How Should We Invest Our Retirement Savings?

Article excerpt

The baby boom generation has come of age. Boomers are starting to ask responsible questions like, "How should we invest our retirement savings?"

The conventional wisdom from financial planners is that individuals should invest heavily in the stock market when they are in their peak earnings years and can afford to take risks. As they get closer to retirement however, they should replace at least a portion of those equity investments with more conservative investments, such as bonds and certificates of deposit. Finally, at retirement, individuals should shift their portfolios toward still more conservative investments that can assure a steady income stream throughout their retirement years, such as lifetime annuities.

But the conventional wisdom may be wrong. At a recent conference on retirement policy, I heard two experts challenge different aspects of the conventional wisdom on saving for retirement. I have yet to reconcile their two very different critiques of the traditional retirement savings model, so I'll let you be the judge. The conference, entitled "Retirement 2000: The Impact of Aging Baby Boomers," was sponsored by the Society of Actuaries ( and a dozen other organizations that represent pension and employee benefits professionals. Held last month in Washington, D.C., the conference considered how the aging work force will affect pensions and retirement in the 21st century. Conference participants heard presentations from a multi-disciplinary group of more than 25 pension experts from around the world, and I was privileged to be among them. There was general agreement among the conference participants that demographic changes will have a significant impact on pensions and retirement in the 21st century. By 2030, for example, when virtually all the baby boomers in the United States will have retired, their life expectancy at age 65 is projected to be nearly 18 years for men and more than 21 years for women. And an unprecedented 20 percent of the U.S. population will be age 65 or older then, up from just 12 percent today.

Conference participants also considered the impact of earlier and earlier retirement on the resources needed to provide pension income. In that regard, the average age of retirement is 62 today, down from 65 just 30 years ago. As a result, older men leaving the work force today can anticipate 18 years in retirement, up from only 13 years just 30 years ago. Of course, it is great that we are living longer and that most of us can expect to have long and leisurely retirements. …


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