The Retirement Products Market for Baby Boomers and Generation X in the U.S.

Table of Contents:

Chapter 1: Executive Summary

Scope of Report

Report Methodology

On the verge of a retirement boom

What is retirement?

Retirement as life enrichment; retirement as a new career phase

Economic outlook and its impact on retirement planning

Faith No More: 77% Lack Confidence in Economy

Table 1-1: Percentage of Adults with Little or No Confidence in Short-Term Prospects for the Economy, October 2007-April 2008 (U.S. adults)

Economic pessimism carries over to retirement outlook

Long-term lack of market confidence

Solvency outlook for Social Security, Medicare and Medicaid

Changing lifestyles of the pre-retirement market

Financial generosity may imperil Boomers’ ability to age in place

Generation X outlook and concerns differ significantly from those of older generations

The number and the specter of saving too much

Americans recognize they don’t save enough

Demographics

Introduction

Non-Hispanic white percentage increases

Gen X more likely to be college grads

Figure 1-1: Ethnicity: Baby Boomers and Generation X, 2007-2008 (percent)

Figure 1-2: Highest Level of Educational Attainment: Baby Boomers and Generation X, 2007-2008 (percent)

Baby Boomers and Gen X favor full-time employment

Both Baby Boomers and Gen X outearn adults in general

Boomers most likely to have highest household income

Figure 1-3: Individual Employment Income: Baby Boomers and Generation X, 2007-2008 (percent)

Figure 1-4: Household Income: Baby Boomers and Generation X, 2007-2008 (percent)

The Retirement Instruments Market

Overview of retirement resources

Table 1-2: U.S. Retirement Assets By Type, 1998-2007 (in trillions of dollars)

Projections of retirement resources

Figure 1-5: Projections of U.S. Retirement Assets by Type: Straight Line Projections, 2008-2012 (in billions of dollars)

Figure 1-6: Projections of U.S. Retirement Assets by Type: Adjusted for Nominal GDP as Projected by Congressional Budget Office, 2008-2012 (in billions of dollars)

Retirement resources from the individual’s perspective

All income sources

Table 1-3: Annual Income Saved During Last Year, 2008(percent)

Table 1-4: Confidence in Saving Enough to Meet Future Needs, 2008 (percent)

Current financial and retirement resources of Baby Boomers and Gen X

Financial investment products

Baby Boomers tend to have more financial products than Gen Xers

Table 1-5: Overview of Ownership of Investment Products, 2007-2008 (percent of U.S. adults)

Individual/small business retirement products

Table 1-6: IRA Ownership, 2007-2008 (percent of U.S. adults)

Self-directed IRAs

Solo 401k

Proposed legislation

SEPs and Keoghs

Figure 1-7: Keogh/Sep-Ira/Pension Ownership, 2007-2008 (percent of U.S. adults)

Annuities

Figure 1-8: Ownership of Tax-Sheltered Annuities, 2007-2008 (percent of U.S. adults)

Reverse mortgages and home equity

How reverse mortgages work

Positive outlook for reverse mortgages

Long-term care insurance

Individual LTCi

Figure 1-9: Individual LTCi Sales By Issue Age, 2007 (percent)

Group LTCi

Figure 1-10: Group LTCi Sales by Issue Age, 2007 (percent)

The LTCi purchasing decision?

Life insurance

Life insurance settlements

Inheritance

Famous “Boomer inheritances” going to elders

Focus on Employer-Sponsored Retirement Products

The employee perspective

Pensions/defined benefit plans

Cash balance plans

Defined contribution plans

401ks

Table 1-7: 401k Ownership, 2007-2008 (percent of U.S. adults)

401k fallout from 2008 financial crisis

Impact of the Pension Protection Act of 2006

Annuities surfacing as intriguing 401k option

Exchange Traded Fund (EFT) 401k platform

Collective investment funds

401k debit cards

Lifestyle and lifecycle funds

Advice is welcome!

Advice to troubled mortgage holders

Automatic enrollment

401k rollovers

403bs

457 plans

Chapter 2: Market Drivers

Scope of Report

Report methodology

On the verge of a retirement boom

What is retirement?

