The survey finds one-third (32%) of Baby Boomer investors say maximizing growth is their most important criterion when making decisions about their retirement assets. This aggressive stance points to the lasting impact the Great Recession has had on Baby Boomers’ efforts to save for retirement, MFS says.
Meanwhile, younger investors are surprisingly focused on other objectives. When it comes to their retirement savings, 60% of Millennials indicate criteria other than growth are top priorities. Nearly one-third of Millennials (29%) say capital protection is their most important investing goal, while another 31% identify income generation.
“The Great Recession has flipped the script, with Boomers remaining growth oriented, even as retirement approaches, and younger investors becoming income oriented,” explains Doug Orton, vice president of business development for MFS. “Boomers appear desperate to rebuild their nest egg before retirement, with significant equity exposure in the face of a compressed investment time horizon.”
Millennials, even with time on their side, would rather preserve what they have and avoid the market’s many risks, the study shows. Orton says the data suggests Boomers and Millennials alike are maintaining asset allocations inconsistent with their true risk tolerances and investment time horizons.
The contrast between Boomers and Millennials is significant, MFS says. Boomers, on average, report holding 40% of their retirement assets in equities, 14% in bonds and 21% in cash. Millennials report holding less equity (30%), with greater allocations to bonds and cash, at 17% and 23%, respectively. More than one-fifth of Millennials (22%) believe maximizing income is the most important factor when making decisions related to their retirement assets, versus just 17% for Boomers.
More than half (51%) of Baby Boomers say they are concerned about being able to retire when they thought they could, and 37% say over the past few years they have lowered their expectations about what life will be like in retirement. Half agree that a drop in the stock market is the biggest risk to their retirement assets, and only 45% are highly confident their portfolio is properly balanced.
Orton says it is both fear and desperation that makes Boomers think they can grow their way out of the problem of not having a large enough retirement nest egg—while Millennials seem overly determined to avoid the risk of the stock market, even though on average they have 30 years or more to ride out the ups and downs.
MFS says Millennials and Boomers are behaving out of sync with the recommendations of their financial advisers. Neither group’s investing behavior matches the priorities financial advisers traditionally identify for their retirement assets. Only 14% of advisers say maximizing growth is their top criterion when advising Boomers, and only 2% say income generation is a priority when advising younger investors about retirement assets. Nearly three-fourths (74%) indicate that maximizing growth is their top consideration when advising younger investors about retirement assets.
More than half of advisers (55%) believe Baby Boomers think “investing in retirement is all about income and preservation, not growth.” However, only 28% of Baby Boomers agree. Similarly, 44% of advisers think baby boomers believe “it is too risky to invest in the stock market once you are fully retired.” Again, only 28% of Baby Boomers actually agree with the notion.
MFS says advisers believe younger investors have approximately 54% of their retirement assets in equities, while Millennials report holding only 30% on average. Advisers also believe cash makes up roughly 6% of the retirement assets of younger investors. According to the survey, however, millennial investors have 23% of their retirement accounts in cash. The numbers suggest Boomers and Millennials may have misconceptions about the assets they actually hold in their retirement portfolios.
"The U.S. stock market has nearly tripled in value since the market bottom of March 2009, while interest rates have remained historically low,” Orton says. “We need to start preparing investors for the expected—interest rates rise and recessions occur—not the unexpected. To be prepared, investors must discuss their mindset and current allocations with their financial advisers. Regardless of age, investors, along with their advisers, need to understand the risks that come with asset allocations that do not match investment time horizons.”
Additional findings from the MFS Investing Sentiment Insights Survey are available here.