The first wave of baby boomers is hitting the retirement beach with investments worth less four years ago and may be hurting themselves by retreating too far into conservative investments, says a recent Cogent Research project.

The study showed boomers who are between 55 and 64 years of age had an average of $100,000 less in investable assets in October 2010 than they had in October 2006. The average dropped from $809,000 in October 2006 to $708,000 in October 2010.

Cogent, Cambridge, Mass., provides custom research for financial services, life sciences and consumer goods industries. The financial survey was conducted among 4,000 affluent consumers defined as those with at least $100,000 in investable assets.
Although the average still represents a substantial sum of investable assets, John Meunier, Cogent principal, says the survey results are extremely significant because, instead of growing over the four years the funds were shrinking. "This is particularly hard for those approaching retirement," he notes.

Too many of this first wave of boomers lost confidence and are reducing their risk profile, which has made their situation worse, he says. At the same time, investors' overall confidence in both advisors and distributors has increased since the meltdown in 2008 from 33% to 37% in advisors and from 37% to 41% in distributors.

"We saw a significant increase among older boomers last year in allocations to lower-risk investments just as the market was rebounding," Meunier adds. "Unfortunately, this only served to dampen their ability to regain loses sustained in the downturn."

Of the first wave of boomers, 33% are now retired and they lost an average of 12% on their total investable assets.

Another study released recently by T. Rowe Price concurred that funds had been flowing out of equities to lower-risk investments since 2007, even though those investors who keep significant investments in equities continue to beat inflation.
An encouraging sign, according to Cogent, is that second-wave boomers, those 45 to 54, have greater overall exposure to equities, and are taking part in more employer-sponsored retirement plans. Participation in employer sponsored retirement plans in this age group increased from 79% to 84% between 2009 and 2010.

The fact that second-wave boomers are participating in employer plans "signals that some investors are once again thinking ahead and planning for the future instead of (like) last year when they were still hunkered down waiting for the storm to pass," Meunier says.

Joel Magruder, founder of Financial Partners Group in Des Moines, Iowa,  notes that even though the survey is dealing with an affluent marketplace, "It is prudent for people to project and plan out their retirement. With this being said, plans need to be updated, as it is very concerning that investors have worked out the numbers and set their eye on when to retire with the hope their asset would meet that plan. Now, they have not only not grown the assets over the last couple of years, they have lost ground."

However, he notes, "All of the money in their investment portfolio does not have to be available immediately when they retire. They will only need portions to help supplement their other fixed sources of income from pensions and Social Security, etc. They can build on sources of income that are already defined, and/or add to these, with things like fixed annuities or variable annuities with guaranteed payments. Then, the other investments can be invested as a compliment to supplement these income streams."

Kimberly Foss, CFP, CPWA, president of Empyrion Wealth Management in Roseville, Calif., does not feel the drop is quite as drastic as it may seem.

"The drop in asset value may not be as significant as it appears to be at first glance. Many of my clients (who experienced this decrease) also pared down their living expenses to levels 10% or 15% below what they would have spent based on 2006 values," Foss says. "If, in the future they are able to increase spending without jeopardizing their future terminal net worth, we will do so."

She adds, "I do agree that the increase in exposure to stocks for the age group of 45 to 54 has helped their overall portfolios. This group of boomers not only have a longer life span to fund, but will most likely have less entitlements available to them and thus need to self fund more expenses currently covered by Social Security and Medicare than the first group of boomers."

-Karen DeMasters