Boomers remain shaken by 2008 rout

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In broad strokes, boomers have spent much of their lives embracing risk. This generation was one of the most entrepreneurial, allowing many to accumulate substantial wealth. They embraced professional advice to manage their personal finances, and all was supposed to be well as they passed into retirement.

But they may be losing their risk appetite at a critical stage on that journey—the years just before they retire—with two thirds investing less than they did prior to the 2008 downturn, according to a TD Investor Sentiment Survey.

For half of them, the problem is simple; they have less money to invest—massive bear markets tend to have that affect. But 27% said they were investing less because they were discouraged by market volatility—another common side effect of bear markets.

Another 24% said they had more important things to do with their money than invest for their retirement, citing deleveraging and the obligations of the sandwich generation.

“It’s not surprising that many Canadians nearing retirement are focusing on other financial obligations such as paying down debt, taking care of elderly parents and paying for their children’s expenses including education,” says Carrie Russell, senior vice-president, TD Canada Trust.

She points out, however, that the best tactic might be to continue retirement savings contributions, even if at a lower amount.

The volatility issue has really hit boomer confidence. For those who have reduced the amount they are investing, 65% said they would be more comfortable with products that offer a guaranteed return. On a similar note, half said they wanted a minimal risk of losing their initial investment, while a third wanted “a good track record”.

These are understandable desires, but somewhat incompatible with the desire for “low or no fee” products that 38% said they were looking for.

TD’s recommendation on how boomers should get back into the market is remarkably similar to the advice usually given to young investors: determine your risk tolerance; find a low minimum purchase investment; and set up a PAC.

When asked what they would do with an extra $1,000, the largest group (37%) said they would place it in an investment with a guaranteed return, while 31% would invest in a product with a track record of good returns.

Only 23% said they would ask their financial advisor for a recommendation before deciding what to do with the money.

One in five said they would select an investment with low or no fees, and 15% would opt for one that is professionally managed.

While boomers have become gun-shy, the following generation may be in even worse shape, at least, those south of the border.

A survey of Americans between the ages of 29 and 49 found that a stunning 82% were unable to say they were well on their way to a successful retirement plan. Only 41% said they were saving outside of their employer-sponsored retirement plan and only 48% were participating in a 401(k).

“This group admits having its head in the sand about planning for the future,” said Tim Harrington, CEO of eRollover.com, an independent website that provides retirement planning information. “They’re struggling to make ends meet and they don’t know where to turn for retirement advice. Planning for retirement has become a social taboo that many avoid discussing.”

Given that so few are saving at all, it’s not surprising that only 19% meet with a financial advisor on a regular basis. Just 11% said they were very confident they could maintain their current lifestyle in retirement, compared to 41% who said they would be worse off in retirement.

So, is Generation X relying on federal benefits to save them from retirement poverty? Not likely—71% expect the U.S. Social Security system will be bankrupt by the time they need it.

To save the system, 58% said benefits should be reduced for retirees who have “significant wealth”. Pushing the retirement age to 70 was a non-starter for 60%.

Assuming Social Security survives, 27% said it will be a major source of their retirement income.

The vast majority of Gen-Xers surveyed appear to be living beyond their means, or, at best, hand-to-mouth. Only 15% said their incomes were greater than their expenses.

The TD Investor Sentiment Survey results were collected through an online survey by Environics Research Group from May 18 – 25, 2011. A total of 1,000 surveys were completed by investors aged 45-64.

The U.S. study was conducted for eRollover.com by the Siena College Research Institute, and polled 1,006 U.S. residents between the ages of 29 and 49.

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