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Fund Companies Should Rethink Retirement

Schwab Study Finds Attitudes Change as Investors Grow Older

Americans have changing needs for retirement products as they grow older, and mutual fund companies that recognize and respect the differences between the age groups can be much more effective.

Charles Schwab recently surveyed thousands of adult Americans across four generations in order to gauge their different levels of perceptions and expectations about retirement. The groups were divided into the Silent Generation, ages 63 to 83; Baby Boomers, ages 44 to 62; Generation X, ages 32 to 43; and Generation Y, ages 21 to 31.

"We surveyed nearly 4,000 people across the generations and got some fascinating insights that show people are rethinking the old model of retirement," said Charles Schwab, founder, chairman and CEO of the Charles Schwab Corporation in a release. "We discovered, for example, that on average, people believe 'old age' doesn't begin until 75 or older. With the average retirement age now in the early 60s, Americans are reasonably planning for upwards of 30 years in this stage of life. Most people are beginning to think of this as a whole new third act."

"The most surprising result to me was the fact that the Silent Generation's biggest concern was outliving their assets," said Alyce Zollman, a vice president and financial consultant for Schwab. "Younger generations can learn from that. It's very important to plan for retirement as early as possible."

Approximately 56% of pre-retirees said that longevity risk represents the most important financial challenge facing them in retirement, yet 69% overestimated the amount they could draw from their savings each year, with 43% saying they could withdraw 10% or more and 14% saying they could withdraw 15% each year while still maintaining their principal, according to MetLife's recent Retirement Income IQ Study.

"Current pre-retirees demonstrate some fairly widespread retirement income knowledge gaps, some that could have a critical impact on the financial security of those planning for their retirement," MetLife said.

"Our current retirement systems and networks aren't set up to meet their expectations as they alternate between periods of work and leisure, and they may find themselves at the center of a complex set of relationships where they care for parents as well as siblings," said Ken Dychtwald, president and CEO of the market research firm Age Wave, who collaborated with the Schwab study. "We will see profound changes in ways we've never imagined."

Staying mentally active, not the paycheck, is the No. 1 reason people want to work in retirement, and 60% say they would like to enter a different line of work.

Baby Boomers

Many fund companies have their fingers on the pulse of the Baby Boomer generation, and for good reason. Boomers are the fund industry's bread and butter, representing the largest group of pre-retirees with the most assets.

"While the senior population tends to be on the conservative-type plan with a high amount allocated to fixed income, Boomers and Gen Xers realize that retirement is going to last a lot longer," said Tony Ferreira, managing director of Cambridge, Mass.-based Cogent Research.

Compared to their parents, Boomers have a much more aggressive outlook toward retirement, knowing that their portfolio needs to last them 25 to 35 years into retirement, Ferreira said. Many older Boomers are also increasingly taking responsibility for the care of their elderly parents.

According to a MetLife poll of Americans over 60, 87% said they are feeling a "pinch" and cutting back on spending. Approximately 70% said they are cutting back on essentials like food and transportation, while 17% said they have to increase the financial assistance they give to their family and friends.

"Fund companies shouldn't treat Boomers as one large group," Ferreira said. "They should split Boomers in half. The needs of the second wave of Boomers are very different from the first."

The Younger Generations

"Generation X is still invested in the long term," Ferreira said. "They realize that Social Security is not a dependable option, or if it is, it will be downplayed. It's all about 'taking care of myself.'"

Gen Xers are starting to mature beyond their relentless drive for promotions and trophy houses, and many are beginning to focus on raising their families and building their retirement assets. As a generation, they have been taught by advertisers to buy now and save later, but they are teaching their own children to save early and live within their means.

Generation Y also represents a tremendous client base, but because they are not profitable yet, they are not getting much attention from firms, Zollman said. Firms should be helping investors to build their financial fitness at an early age, she said.

"Gen Y is still so new to the workplace, they are more worried about everyday things, such as buying a house, buying a car and starting a family," Ferreira said. "Generation Y is pretty large. It's about the same size as the second wave of Boomers, but it's still too small to generate enough revenue.

"Fund companies are still focused on where their big dollars are today," he said. "They should be looking at Gen Y as a generation, not as one account."

A special website at lets viewers take a shortened version of the survey themselves and see where they fit in with their own generation, Zollman said.

Members of a given generation tend to share similar attitudes, but there are some viewpoints which transcend age. Almost 95% of people polled by Schwab said basic financial management should be a standard part of high school curriculum, and 70% said they would like professional saving and investing advice from their employer.

Zollman said the survey has been very helpful for Schwab to understand what is on clients' minds, regardless of their age.

"Attitude and behavior play large roles in retirement planning," she said. "How can we relate our services toward that?"

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