That man is the richest whose pleasures are the cheapest. Thoreau
Dost thou love life? Then do not squander time, for that is the stuff life is made of.
Benjamin Franklin – Poor Richard Almanac
With the Dow Jones industrial average at 13,000 are Baby Boomer investors seeking to re-enter the stock market in an attempt to recapture monetary gains that they may have lost during the Great Recession of 2007?
Answer: Yes. Baby Boomer investors are re-entering the stock market with targeted and/or specific investment strategies in an effort to cautiously grow their retirement portfolios.
Financial Recovery Post the Great Recession
On 1/01/11, the first group of the 79 million American baby boomers turned 65 years old at a rate of over 10,000 persons per day. This process will continue for the next 19 years or 2030.
On 2/27/12, Mr. David Bernard, a business writer for U.S. News and World Reports noted that baby boomers have expressed anger as a result of suffering financial losses from the recent recession. And, these stock market losses have taken a bite out of most retirement nest eggs.
According to Sun America Financial Group, during the most recent recession, 43 percent of retirees expressed anger at the impact on their retirement plans, and 39 percent remain worried about their financial situation. Mr. Bernard noted that baby boomers may also experience frustration because they cannot easily make up for lost time and savings. The business writer said that many people will be forced to continue working and delay retirement beyond their original plans. And, many perpetually active baby boomers will need to face their diminishing physical and mental capabilities. Baby boomers may find it frustrating to finally have time to do what you want to do, but not have the energy or physical ability to do what you choose to do.
On 2/21/12, Mr. Calvin Wolf a contributor to the Yahoo Network stated that according to the Associated Press, countless baby boomers are at a risk of losing their retirements. Mr. Wolf noted that when most of the baby boomers entered the workforce in the late 1960s and 1970s, they thought that their careers would progress along pathways similar to those of their parents: stable companies, lengthy tenures on each job, predictable economic growth, and healthy pensions to fund the retirement that began at age 65.
Instead, many baby boomers are finding those career pathways differing wildly, affected by a globalized economy that has increased economic instability and led to a decrease in traditional retirement mainstays like pension funds, healthy investment portfolios, and the continued viability of Social Security.
According to USA Today, far too few workers are saving enough money for retirement with 56 percent reporting less than $25,000 in savings in December 2011. Also, increased college tuition costs mean that older workers in their late 40s and 50s, after helping fund children’s college education, have little left for their retirements. In that same USA Today survey, baby boomers incorrectly predicted that they could rely on Social Security, which only pays for about 40 percent of most retiree’s needs. The average Social Security check is $1,200 per month.
The Washington Post says that the average savings of someone approaching retirement is $78,000, leaving the retiree with an average life expectancy barely $3,100 per year to live on, thereby forcing them to rely on Social Security and Medicare. And a Metlife study found that nearly 40 percent of workers plan to rely mostly (or completely) on Social Security for retirement, while an additional 30 percent expect it to pay a major role.
Re-Evaluating Your Current Investment Portfolio
On 2/28/12, Mr. Daniel Wagner, a business writer for the Associated Press noted that the Dow Jones industrial average had closed above 13,000 for the first time since May 2008, six months before the financial crisis.
Mr. Wagner said the Dow Jones industrial average closed up 23 points Tuesday to finish at 13,005. In 2012, it is up more than 6 percent this year, mostly because of enthusiasm about the building U.S. economic recovery. The Dow first broke 13,000 on April 25, 2007. The last time it ended the day above 13,000 was May 19, 2008. The Great Recession was six months old. The close puts the Dow less than 1,200 points away from an all-time high.
On 2/21/12, Ms. Christina Rexrode, a business writer for the Associated Press noted the U.S. stock market has climbed steadily this year, primarily because of optimism about the economy. High gasoline prices are emerging as a chief concern for the economic recovery for the rest of the year. Overall, though, investors seemed comfortable moving money into the higher-risk stock market and out of the safer investments like government bonds. The yield on the government’s benchmark 10-year Treasury note rose to 2.05 percent from 2.01 percent Friday, a sign that fewer investors wanted the bonds.
