Preserving your portfolio
Baby boomers nearing retirement need to start shifting their investing gears
At 57, Don Vellek has already enjoyed two full careers--first in sales in the telecommunications industry, where he worked for roughly three decades. Then, a few years ago, the Atlanta resident shifted his focus to the travel agency he co-owned throughout much of his corporate life. While Vellek has since sold his share of that business, he still works there full time.
By most standards, Vellek has put in enough time to call it a day. But he says: "I have absolutely no thought of retiring."
Why should he? For years, baby boomers like Vellek have rewritten the rules of the good life. Now a generation living longer and more unpredictable lives than its parents is trying to rewrite the rules for retirement. But as the first wave of the boomers approaches 60, there is one thing it cannot change. That's time.
Though many have no plans to retire immediately, those in their mid to late 50s will probably end up leaving the workforce over the next decade or so. In the coming decades, some 77 million Americans are expected to do so in what is likely to be the biggest wave of retirement in U.S. history.
Fuddy-duddies? That tidal shift has enormous implications for investing. No longer will the sole goal be accumulating capital as fast as possible. Now, the focus will most likely shift to reducing volatility and preserving a portfolio amassed over a lifetime. That will require a generation of Americans brought up on the cult of equities--through 401(k)'s, mutual funds, and online brokerages--to develop tastes for such fuddy-duddy investments as bonds and even cash.
Vellek, who at one point in his career held 100 percent of his nest egg in his employer's stock, is already making the transition. Today, he keeps about 42 percent of his assets in a diversified mix of U.S. equities and 8 percent in foreign stocks, with the remainder invested in bonds and cash. But, says Vellek, who will turn 58 on New Year's Day, "the next step is to ratchet that down to around 32 percent U.S. stocks and 13 percent foreign." The adjustment would cut the share of equities in his account below 50 percent for the first time.
That is more conservative than many of his peers. While the general perception is that older workers are wary of the stock market, particularly after the recent bear market, today's 50-somethings actually have nearly two thirds of their retirement savings in stocks, according to a study of 401(k) plans by employee benefits consultants Hewitt Associates. The average 60-something has around 60 percent in stocks. Investors have a strange tendency to be "overly aggressive until the day they retire," says Mike Scarborough, president of the Scarborough Group, a 401(k) investment advisory service. "Then they become overly conservative. It's like a light switch."
But financial planners suggest that instead of flipping a switch to go from almost all stocks to almost all bonds, boomers should consider gradually dimming their exposure to equities. Doing so won't be easy. "It's all on the worker to make the right decisions," says Carol Geremia, president of the retirement services group of asset managers MFS. Boomers are the first generation of workers to have lived under a retirement savings system dominated by self-directed investment plans like 401(k)'s and IRA s, which require workers to bear all the risk and make all the decisions. As recently as a decade ago, nearly 60 percent of working families were covered by a guaranteed pension. Today, that's down to just over a third.
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