Statistical Shift Studies Show Boomers Are Replacing Spending with Saving

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Over the thirty years leading up to the 2008 financial crisis, our national savings rate dropped steadily as usage of consumer credit increased and our populations’ positive outlook on their future economic prospects rose.  The general public also became much more comfortable with the idea of taking on economic risk, as 401(k)s replaced traditional pension plans and as stock market mutual funds became a mainstream investment choice.

But the last few years have brought a startling new perception of the future into focus for many Baby Boomers.  They realize that they are rapidly approaching  traditional retirement age, thus they need to build savings rapidly.  At the same time, they face pressures from a difficult job market and falling home values.  This has led to a shift into utilizing more conservative retirement products.

Recent economic figures show how Boomers use their money is changing.  For example, the Commerce Department released figures in late January indicating incomes increased in December, yet consumers chose to save the extra money instead of spend it.  Clearly, this reflects a shift in the Baby Boomers’ priorities.

Now, consider the Boomers’ attitudes toward risk.  The Investment Company Institute shows net cash inflows averaged over $100 billion annually into equity mutual funds during 2003 – 2007, when the stock market was rising in value.  As you would expect, during the 2008 market downturn, consumers shifted into reverse, and pulled over $200 billion out of these equity mutual funds. Note that even though the S&P 500 index has nearly doubled since it hit bottom in March 2009, consumers have not returned to the equity markets.

In fact, even in today’s rising stock market, equity mutual funds have ironically suffered net cash outflows in each of the past three years; including over $100 trillion of net cash outflows in 2011 alone.  Baby Boomers have obviously become less willing to take risk.

The Indexed Annuity Leadership Council (IALC) recently surveyed consumers about their financial priorities. IALC’s findings confirm that when it comes to Boomers managing their finances, they are reluctant to take risks; even more so than they were five years ago.  More than two-thirds (67%) of adults are at least “somewhat reluctant to take risks” when it comes to managing their finances (including retirement savings).  In addition, roughly two-thirds (65%) of adults said they are “as much, or more reluctant to take risks” than they were five years ago.

These trends have changed Baby Boomers’ expectations.  Today’s retirement doesn’t necessarily mean extended vacations or days of leisure.  Three out of four (75%) adults indicated “working part-time after age 65” best represents what it means to retire.  In contrast, only 20% said that “not working at all by age 65” best represents their perspective of retirement.

In this survey, IALC also found that parents have anxiety about their children’s financial futures. Nearly two-thirds (65%) of parents are “at least somewhat concerned” that their children may not have enough money to retire comfortably when planned, much less retire at all.

Planning for retirement isn’t easy, especially in these challenging economic times.  The insurance industry has seen an increase in sales of products that offer guaranteed safety of principal, guaranteed rates of return, and guaranteed lifetime income.  Fixed indexed annuities, as an example, have experienced increasing sales volume nearly every year since they were introduced nearly 15 years ago.

Fixed indexed annuities are insurance products where the credited interest rates are based upon the performance of an index, such as the S&P 500.  This type of annuity offers a minimum guaranteed return in addition to potential for index-based interest.  In short, fixed indexed annuity purchasers benefit when the stock market index increases, but they never lose their principal nor previously credited interest in the event the index declines.  This combination of safety and growth potential appeals very strongly to risk-averse Baby Boomers and retirees.

At NAFA, we strive to be a resource for the general public about fixed annuities and retirement planning.  Although discussing retirement planning can be difficult, it’s important to take control and secure a financial future for you and your family members.  We encourage you to discuss these issues with friends, family, and retirement planning professionals.  You can also find information about safe money options such as fixed indexed annuities online at

Kim O’Brien is NAFA President & CEO. NAFA membership represents over 85% of all premium for fixed indexed, declared rate and income annuities written through the independent distribution system. Kim has over 30 years of experience in the insurance industry beginning as in 1981 as office manager for an insurance agency. In 2002 Kim developed and ran her own marketing organization and received the 2002 Entrepreneur Award from Sun Life. In between, Kim worked as a marketing executive for major insurance companies and was responsible for their annuity and term life insurance product line development, marketing, and training processes. In 1993, Kim served as interim deputy director of the Wisconsin Department of Insurance under Governor Tommy Thomson and served Governor Thompson until a permanent replacement could be found. In July 1992, Kim was the first women in Wisconsin to pass the CFP exam established in 1991 by the CFP Board as a single comprehensive examination modeled after the licensing examinations given to attorneys or Certified Public Accountants (CPAs). Kim O'Brien received her BA from Ripon College, her MFA from the University of Northern Colorado, and an MBA with an emphasis in Economics from Edgewood College, Madison, Wisconsin. In 2008, Kim was accepted into the Juris Doctorate program at the William H. Taft Law School and completed her first year and passed the preliminary California Bar as required before continuing her degree. She has recently re-instituted her studies to begin this summer after a hiatus due to her NAFA workload. As an avid musical theater fan and dancer, Kim has directed or choreographed over 60 shows in Milwaukee and Madison, Wisconsin. She lives with her husband and college sweetheart of 39 years, Kelly, in Phoenix nestled in the Thunderbird Conservatory she enjoys hiking the mountains with their Irish setters.

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