Tuesday, May 24, 2011

Baby Boomers, Investing, and Retirement Angst



For financial advisors who are targeting the 79 million individuals born between the years of 1946-1964 (How can you “target” 79 million people, by the way?), otherwise known as Baby Boomers, I wanted to recommend a really interesting new study, “Understanding the Accidental Investor: Baby Boomers on Retirement.” Published by Financial Engines, the organization co-founded by Bill Sharpe, “Understanding the Accidental Investor” explores the emotions, behaviors and needs of Baby Boomers entering retirement.

The observations in this report are based upon a three-year long study of Baby Boomers on the verge of retirement, and reveal a population that is rife with distress, fear, mistrust, and overall investment angst.

Reaching Accidental Investors
In addition to highlighting the emotions and corresponding behaviors of near-retirees and retirees, this white paper identified five common needs that, if met, could potentially help Baby Boomers overcome the strong emotional barriers that hinder their investment thinking.

Those needs include:

  • Flexibility. Given the uncertainty of retirement, participants in the study expressed a need to have flexibility and control over their retirement investments. Participants had a high reluctance to be locked into an investment vehicle--especially early in retirement when uncertainties are at their highest.
  • Safety. Due to fear of significant losses right before or in retirement, many participants wanted investments that lowered investment risk or that could provide a steady and reliable source of income over time, and potentially for life. Many participants desired both. In addition, many of the participants also wanted flexibility.
  • Help from an Advisor. Many participants said that they wanted to work with a financial professional they could trust to help them create a plan and decide on the appropriate course of action. At the same time many said that they found it difficult to know who to trust with their life savings.
  • Sponsor Evaluation. According to the Financial Engines' white paper, participants said that having their employer select and monitor independent retirement income providers made them more likely to accept professional retirement help.
  • Fee Transparency. Finally, many participants demanded clear and easily understood fees. They said that they would not act unless they fully understood the fees associated with a given product or service.
As a card-carrying member of the Baby Boomer contingent myself (i.e. my driver's license), I can readily identify with many of the observations of this study. However, I think it's also kinda tricky to paint an entire generation of 79 million people with sweeping broad-brush generalizations.

As Mark Twain said, "All generalizations are false...including this one."

Even still, this study provides many valuable insights...and is worth a close look by investment professionals who desire to connect with Baby Boomers.

by Chris Holman

No comments:

Post a Comment