Baby boomers, one of the largest generations in U.S. history and some 76 million strong, remain demographically in charge. If you’re one of this generation, born from 1946 to 1964, you help influence just about every aspect of American life, enjoy more discretionary income than any other age group, and control your share of some 70 percent of the total net worth of all American households. If you’re a boomer, you also face serious retirement threats.
As financial planners at Glassman Wealth Services who see many boomers, we find five important problems keep coming up.
1. Longer retirement: By 2020, an astounding 8,000 persons will turn age 65 every day. The real threat: Almost half of boomers simply save too little for a comfortable – and lengthy – retirement.
As a boomer, you can also expect to live longer than your parents or grandparents. Unlike past generations that planned for perhaps 15 years of retirement, you and other boomers must prepare for as long as 30 years or more – longer than many working lives.
2. The Great Recession: Bear markets of the dot-com crash and the more recent housing collapse set back boomers’ wealth and retirement savings – which depend more, unlike many previous generations’, on Wall Street.
3. Low interest rates = not enough yield: The same low interest rates that the Federal Reserve uses to breathe life back into a flailing economy and help borrowers such as corporations, municipalities and homebuyers presents your greatest challenge if you’re a boomer looking to retire.
Past generations had the option of simply saving in money market accounts and certificates of deposit to earn upwards of 5 percent or more. Such strategy is gone today because of continued low interest rates – a trend that won’t quickly reverse.
4. Boomers’ influence on the markets: The size of the boomer generation alone can make or a break an entire asset class. Look back to when boomers bought their first homes in the 1970s and 1980s or first invested in stocks (the 1980s and 1990s) to see how this generation’s demand influences prices.
Even if interest rates rise or even spike soon, the vast numbers of boomers who patiently waited for such rates to move their money into lower-risk investments can likely depress rates again, anyway. If boomers continue to look primarily for yields in bonds, it’s hard to see how those interest rates can ever skyrocket given this generation’s impact.
Attractive, safe yields are probably gone for a while, a fact retiring boomers need to prepare for.
5. Barbell investing: Often my new clients (most being boomers) come in with portfolios resembling barbells, with a lot of safe holdings such as cash and bonds on one end of the risk spectrum, and riskier assets such as stocks and stock funds on the other. We believe this kind of portfolio simply cannot sustain someone through retirement.
The good news: Now alternative investment vehicles exist between riskier stocks and low-yielding bonds to help older investors get potentially more yield with less overall risk. What I call “the stuff in between” investments consist of such holdings as long-short bond funds or hedged equity funds, both designed to maximize return while minimizing risk as much as possible.
If you’re a boomer, you always blaze new trails. And now more than any generation before, you must consider a variety of investment strategies to bolster your retirement income.
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Written by Barry Glassman, CFP, the founder and president of Glassman Wealth Services, a fee-only investment management, financial planning and wealth management firm in McLean, Va. He has been honored with just about every Top Financial Advisor Award from the financial planning industry and his peers in publications including Barron’s, Investment News, Reuters, Washingtonian and Virginia Business. He is a contributing writer at Forbes.com and Investment News. Follow Barry on Twitter at @BarryGlassman. His website is www.glassmanwealth.com.
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