Data & Research April 15, 2007

Baby Boomers Need Lots of Cash

Baby boomers plans for cash needs in retirement will likely frustrate their advisers: they plan to withdraw significant sums of money early on, drawing down their savings faster than anticipated.
Reported by
A recent study released by the U.S. division of Sun Life Financial said its survey found that more than 70% of baby boomers expect their income needs to fluctuate greatly throughout retirement with the highest income amount needed in the first five years. Despite these large plans for retirement, only 38% of baby boomers feel they are prepared to fund that lifestyle. Therefore, boomers will need flexibility in accessing their income, something that may be difficult to accommodate when trying to write retirement income plans.
“This survey shatters the old rule that people should plan to live on a fixed 70%-80% of their pre-retirement income,” said Mary Fay, Senior Vice President and General Manager of Sun Life Financial’s Annuities Division. “Boomers are eager to live life to the fullest, particularly in the early years of their retirement. To make that possible, they will need to create much more flexible retirement income plans that give them access to the money they need, when they need it.”
According to the news release, to fund this “retirement spending boom,” the survey indicates that 86% of boomers indicated they plan to earn income from a job during their first five years in retirement. Other sources from which baby boomers plan to draw during their first five retirement years include:
  • Social Security (cited as an income source by 70%);
  • pensions or employer-sponsored retirement plans (cited as an income source by 65%);
  • rental and investment property income (cited as an income source by 60%); or
  • assets from the sale of a business (cited as an income source by 58%).
Asset Allocations
Although baby boomers say they have varying income needs, they have a surprising amount of their savings invested in fixed-return products, Sun Life said. In fact, boomers have 25% of their assets invested in fixed products (16% invested in bank accounts/CDs, 6% invested in fixed annuities, and 3% invested in individual bonds) and another 12% invested in money market mutual funds. On the equity side, 34% of boomers’ money is invested in mutual funds, 15% in individual stocks, 7% in separately managed accounts, and 5% in variable annuities.
When it comes to their financial advisers or planners used for retirement planning issues, the largest group of baby boomers is turning to the national wirehouses for help. In fact, more than one-third (38%) say their adviser is associated with a national brokerage firm, compared to 20% who use independent financial advisers and 11% whose advisers are associated with a regional/local brokerage firm. Eight percent each say they are affiliated with a bank or insurance company.
When considering retirement income products, baby boomers express interest in guarantees, but aren’t willing to sacrifice control over their assets to get them. When asked what is most important in a retirement income product, the largest group, 38%, say they would like to be guaranteed that they won’t lose what they have invested, particularly in the early years of retirement. About a third (32%) said they would like to be assured that they’ll receive 5% of their initial investment for the rest of their lives. Contrarily, 30% wanted control over their assets, saying they would be interested in a product that allowed them to start, stop and store their guaranteed income. Only one-quarter (26%) of the boomers surveyed were interested in growth, saying they would like to know that income may potentially increase over time.
Planned Activities
Baby boomers plan to have a very busy first five years of retirement or semi-retirement. According to those surveyed, more than 80% cited domestic and international travel, hobbies, and a new career as the top activities they plan to pursue during that time period. Overall, during the first five years, boomers plan to pursue many costly activities:
  • 85% plan to pursue domestic travel
  • 83% plan to pursue hobbies
  • 82% plan to pursue international travel
  • 81% plan to begin a new career
  • 78% plan to spend more time with children/grandchildren
  • 76% plan to start a business
  • 73% plan to pursue volunteering
  • 72% plan to take classes or get a degree
  • 61% plan to purchase a second home
  • 56% plan to relocate to a new location
  • 54% plan to assist charitable organizations
The survey was sponsored by the U.S. division of Sun Life Financial and conducted and analyzed by independent research firm Cogent Research, Cambridge, Massachusetts. It was conducted with 1,000 non-retirees and 1,000 retirees aged 50 and over in January 2007. Each participant had over $250,000 in investable assets and was working with a financial professional in making investment decisions.
The full research brief is here.

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