Baby boomers collectively represent nearly half, or 44%, of the affluent investor population, and as such, are justifiably a group of great interest to credit unions and other financial service providers.
Cogent Report has been analyzing the differences between older and younger boomers for years, with a particular focus on their attitudes and behaviors toward investing and retirement planning. Our research has uncovered important differences between first wave boomers ages 58-67 and second wave boomers ages 49-57, offering insights for financial companies seeking to build and maintain relationships with this generation of investors.
Understandably, many of the differences we see between first and second wave boomers are driven by life stage. Over half of first wave boomers are already either fully (48%) or semi- retired (9%), while more than two-thirds of second wave boomers are employed full-time (60%) or part-time (7%) outside the home. The younger boomers are more focused on saving, particularly for retirement, while their older counterparts are facing the challenge of living in or approaching their retirement years.
Through recent in-depth discussions with pre-retirees and retirees, we have observed that retirement age investors are extremely cynical about the financial outlook and they have reset their expectations despite a desire for positive and strong returns.
A multitude of factors, including media reports, the 2008 financial crisis, market volatility and the uncertain economic outlook are fueling investor cynicism, and many financial advisers are finding it increasingly difficult to convince weary investors to take some risk and dip a toe into the market.
Not surprisingly, boomers hold the majority of their assets in low and moderate risk investments, a factor that is especially concerning given that large cash positions are unlikely to grow and keep up with inflation at a time when these investors are preparing for or entering retirement.
When asked specifically about retirement income planning, we find a strong disconnect between advisers and investors. While advisers point to strategies, investors are likely to discuss products and themes regarding adapting to change in their golden years. In fact, investors have very little association with retirement income or bucketing strategies.
While some investors have taken inventory of their retirement income sources and some have even created budgets, the vast majority do not have a formal retirement income plan that will address their spending, inflation and longevity in retirement. Moreover, most investors admit they are worried about health care expenses in retirement, but very few, if any, have created a plan to address expected or unexpected medical costs in the future.
On a positive note, we find that the majority of boomers – 63% of the second wave and 66% of the first wave – are working with a financial adviser, and are entrusting them with over half of their investable assets. Nearly seven in 10 (69%) of first wave boomers are very satisfied with their adviser relationships compared to just 58% of second wave boomers, suggesting that there may be some opportunity within the younger boomer segment to establish stronger and more loyal advisory relationships.
In meeting this challenge, one advantage that credit unions may have over other financial services firms is a deeper element of trust. Working with their members and offering access to a broader array of products and services provides credit unions with enhanced credibility, enabling these organizations to address both the short- and long-term needs of pre-retirees and retirees. In the current market environment, a firm's ability to demonstrate honesty and integrity is becoming increasingly important with advisers and investors alike.
*Cogent Report was acquired by Market Strategies International in May 2013.
Linda York is vice president of the syndicated division at Market Strategies International.
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