Data & Research July 2, 2013

A Confidence Gap for Early, Late Boomers

Different workplace experiences and employee benefit histories are causing a divide between early and late Baby Boomers regarding their financial security and outlook on retirement.
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A report released by the Insured Retirement Institute (IRI), “The Great Divide: Financial Comparison of Early and Late Boomers’ Retirement Preparedness,” shows those on the tail end of the Boomer category will be confronted with added challenges and are less prepared financially to overcome them.

The report found that while the percentage of all Boomers who are confident they have sufficient funds to cover their retirement years sunk to 34% in 2013, results varied within the broader group. Early Boomers, ages 61 to 66, were slightly more optimistic, with 42% believing they have enough savings to live comfortably throughout retirement. But for late Boomers, ages 50 to 55, only 25% shared this confidence.

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Other findings from the report include:

  • While savings are lagging for both groups, 47% of late Boomers reported having less than $100,000 saved for retirement, compared with 32% of early Boomers;
  • Forty-three percent of late Boomers identified a DC plan as a major source of retirement income, compared with 36% of early Boomers;
  • Insufficient savings is the most common reason late Boomers are uncertain as to when they will retire, as stated by 27% of those surveyed. By contrast, the most common reason for the uncertainty among early Boomers, as stated by 20%, is that they enjoy working;
  • Of late Boomers, 31% are struggling to pay their rent or mortgage, and 34% are financially supporting an adult child, compared with 20% and 21%, respectively, of early Boomers; and
  • More late Boomers remain in the labor force, 80%, compared with only 43% of early Boomers.

"From a retirement planning perspective, we need to start segmenting the Boomer cohort to ensure that we are appropriately addressing their unique retirement needs and challenges," said Cathy Weatherford, IRI president and CEO. "Those on the back end of the generation have had a much different workplace experience than the first Boomers. They worked most their careers during the defined contribution (DC) plan era and will face many of the risks and challenges that have come with it."

As a result, Weatherford said, they will be more self-responsible for their retirement income security. At the same time, however, late Boomers have less saved for retirement and their low confidence regarding their future financial security reflects this.

Woelfel Research, Inc. surveyed, on behalf of IRI, individuals who are approaching retirement or who have recently retired. Telephone interviews were conducted with 802 adult Americans, ages 50 to 66. The full report can be downloaded here.

The Markets July 2, 2013

Funded Status of Corporate Pensions Rose in June

The funded status of U.S. corporate pensions rose by 3.1 percentage points in June to 89.5%, according to the BNY Mellon Investment Strategy & Solutions Group (ISSG).
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This was the highest level since June 2011, when it was 91.4%, and year-to-date, the funded ratio is up 13.2 percentage points, BNY Mellon said.

The improvement was driven for the second month in a row by a jump in the Aa corporate discount rate, which drove liabilities sharply lower, according to the “BNY Mellon Pension Summary Report for June 2013.” Liabilities for the typical corporate plan fell 5% as the discount rate on the Aa corporate bonds increased 39 basis points to 4.69%. Plan liabilities are calculated using the yields of long-term investment grade bonds. Higher yields on these bonds result in lower liabilities.

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The report also found that assets for the typical corporate plan fell 1.6% as U.S. equity markets had their first losing month in 2013.

“Investors are growing more confident that the U.S. Federal Reserve is getting ready to taper its easing policies, and this is resulting in higher interest rates, which benefits plans,” said Jeffrey B. Saef, managing director, BNY Mellon Investment Management, and head of the ISSG. “While assets fell slightly in June, the big decline in liabilities more than compensated for the fall in equity values, leading to the improvement in funded status.”

Saef added that many pension plans view a funded status of 90% as a threshold for shifting a portion of their equities into liability-matching assets. “With the funded status at over 89% and yields rising, we would not be surprised to see a growing number of companies moving assets into longer term corporate bonds.”

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