Baby Boomer Retirement Wealth at Risk

Retirement plans built on commission-driven advice raise many questions for retirees. Shop carefully between broker-dealers and Certified Financial Planners®, and make investment decisions wisely.

U.S. Census figures reveal that America has 77 million baby boomers.  Every seven seconds, an American turns 50. That’s about 12,500 people per day.  AARP projects that by next year (2015), boomers will constitute 45% of the U.S. population.

Not surprisingly, this group owns seventy-five percent of America's wealth, according to ICSC. As of 2001, 78 million Americans 50 years of age or older controlled 67% of the country's wealth, or $28 trillion, so the boomer footprint is growing, according to U.S. Census and Federal Reserve statistics.  Many boomers were caught in the tidal shift from employer-controlled defined benefit savings plans, to employee-controlled direct-contribution plans in the wake of the 2000 dot-com collapse.

ICI’s Independent Investor’s Council reported that, as “of June 30, 2014, 401(k) plans held an estimated $4.4 trillion in assets and represented nearly 18 percent of the $24 trillion in U.S. retirement assets, which includes employer-sponsored retirement plans...  In comparison, 401(k) assets were $2.2 trillion and represented 16 percent of the U.S. retirement market in 2004.”

In his Harvard Business Journal article “The Crisis in Retirement Planning,” Robert C. Merton wrote:  “But although the move to defined-contribution plans arguably reduces the liabilities of business, it has… increased the likelihood of a major crisis down the line as the baby boomers retire… Putting relatively complex investment decisions in the hands of individuals with little or no financial expertise is problematic.”  Such individuals often have no clear idea of where to turn.

Mark D. Kinney, a Certified Financial Planner® (CFP) and founder of Toole Kinney & Company, with nearly three decades of investment savvy, observes: “Many boomers have traditionally looked to advisors aligned with commission based broker-dealers for assistance.  This creates conflict, as broker-dealers are not held to the fiduciary standard. Many of them are good people stuck in a bad, commission-based system that promotes maintaining a fully invested client position, regardless of market conditions.  By contrast, fee-based Registered Investment Advisors are required by law to act as fiduciaries, placing the best interests of their clients above all else.”

Merton further elaborates on the problem: “More dangerous yet is the shift in focus away from retirement income to return on investment that has come with the introduction of saver-managed DC plans: Investment decisions are now focused on the value of the funds, the returns on investment they deliver, and how volatile those returns are. Yet the primary concern of the saver remains what it always has been: Will I have sufficient income in retirement to live comfortably. Clearly, the risk and return variables that now drive investment decisions are not being measured in units that correspond to savers’ retirement goals and their likelihood of meeting them. Thus, it cannot be said that savers’ funds are being well managed.”

“That danger,” explains Kinney, “is what happens with plans built on commission-driven advice.  With the refinement in technology, empirical trends in the market can be tracked better than ever before – enabling advisors not restricted by the traditional broker model, to position clients defensively in bad times, yet opportunistically in good. Since 1900, U.S. markets have suffered a major decline once every 5-6 years, typically between June 1st and October 31st.  Sometimes moving to an all-cash position in a forecasted down market is the only thing to do.  Many of the elite private money managers historically reserved for big pensions and the very wealthy, have known this for years.  Fortunately, those clients working with advisors not constrained by the broker model now have access to them as well.”

For many baby boomers, what they want and what they have are now at odds.  This can be fixed. For many, now might be the right time to make an important change that will impact retirement plans for decades to come.


Mark D. Kinney, Certified Financial Planner ®(CFP), and founder of Toole Kinney & Company, serves  clients throughout New England in the area of retirement income and preservation planning.  With almost 30 years’ experience, including over two decades with a broker-dealer, Mark’s insight into the universe of income generating investment options has proven invaluable to retirees.

Contact Info:
Name: Mark D. Kinney
Email: Send Email
Organization: Toole Kinney & Company
Phone: (413) 243-2654

Release ID: 68592