Retirement as life enrichment

Many anticipate earned income in “retirement”

Economic outlook and its impact on retirement planning

Faith No More: 77% Lack Confidence in Economy

Table 2-1: Percentage of Adults with Little or No Confidence in Short-Term Prospects for the Economy, October 2007-April 2008 (U.S. adults)

Economic pessimism carries over to retirement outlook

Long-term lack of market confidence

Stock market climb in long-term stall

Cautious forecasting advised

Weak housing market wiping out billions of dollars in home equity

Boomer sell-off not the problem

Uneven distribution of wealth

What the numbers tell us: 2008 real GDP growth forecasted at a meager 1.1%

Figure 2-1: U.S. Current-Dollar GDP vs. Real GDP, 2000-2008 (in trillions of dollars)

GDP price index ticked up

Figure 2-2: Percentage Changes in U.S. Current-Dollar: GDP, Real GDP and the GDP Price Index, 2002-2008

Economic future uncertain

Personal consumption slows

Figure 2-3: U.S. Current-Dollar vs. Real Personal Consumption Expenditures, 2000-2007 (in billions of dollars)

Figure 2-4: Percentage Changes in U.S. Current-Dollar vs. Real Personal Consumption Expenditures and Inflation, 2001-2008

Solvency outlook for Social Security, Medicare and Medicaid

Changing lifestyles of the pre-retirement market

Boomerang effect re-mixes generations

Career, family disasters can force even Boomers back home

Adult kids and grandchildren? boomerang, once removed

Childcare can add additional burden for Boomer grandparents

Boomer home caregivers number in millions

Financial generosity may imperil Boomers’ ability to age in place

Generation X outlook and concerns differ significantly from those of older generations

Gen X is cautious, even pessimistic

Insufficient financial resources impede retirement preparations

Blogging for dollars

The number and the specter of saving too much

The possibility Americans are undersaving . . . or oversaving

Americans recognize they don’t save enough

Inheritance dreams (or mirages)

Chapter 3: Demographics

Introduction

Looking at the numbers

Aged share of population grows over time

People who reach age 75 will live another 12 years on average

Table 3-1: Projected Population of the U.S. through 2050 (percentages by age group)

Figure 3-1: Projected Life Expectancy, 2010 (in years)

Impressive Gains In Life Expectancy

Figure 3-2: Life Expectancy: 1900, 2000 and 2003 (in years)

Simmons Consumer Survey

More women than men at every age

Figure 3-3: Gender: Baby Boomers and Generation X, 2007-2008 (percent)

Non-Hispanic white percentage increases with increasing age

Figure 3-4: Ethnicity: Baby Boomers and Generation X, 2007-2008 (percent)

Geographic patterns of generations show slight variance

Figure 3-5: Geographic Region: Baby Boomers and Generation X, 2007-2008 (percent)

Gen X more likely to be college grads

Figure 3-6: Highest Level of Educational Attainment: Baby Boomers and Generation X, 2007-2008 (percent)

Figure 3-7: Undergraduate or Graduate College Degree: Gen X Segments, 2007-2008 (percent)

Baby Boomers and Gen X favor full-time employment

Figure 3-8: Employment Status: Baby Boomers and Generation X, 2007-2008 (percent)

Gen Xers prominent in managerial and professional/technical occupations

Both Baby Boomers and Gen X outearn adults in general

Figure 3-10: Profession: Baby Boomers and Generation X, 2007-2008 (percent)

Figure 3-11: Individual Employment Income: Baby Boomers and Generation X, 2007-2008 (percent)

Gen X rich in dual-income households

Figure 3-12: Number of Employed Adults in Household: Baby Boomers and Generation X, 2007-2008 (percent)

Boomers most likely to have highest household income

Figure 3-13: Household Income: Baby Boomers and Generation X, 2007-2008 (percent)

Figure 3-14: Household Income $75,000 or More: Baby Boomer and Generation X Segments, 2007-2008 (percent)

Baby Boomers and Gen X more likely to be married

Figure 3-15: Marital Status: Baby Boomers and Generation X, 2007-2008 (percent)

Larger households are younger households

Figure 3-16: Number of People in Household: Baby Boomers and Generation X, 2007-2008 (percent)