On 2/07/12, Mr. Joe Mont a staff writer of TheStreet.com noted Americans’ perceptions and desires surrounding retirement planning are evolving rapidly. Many Americans have readjusted their expectations for where retirement income will come from. Americans are planning to live longer, work longer and have more modest expectations about their quality of life.
A 2010 Gallup survey of non-retired Americans showed more people expect to rely heavily on Social Security and fewer expect 401(k)s or IRAs, home equity and pension plans to be major funding sources. Overall, non-retirees still most commonly say IRAs and 401(k)s will be a major source of retirement income (45%), followed by Social Security (34%), work-sponsored pension plans (23%), saving accounts or CDs (22%), home equity (20%) and individual stock investments (20%).
Mr. John Diehl, senior vice president of The Hartford’s wealth management division, says people are redefining the concept of retirement. Mr. Diehl stated of pre-retirees, “I think they are getting more realistic.” Americans realize that “they are going to have to work longer and they may work part-time once they retire, which means we are redefining what retirement is. Full-time leisure is now actually part-time.” John Diehl further added, “unless you are wealthy, you cannot save your way to a secure retirement.”
Instead of splitting the universe into workers and retirees, new models will need to address sub-brackets of the aging process. Middle age (between the ages 40-65) will still be the accumulation phase of wealth, but financial planners need to also think about those 65-74,
now classified as “Young/Old”, a group whose saving and spending habits will increasingly have more in common with their younger cohorts. And, different financial strategies will also need to be tailored for ages 75-84, deemed “Old/Old,” and 85 and up, “Oldest/Old.”
Mr. Chuck Cornelio, president of retirement plan services for Lincoln Financial noted that market volatility, low interest rates and increased dependency on defined-contribution plans all nudge consumers to seek out financial protection and growth potential. Guaranteed income and downside market protection are among the reasons annuity products, especially those with longevity riders, are becoming more attractive for consumers after decades of well-reasoned reluctance.
Living a Long and Happy Life
On 2/16/12, Ms. Kimberly Palmer, a business writer for U.S. News and World Reports noted that Dr. George Vaillant, professor of psychiatry at Harvard Medical School, has overseen the longest-running longitudinal study of health and happiness. Professor Vaillant’s study has tracked the lives of more than 500 Harvard students and men from inner-city Boston since the 1930s, and has drawn some intriguing conclusions, including that stable relationships are one key to a long and happy life. Professor Vaillant says what makes him happiest now, at age 77, are his grandchildren.
Dr. Vaillant spoke to Ms. Palmer and stated that he urges people to take money out of their retirement accounts to go on vacation, because learning how to relax and spend time with loved ones is essential to one’s happiness later in life. Professor Vaillant stated, “Just remember, if you get nothing else out of talking to me, to put some of your IRA money into vacations.”
Dr. George Vaillant noted that there were three things that correlated with a fun retirement: 1) Whether your marriage was good, 2) Whether you took fun vacations before you retired, and 3) Whether you have always like doing things for other people. So it’s being more interested in others than yourself that leads to a happy retirement, and having somebody that you enjoy being with.
Does education and income determine whether a person will be happy in retirement? Professor Vaillant noted that if you look at the inner-city men who went to college, their health was just as good as the Harvard men who did not go to graduate school. The inner-city men went to terrible colleges by Harvard standards, but they did get 16 years of education, and that absolutely evened the playing field.
Dr. George Vaillant stated, “If you look at smoking and drinking habits, you find that people who go to college drink less and smoke less and are less obese.” The psychiatrist noted that these behaviors are a function of education rather than social class. Professor Vaillant concluded the important thing about education is that in order to get an education, especially if you are poor, you have to think you have a future.
Baby boomers are re-evaluating their retirement portfolios and lifestyle options since the Great Recession of 2007. The goal for a comfortable and happy retirement is to achieve a balance between managing your investments and income during retirement, and enjoying the activities and people that you surround yourself in order to live a long and happy life.
For more sound investment advice, visit Edwin Stephens’ web site at www.policeone.com/columnists/Edwin-Stephens/ . Securities transactions through McClurg Capital Corporation. Member FINRA and SIPC.
