent Baby Boomers are thinking and doing about retirement as they reach this milestone birthday, Bell Investment Advisors commissioned the Opinion Research Corporation (ORC) to survey Boomers turning 60 in 2007. ORC conducted a telephone survey of 500 men and women born in 1947 with investment assets of $1 million or more. The survey consisted of 17 questions to assess attitudes and determine financial preparedness. A summary of the survey results follows:
Overview
Their homes may be their castles, but Boomers cannot bank on their residences as their retirement nest egg. The study found that these affluent Baby Boomers might be overly optimistic about the role of real estate in funding their retirements.
Despite their optimistic attitude, Boomer investors at 60 seem to have unrealistic assumptions that could be a red flag for their retirement security. These include the idea that:
- Personal residences are a source of retirement savings
- They will be able to work throughout retirement to augment savings
- By reducing their lifestyle, Boomers believe they can afford to retire
Yet, there are positive outcomes from the survey. Members of this class of Boomers have invested wisely---putting a significant percentage of their earnings into 401K plans and being more aggressive in their investment strategies.
Good news about 401K plans and their impact on Boomers' retirement security
Survey findings spotlight the growing importance of 401(k) plans to Boomer retirements. More than seven in 10 Boomers (71%) have participated in 401(k) plans during their careers. For 45 percent of those who participated, their 401(k) assets represent more than half of their overall retirement savings. For nearly one-quarter (23%) of participants in this year's survey, 401(k) assets total three-quarters or more of retirement assets.
Boomers are the first generation to make use of 401(k) plans, which were introduced in 1986 when today's 60-year olds were 39.
"Twenty years after their introduction, the evidence is in," says Jim Bell, president of Bell Investment Advisors. "The 401(k) is proving its worth as a core building block of retirement. The good news is that Boomers are actively managing their 401(k)s either with professional help or on their own.
According to the survey findings, half of those who invest in 401(k)s or similar plans said they relied on a professional advisor to select their investments. Similarly, one-fifth (21%) manage, review and reallocate funds themselves once a year, and 18% do this at least twice a year.
Dangerous assumptions that could imperil financial security and happiness:
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Residence as retirement asset: Even affluent Boomers at 60 are relying heavily on their personal residences as a retirement asset, with 68% counting their personal residence as a retirement asset. Of those who count their homes as a retirement asset, one in four (24%) say it represents half or more of their retirement savings.
"The problem with treating their residence as a retirement asset is that Boomers must move to realize any value from their homes," says Bell. "Additionally, they may not be able to sell their homes when they want to or for the price they want, which may alter their retirement plans."
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Work as long as possible: The survey found that the majority of Boomers intend to continue working into their 60s, but the kind of work they do will be dictated by their perceived level of financial security. Those who feel they have enough funds to retire intend to pursue work they are passionate about without regard to the income, while Boomers who believe their savings are inadequate or who feel they must reduce lifestyle in order to retire are far more likely to work "as long as possible."
Of those who believe they have enough funds to retire comfortably, the largest number--one in three (33%)--plan to pursue personal interests and passions. Of those who believe they have enough funds to retire if they reduce their lifestyle, the biggest group -- one in four (24%) -- plans to gradually scale back what they are doing now. Of those who don't believe they have enough to retire, the largest number, at more than one-third (38%), say that they will work as long as they are able to.
"There will come a point, however, when Boomers will not be able to work," says Bell. "Boomers need to distinguish between the retirement years of their 60s and 70s, when their energy and health may allow them to work, and older age, when their health or other issues will preclude this option, and they will need to rely on their retirement savings."
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Reduce lifestyle: Based on the survey, one in four Boomers (25%) believe they have enough funds to retire, but must reduce their lifestyle.
"Boomers who believe they can retire comfortably if they reduce their lifestyle are probably mistaken about the practicality of achieving this," according to Bell. "Money saved on commuting and other work-related expenses is usually offset by increased healthcare costs and expenses for travel and leisure activities," he says. "This perspective on retirement is also psychologically unsatisfying."
"At a time when Boomers have the opportunity to explore their interests and live bigger, rather than smaller lives, economizing at the margin is not going to solve the problem," he explains. Instead, Bell recommends that Boomers retain a healthy portion of their assets in growth-oriented equities, so that their nest egg continues to grow.
Other Survey Findings:
Boomer View of Retirement
- Boomers seem unwilling to give up work and follow a "traditional" definition of retirement. Survey respondents from 2007 reveal that retirement means different things to different Boomers at age 60, and there is no real consensus of opinion of what it means to be retired. For one-quarter of those surveyed (26%), retirement means "pursuing personal interests and passions without regard to making money, such as charitable work."
- The next most frequently chosen definition of retirement is "nothing changes, I hope to work as long as I am able to" (20%).
- Boomers who believe they have enough assets to retire comfortably are most likely to say they will pursue their personal interests and passions, while those who believe they don't have enough to retire or retire comfortably will work as long as possible.
Discussing Finances with Elderly Parent
Among these Boomers, half have at least one living parent. For those survey participants, three-quarters (76%) have had at least some sort of discussion with their parents about their finances. Of those who have had a financial discussion with their parents, almost half (48%) have thoroughly discussed this with them and 30% have only done so somewhat.
"Though these conversations may be difficult, this knowledge is critical for both elderly parents and their adult children from a planning point of view," notes Bell. "Understanding the financial concerns of their parents and what they might or might not inherit from them would be vital to helping Boomers better manage their way to a secure retirement."
Concerns About Children's Finances
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Boomers at 60 who have children are very or somewhat concerned about the following: one-third (33%) are concerned that their children will never equal the standard of living they have, one-fourth are concerned that they can't do more for their children financially (25%) or that their children will never be financially self-sufficient (23%). Additionally, 19% are concerned that they have given them too much and 12% are concerned that their children will never be able to pay off their college education loans.
"These parental concerns may be justified, given globalization and the economic volatility we live in today, but Boomers need to let these fears go," says Bell. "Their children will have to find their own way in the ever changing world we now live in," he adds. "Boomers should remember that if they do a good job of investing for themselves, they can spare their children an additional burden of providing for elderly parents."
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