Younger householders = more children

Figure 3-17: Number of Children in Household: Baby Boomers and Generation X, 2007-2008 (percent)

Boomers more likely to own residence

Figure 3-18: Kind of Residence: Baby Boomers and Generation X, 2007-2008 (percent)

Values of residences similar among age groups

Figure 3-19: Value of Residence: Baby Boomers and Generation X, 2007-2008 (percent)

Health/long-term care outlook

Healthy, active self-image keeps Boomers in the game

Healthcare challenges multiply

Table 3-2: Health Problems By Age (percent of respondents)

Studies confirm Boomers are often too fat, out of shape

Drugs, therapies combat chronic complaints

What about Generation X’s health?

Table 3-3: Leading Causes of Death By Age (ranking)

Employment trends

Boomers plan to continue employment

Difficulties in finding employment in middle age

Boomers fear layoffs, forced retirement

Loss of job can mean underfunded future

Self-employment a viable option

Male Boomerpreneurs outnumber females, but gap closing

Preventing the Boomer brain drain

Diverse self-employed segment may forecast future entrepreneurship

Boomers create their own businesses

Self-employed Boomers want to stick with it

Part-time employment in retirement

Employment prospects for Gen X as they approach retirement?

Characteristics of those with greater financial resources

Ethnicity of higher-income adults varies between Baby Boomers and Gen X

Figure 3-20: Ethnicity of Higher Income Baby Boomers and Generation X: 2007-2008 (percent)

Higher education correlates with higher-income households

Figure 3-21: Highest Level of Educational Attainment of Higher Income Baby Boomers and Generation X: 2007-2008 (percent)

Most types of jobs = more money

Figure 3-22: Professions of Higher Income Baby Boomers and Generation X: 2007-2008 (percent)

Marriage associated with higher income

Figure 3-23: Marital Status of Higher Income Baby Boomers and Generation X: 2007-2008 (percent)

Figure 3-24: Number of Children in Household of Higher Income Baby Boomers And Generation X: 2007-2008 (percent)

Higher-income Boomers and Gen Xers more likely to own higher-value homes

Figure 3-25: Kind of Residence of Higher Income Baby Boomers and Generation X: 2007-2008 (percent)

Figure 3-26: Value of Residence of Higher Income Baby Boomers and Generation X: 2007-2008 (percent)

Table 3-4: Overview of Demographic Data, 2007-2008 (percent and index)

Table 3-5: Overview of Higher-Income Demographic Data, 2007-2008 (percent and index)

Chapter 4: Psychographics

Simmons Consumer Survey

Fundamental attitudes and impact on retirement planning

Figure 4-1: “I Enjoy Taking Risks,” Agree A Lot: 2007-2008 (percent of U.S. adults)

Figure 4-2: “I Am An Optimist,” Agree A Lot: 2007-2008 (percent of U.S. adults)

Less than half believe financial security in retirement is the individual’s responsibility

Figure 4-3: “Financial Security for Retirement Is Individual’s Responsibility,” Agree A Lot: 2007-2008 (percent of U.S. adults)

Figure 4-4: “I Know As Much As Possible Before I Commit To Financial Services,” Agree A Lot: 2007-2008 (percent of U.S. adults)

Figure 4-5: “I Feel Secure Financially,” Agree A Lot: 2007-2008 (percent of U.S. adults)

Figure 4-6: “Investing In The Stock Market Is Too Risky,” 2007-2008 (percent of U.S. adults)

Figure 4-7: “I Prefer to Let Professionals Do My Taxes,” Agree A Lot, 2007-2008 (percent of U.S. adults)

Baby Boomers’ beliefs largely reflect those of adults overall

Gen Xers lag overall population in certain financial attitudes

Implications

Attitudes of higher-income Baby Boomers and Gen Xers

Figure 4-8: “Financial Security for Retirement Is Individual’s Responsibility,” All Adults and $75,000+ Households, Agree A Lot: 2007-2008 (percent of U.S. adults)

Figure 4-9: “I Know As Much As Possible Before I Commit to Financial Services,” All Adults and $75,000+ Households, Agree A Lot: 2007-2008 (percent of U.S. adults)

