While much time and attention is
lavished upon the aging baby boomers, the so called Great Recession
has left its mark on younger Americans as well.
Younger boomers – those Americans
now in their mid- to late-forties – are at least as worried about
their retirement planning, according to one of the first
comprehensive studies of that important demographic.
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They may still have the luxury of
time, but worry more about control and stability in retirement than
older boomers, according to the survey of Americans aged between 44
and 75 by Allianz Life Insurance Company of North America.
“The economic downturn woke up many
Americans to the challenges of securing retirement income,” said
Gary C Bhojwani, president and CEO of Allianz Life.
“Our Reclaiming the Future study
told us that security and guarantees with retirement-income
products are now very important to Americans,” Bhojwani said. He
added that the younger boomer segment seems to have taken the
lesson even more seriously than their older counterparts.
Three
challenges
The challenges to
this emerging boomer segment are threefold, Allianz found in its
study.
First, the once-reliable sources of
retirement income are either disappearing or becoming less
dependable. The defined benefit plans that provided retirement
income for retirees in past generations are now rare, and Social
Security is continuing to erode. In fact, one of the Allianz
study’s most remarkable findings is that 56% of middle-class
respondents said they think it’s more likely they will be struck by
lightning than get their full due from Social Security.
Second, increasing life
expectancies mean that the number of years spent in retirement is
steadily growing, even as the average retirement age inches higher.
When Social Security was established in 1935, the average life
expectancy was 61.7 years, while the average retirement age was
65.1 By 2010, the projected average life expectancy had risen to
78.3 years.
Third, increased personal
responsibility for retirement savings is making retirees more
vulnerable to market turbulence. When the financial markets
imploded in 2008 and the first quarter of 2009, many investors’
portfolios lost a third of their value virtually overnight.
Although the market is recovering, the continued volatility has
stirred some deep-seated fears for many Americans.
When asked, “Do you believe there
is a retirement crisis in this country?” an overwhelming 92% of the
respondents answered affirmatively. Among those in their late 40s,
that number rose to 97%. And all of the respondents with lower
income levels agreed that the US is facing a retirement crisis.
But perhaps most significantly, the
market downturn caused a seismic shift in how the respondents
viewed retirement planning. More than half (51%) came to realise
that a comfortable retirement is not guaranteed, and 46% decided
that protecting the security of their assets was “much more
important now.” And almost a third (30%) wanted to provide
themselves with “a new level of certainty” about their financial
future.
While a majority (54%) of this
younger group (44- to 49-year-olds) reported feeling “totally
unprepared” for retirement, they also expressed a greater need than
their older counterparts to take more control of their financial
future (47% versus 35%), attain more certainty and financial
security (41% versus 30%), and reduce their financial vulnerability
(26% versus 22%).
84% agreed that the safety of their
money mattered more to them now than it had a few years ago.
Seeking advise
Younger boomers were
more likely to be receptive to working with a financial
professional. Though only 19% of this group reported working with a
financial professional, 47% were receptive to working with one in
the future versus 29% of the total group.
95% of younger boomers said it was
“important” or “extremely important” that their financial
professional helped protect a portion of their nest egg. 87% wanted
their financial professional to help make sure they had adequate
guaranteed income in retirement, with 51% saying they wanted help
planning for a “stable and secure retirement.”
Income products with guarantees,
such as annuities, received favourable reviews from younger
boomers. Of those who owned an annuity, 80% said they were happy
with their purchase. The younger boomers owning annuities ranked
them highest in satisfaction (83%) among all financial instruments,
beating out mutual funds at 66%, stocks at 63%, US Savings Bonds at
51% and certificates of deposit at 43%.
The study’s participants expressed
concerns about their savings. Overall, 57% said they were worried
that their nest egg may not be large enough in retirement. 47% said
they were afraid of not being able to cover their basic living
expenses in retirement. This number soared to 77% among those with
lower income levels.
Adding to the fears about savings
is the market uncertainty of the past two years. The recent
downturn affected many Americans deeply – and they are continuing
to feel those effects today. Of the people surveyed, 56% of those
aged 44-54 agreed that “recent market events created major
questions around when, and whether, I can retire.”
The most startling finding in the
Allianz study was that 61% of the respondents said they were more
scared of outliving their assets than they were of dying. Among
people aged 44-49, that number climbed to 77%. And a whopping 82%
of those in their late 40s who had dependents were more afraid of
outliving their money than they were of death. This is an amazing
realisation that plays right into the hands of financial
advisers.
Charles Davis
