The generation that ‘changed the world’ in the Sixties may change the pension industry too: it is the baby boomers’ generation, people born between 1946 and 1964, and consisting of 77m Americans. The oldest ones are turning 60 this year and insurance companies, asset management firms, pension consultants are wondering how to grab the opportunities of this new huge market.
Some are offering new financial products and launching ad campaigns about them. ‘Happy birthday’ was the lead of a TV commercial that last January ran for 15 days on major US channels, celebrating the first baby boomers turning 60. The ad was made by Ameriprise Financial - a financial planning, asset management and insurance company with more than 10,000 financial advisers nationwide - whose chief economist Dan Laufenberg turned 60 on 15 January: “As both an economist and a baby boomer,” he said, “I want to know what sort of economy I’ll be living in during my retirement years. We already have a lot of data; the question is ‘what can we learn from it now to help our clients live the way they want in the years ahead?’”
On Plan Investing (SM) is a new package of retirement services offered by American Century Investments, a $100bn (e82.6bn) investment management company specialising in separate accounts, commingled trusts, sub advisory accounts and mutual funds. The baby boomers’ package includes needs analysis for retirement, investment suggestions and, for those already in retirement, an income management system to convert investments into regular cash flow.
Other products that address the theme that boomers are generally unprepared for retirement are ‘Lifestyle’ or ‘Life Phase’ mutual funds, long-term care insurance, and fixed and variable annuities.
Kevin Wagner, senior retirement consultant with Watson Wyatt, says: “Baby boomers may be especially interested in annuities. A number of companies that stopped offering defined benefit plans are now offering annuities, sometimes with a sort of guarantee for the long run. Also, insurance companies are focusing on innovating annuities, adding features like inflation protection, indexing to equity markets and so on.”
A recent Wall Street Journal Online/Harris Interactive Personal Finance Poll has found that only one-third (34%) of US workers expect to have enough money saved to retire comfortably, and two in five (41%) say they would be very or somewhat likely to participate in an age-dated mutual fund if it was made available to them.
Age-dated or target date or life cycle mutual funds target specific retirement ages. For example, a 2025 fund would currently include more aggressive funds, but become more conservative as an investor gets closer to their retirement date. These kind of products are appealing to “those baby boomers with retirement looming a decade or two away, and still in their peak earning years (45-54)”, points out Anne Aldrich, senior vice- president of the Financial Services Research Practice at Harris Interactive; while age-dated mutual funds do not appear particularly attractive to those who are 55 and older “presumably because these individuals have already earmarked their savings/investments for other investment vehicles”.
Experts do not expect older baby boomers with 401(k) plans or other defined contribution retirement schemes to dramatically change their asset allocation away from equities in favour of fixed income. “They know they still have 20-30 years to live and their savings need to go on growing in order to preserve their real value against inflation’s erosion,” says Wagner. “So maybe we will see some reduction in their portfolios’ risk level, but I don’t anticipate a great impact on financial markets.”
Actually “more and more Americans will work past retirement age”, adds Wagner.
For them an interesting compromise is ‘phased retirement’ schemes in which older full-time workers can switch to part-time work and draw from their 401(k) retirement accounts.
Over 70% of employers are open to phased retirement, primarily on an informal basis, according to a study by Robert Hutchens, a Cornell University economist. “It is a good idea that is catching companies’ attention,” says Wagner, who points out: “The problem is that current fiscal rules allow partial retirement only to employees with 401(k) plans or other DC plans, and not to traditional defined benefit plan members. But legislators are studying to change these rules to ease phased retirement and we’ll see this choice growing popular.”

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