Figure 4-10: “I Feel Secure Financially,” All Adults and $75,000+ Households, Agree A Lot: 2007-2008 (percent of U.S. adults)

Figure 4-11: “I Leave Financial Arrangements to Someone Else,” All Adults and $75,000+ Households, Agree A Lot: 2007-2008 (percent of U.S. adults)

Figure 4-12: “Investing iIn the Stock Market Is too Risky,” All Adults and $75,000+ Households, Agree A Lot: 2007-2008 (percent of U.S. adults)

Figure 4-13: “I Prefer to Let Professionals Do My Taxes,” All Adults and $75,000+ Households, Agree A Lot: 2007-2008 (percent of U.S. adults)

Computers and financial planning

Gen X prefers online financial activities

Figure 4-14: Internet Usage, 2007-2008 (percent of U.S. adults)

Figure 4-15: Online Activities and Websites Visited, Last 30 Days: 2007-2008 (percent of U.S. adults)

Figure 4-16: Selected Financial Reading Activities in Last 6 Months: 2007-2008 (percent of U.S. adults)

Higher-income Baby Boomers and Gen Xers differ from each other in use of financial media

Figure 4-17: Internet Usage, Higher-Income Adults ($75,000+ Households): 2007-2008 (percent of U.S. adults)

Figure 4-18: Online Activities, Last 30 Days, Higher-Income Adults ($75,000+ Households): 2007-2008 (percent of U.S. adults)

Figure 4-19: Selected Financial Reading Activities in Last 6 Months, Higher-Income Adults ($75,000+ Households): 2007-2008 (percent of U.S. adults)

Empty-nest, older segments favor online financial management

Table 4-1: Overview of Psychographic Data, 2007-2008 (percent and index)

Table 4-2: Overview of Psychographic Data, 2007-2008 (percent and index)

Table 4-3: Higher-Income Household Baby Boomer Psychographic Data, 2007-2008 (percent and index)

Table 4-4: Higher-Income Household Generation X Psychographic Data, 2007-2008 (percent and index)

Table 4-5: Overview of Computer/Media Use Patterns, 2007-2008 (percent and index)

Table 4-6: Higher-Income Household Computer/Media Use Patterns, 2007-2008 (percent and index)

Chapter 5: The Retirement Instruments Market

Overview of retirement resources

Table 5-1: U.S. Retirement Assets By Type, 1998-2007 (in trillions of dollars)

Projections of retirement resources

Figure 5-1: Projections of U.S. Retirement Assets by Type: Straight Line Projections, 2008-2012 (in billions of dollars)

Figure 5-2: Projections of U.S. Retirement Assets by Type: Adjusted for Nominal GDP as Projected by Congressional Budget Office, 2008-2012 (in billions of dollars)

Retirement resources from the individual’s perspective

All income sources

Table 5-2: Annual Income Saved During Last Year, 2008 (percent)

Table 5-3: Confidence in Saving Enough to Meet Future Needs, 2008 (percent)

Current financial and retirement resources of Baby Boomers and Gen X

Financial investment products

Baby Boomers tend to have more financial products than Gen Xers

Table 5-4: Overview of Ownership of Investment Products, 2007-2008 (percent of U.S. adults)

Table 5-5: Value of Securities Owned, 2007-2008 (percent of U.S. adults)

Table 5-6: Mutual Fund Values, 2007-2008 (percent of U.S. adults)

Table 5-7: Money Market Values, 2007-2008 (percent of U.S. adults)

Brokerage accounts dispersed among many providers

Table 5-8: Mutual Fund/Brokerage Accounts, 2007-2008 (percent of U.S. adults)

Table 5-9: Retirement Accounts, 2007-2008 (percent of U.S. adults)

Banking and investment products

Savings accounts are leading banking/investment products

Table 5-10: Ownership of Bank Products, 2007-2008 (percent of U.S. adults)

Bank of America is leader in banking

Table 5-11: Banks Used in Last 12 Months, 2007-2008 (percent of U.S. adults)

Insurance products

Table 5-12: Life Insurance Companies, 2007-2008 (percent of U.S. adults)

