Aging Populations, Baby Boomers Create Opportunities/U.S. Pension Accounts Top $24.8 Trillion

According to the Investment Company Institute, Americans held $36.7 trillion in retirement and pension assets in the second quarter of 2023, including individual IRAs, employer-sponsored pension or savings plans and plans for government employees. (These numbers do not include life insurance plans, expected benefits from Social Security, privately held annuities or certain other types of retirement savings.) 2006 marked the year that the first Baby Boomers turned 60, meaning that many could take early retirement. By the year 2020, the total number of Americans over age 65 will be the highest in the history of the nation, at about 55 million, up from only about 20 million in 1970.

The term “Baby Boomer” generally refers to people born from 1946 to 1964. It evolved to include the children of soldiers and war industry workers who were involved in World War II. When those veterans and workers returned to civilian life, they started or added to their families in large numbers. As a result, the Baby Boom generation is one of the largest demographic segments in the U.S. Beginning with 2011, millions were turning traditional retirement age (65), resulting in extremely rapid growth in the senior portion of the population.

The aging of populations in the U.S., Japan, Russia, South Korea and many other nations in Europe and Asia will create both challenges and opportunities for the investment industry. For example, as large segments of the population age and retire, they will rely more and more on asset management and retirement products for income, rather than their previous salaries. There will be huge new opportunities to provide investment products tailored to provide security for retirement years. The popularity of annuities is but one example. In fact, nations like Japan, with extremely high personal savings rates and rapidly aging populations, will be particularly attractive to firms that sell investment products.

Large amounts of money will be rolling over each year from savings plans at work, such as 401(k)s, into individual retirement accounts as American workers retire. Retirees rolling over these funds will have specific needs, and investment firms will want to anticipate proactively the goals and desires of people in this market.

As workers retire, they need to move their funds from employer-sponsored 401(k) savings plans into different products. Annuities and mutual funds are good alternatives for those entering retirement. Many retirees will qualify to move their funds into IRAs.

IRAs already totaled about $13.0 trillion in assets in the U.S. as of the second quarter of 2023, according to the Investment Company Institute, while 401(k)s held $6.5 trillion. Some retirees will want to actively manage their own portfolios. Others will want to enter into new agreements with asset managers who understand the unique needs and concerns of aging seniors. Unfortunately, the elderly can be extremely susceptible to investment fraud and bad advice, and they are sometimes sold financial products that are completely inappropriate. Financial planners who cater to aging Baby Boomers should see a significant upturn in business, especially those planners who can create a sense of safety and security for their clients. Vanguard and Fidelity are among investment funds that have been particularly proactive in designing new products and services for this market. Like Vanguard, many firms see the need to position themselves as a place where retirees can seek competent advice. Another leading company, Fidelity, has launched a free Fidelity Retirement Income Advisor service with great success.

Vanguard, Fidelity and other firms offer mutual funds that are designed to use asset allocation products in an attempt to provide an average annual stream of income of a given amount over a set number of years. The efforts include an attempt to increase the annual payout by an amount equal to the rate of inflation.

There will be continuing debate over whether and how to reform America’s Social Security system. When Social Security was first launched in the 1930s, the typical American was vastly younger than today (the median age in 1930 was only 26.5 years compared to about 38.8 years in 2021), and the ratio of workers to retirees in the U.S. was 41 to 1. In 2004, there were only 3.4 workers per retiree. In 2034, the projected number is two workers per retiree. In 1930, there were only 6.6 million Americans aged 65 and above; in 2021 there were more than 54 million. That number is increasing dramatically as the Baby Boom generation hits retirement. Clearly, the burden of retirement payouts has grown to a degree unanticipated by the founders of the pay-as-you-go Social Security system.

Meanwhile, Baby Boomers are more affluent and in much better health than any previous retiring generation. They are also more likely to be well educated and somewhat financially savvy. These new retirees know that they are likely to live for a long time, and many want solid investments and financial planning that will enable them to live well. Investment firms have an unprecedented opportunity to earn lucrative fees by serving this market, not only in the U.S., but in other rapidly aging nations including Japan and virtually all of Europe.

The aging of populations in the U.S., Japan, and China, along with much of the EU and many other regions will create both challenges and opportunities for insurance companies. For example, as large segments of the population age and retire, they will rely more and more on asset management and retirement products for income, rather than their previous salaries. The annuity and life insurance business will evolve as these customers age. In America, there will be huge new opportunities to sell health insurance policies that supplement Medicare, as well as long term care insurance. Also, well-run insurance underwriters will create new insurance products or investment and annuity packages aimed specifically at aging consumers.

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Aging Populations, Baby Boomers Create Opportunities/U.S. Pension Accounts Top $24.8 Trillion, Business and Industry Trends Analysis

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