The Value Line Mutual Fund Survey

Two Cheers for the Baby Boomers, Let’s Shoot for Three

During November 2007, GFK Custom Research North America, commissioned by Metropolitan Life Insurance Company, conducted a study of those who were age 61 in 2007, the oldest segment of “the baby boomers”. The study consisted of a 15- minute telephone survey of 1,000 participants, from multiple survey panels, and has a margin of error of +/- 3%. It profiled the relationships, health, education, employment, finances, housing, identity, and retirement plans of the three million boomer babies born during 1946, the first wave of boomers that now total almost 77 million. Now lets look at their financial profile to see why they deserve a “two cheer” rating.

Many of the financial facts about these boomers show them to be stronger than expected:

-They have a good household income, $71,400, which is higher than the average

-They have a household net worth, excluding home value, of $257,800. (This is higher than previously thought.).

-Have an average of six financial products/ plans including 401(k)/ 403(b), IRA, health insurance, life insurance, and CD/savings accounts.

-Their home is currently worth $297,900.

-They have received or expect to receive some inheritance from their parents – in the range of $113,000 to $210,000.

-Eighty-five percent own their homes and do not plan to move. (This helps keep living expenses under control and promotes home equity building).

-On average, those polled had 2.4 children over the age of 18 and not living at home. (Educational expenses will soon end, if they haven’t already).

-Sixty-eight percent have neither parent alive, twenty-seven percent have one parent, and 5 percent have both. (For most, the financial burden of supporting a parent is finished).

Yet, other financial facts indicate pockets of weakness:

-Thirty-one percent plan to take their Social Security benefits when they turn 62. They are doing so primarily for immediate income for retirement, along with some skepticism about the viability of the Social Security system. (Waiting until age 65 or older is financially a good deal, unless you are certain you won’t live a long life because of a health problem. The Social Security Administration sends everyone a report on how much monthly benefits will increase by waiting to collect beyond age 62.).

This study has found many positives for the oldest baby boomers, and we believe Value Line subscribers will find they are outperforming the study’s averages. Still, some of the facts uncovered indicate that some boomers feel certain that they will be struggling financially even before they have retired. Just to be sure, subscribers, especially those who are nearing retirement age, should sit down with all their financial statistics, and determine if/where any shortfall may be lurking.

For starters, determine if you have enough in retirement funds to maintain the standard of living you desire in retirement. After looking at your retirement funds, determine if you have any special factors that would warrant a need for more or less retirement income. For example, many boomers are in very good health. That’s good news because funds needed for medical expenses will be less, but this also increases the number of years of retirement income needed. Still, this good health will also allow boomers to keep working if needed.

Inheritances, while larger than they have ever been, are still not as large as some boomers expect. If you have inherited monies already, be sure these funds are being invested as carefully as your other savings. A good rule of thumb is never to treat inheritances, which are one-time “windfalls”, as income. Use the money to pay off debts, and fund your nest egg with the rest.

If you are a subscriber approaching retirement, you should retake the Investor Profile Questionnaire starting on page 51 of the Value Line Mutual Survey Guide. With all the possible changes that have occurred in your life, your risk profile and/or time horizon may have changed. If you find that your new Profile puts you in another model, determined by your total scores, please review your investment holdings and match them to the Asset Class percent holdings in order to achieve the optimum blend of risk and return, based on the recent changes in you life. All models are shown in the Value Line Mutual Survey Guide on pages 59 and 60. Of course, before making any changes to your investments, you should take into account tax considerations and specific income needs.

As an example, if you’re no longer supporting a child attending college or a parent, you may find your risk tolerance has increased and you’re ready to take on more risk for a higher expected return on your portfolio.

Back in the 1950s, when I was growing up, there were rarely any adults talking about saving for retirement. At best, the talk was about how many years of tenure was required for full pension vesting. Once vested, it was assumed that Social Security and pension benefits would meet a family’s needs. Also, living standards were lower and, correspondingly, less costly. For example, operating a dishwasher in the kitchen costs more money, however little, than not having one. Air conditioning in the house and car are other examples of such costs, not to mention owning two cars instead of one or none. In conclusion, unless you’ve reached or exceeded your financial goals and targets, you need to do your best to save more now while you’re still working and earning peak income. If you need more time, may you find the wisdom and stamina to achieve your goals. Spending some time reviewing where you want to go from here will help you in your “journey” through life.

Robert J. Adamski