Financial products owned by higher-income Baby Boomers and Gen Xers

Table 5-13: Ownership of Financial Products By Higher-Income Households, 2007-2008 (percent of U.S. adults)

Individual/small business retirement products

IRAs

Table 5-14: IRA Ownership, 2007-2008 (percent of U.S. adults)

Traditional IRA versus Roth

Self-directed IRAs

Solo 401k

Structuring retirement funds to finance a new business

Proposed legislation

SEPs and Keoghs

Table 5-15: Keogh/Sep-Ira/Pension Ownership, 2007-2008 (percent of U.S. adults)

Annuities

Table 5-16: Ownership of Tax-Sheltered Annuities, 2007-2008 (percent of U.S. adults)

Single premium immediate annuity (SPIA)

Living benefits

Reverse mortgages and home equity

How reverse mortgages work

Table 5-17: Annual HECM Production, FY 1990-FY 2008 (number of loans)

Positive outlook for reverse mortgages

Long-term care insurance

Table 5-18: Long-Term Care Insurance: Industry Experience (2006 annual statement reporting year, reported 2005)

Individual LTCi

Figure 5-3: Individual LTCi Sales By Issue Age, 2007 (percent)

Figure 5-4: Individual LTCi Claimant Age for New Claims Opened, 2007 (percent)

Group LTCi

Figure 5-5: Group LTCi Sales by Issue Age, 2007 (percent)

Figure 5-6: Group LTCi Claimant Age for New Claims Opened, 2007 (percent)

The LTCi purchasing decision?

Innovative LTCi products

Life insurance

Life insurance settlements

Disability income insurance

Mutual fund products designed for retirement investing

Inheritance

Famous “Boomer inheritances” going to elders

Distribution phase

Table 5-18: Overview of Financial Products Data, 2007-2008 (percent and index)

Table 5-19: Overview of Financial Products Data, 2007-2008 (percent and index)

Chapter 6: Focus on Employer-Sponsored Retirement Products

The employee perspective

Pensions/defined benefit plans

Cash balance plans

412(i) plans

Defined contribution plans

401ks

Status of 401k plans

Participation by age

Table 6-1: 401k Ownership, 2007-2008 (percent of U.S. adults)

401k fees

401k fallout from 2008 financial crisis

Impact of the Pension Protection Act of 2006

New 401k products and features

Roth 401ks

Annuities surfacing as intriguing 401k option

Representative annuity products

Exchange Traded Fund (EFT) 401k platform

Representative exchange-traded funds

Collective investment funds

401k debit cards

Lifestyle and lifecycle funds

Managed accounts

Advice is welcome!

Representative products and programs

Advice to troubled mortgage holders

Automatic enrollment

401k/cash balance combo

401k rollovers

Legal challenges

Financially troubled employer sued for stock losses in 401k plan

403bs

Administrative and information services

403b litigation

Representative programs

457 plans

Simple IRAs

Defined contribution recordkeepers

Table 6-2: Top 10 Defined Contribution Recordkeepers By Total Recordkeeping Assets, 2008 (in millions of dollars)

Table 6-3: Top 10 Defined Contribution Recordkeepers By Recordkeeping Assets in 401k Plans, 2007 (in billions of dollars)

Table 6-4: Top 10 Defined Contribution Recordkeepers By Recordkeeping Assets in 403b Plans, 2007 (in billions of dollars)

Table 6-5: Top 10 Defined Contribution Recordkeepers By Recordkeeping Assets in 457 Plans, 2007 (in billions of dollars)

Chapter 7: Distribution Channels; Marketing and Advertising Campaigns

Introduction

Financial planners

Banks

Mutual fund and investment management companies

Representative products

Insurance agents

Internet/direct response

Marketing and Advertising Campaigns

Targeting Baby Boomers

Targeting Generation X

Seven Case Studies

Bank of America

Charles Schwab

Edward Jones

Fidelity Investments

MetLife

New products

Research and education

Publicity, marketing and distribution programs

Nationwide

Wachovia

Other Companies Worthy of Note

Allstate

Ameriprise Financial

Citigroup

John Hancock

Liberty Mutual

Lincoln Financial

Wells Fargo

New media

YouTube meets financial literacy