Boomer Fear: Loss of Liquidity

Last year, 52% of workers with annual incomes of $50,000 to $100,000 said they planned to rely primarily on 401(k) plans and Individual Retirement Accounts to pay for living expenses once they stop working, up from 46% in 2006. 

The percentage counting on Social Security also grew, to 19% from 13%, while those counting on company pension plans dropped to 11% from 18%.  What's more, individuals are living longer.  Many boomers are expected to reach their 90s.

Mutual fund companies are targeting retirees and the 78 million Baby Boomers behind them who begin turning 62 this year.  As waves of boomers leave the work force, many will turn from pumping money into their fund accounts to pulling it out.  Mutual fund companies want to ride this wave as well as they rode the one that has helped many boomers amass million-dollar nest eggs.

In their effort to continue profiting from the generation born between 1946 and 1964, fund companies have one big thing going for them: Many boomers are put off by annuities.  A study by AARP last year found that the most risk-averse respondents were also the least open to annuities.  Jean Setsfand, director of financial security at AARP, says even conservative investors saw "less value" in the guarantee feature of annuities because they were more worried about losing access to their savings.  "The loss of liquidity is a big issue for many people," she says.

Also, many individuals are wary of annuities for fear of hidden fees and because they feel they don't know how their money is being used.  "Transparency has been an issue with the annuity industry," says Ben Pousty, a senior analyst at research firm Corporate Insight Inc., New York.

So, mutual fund companies are taking advantage of this opening to roll out new products that provide a periodic check in the mail--thus hoping to keep their clients' money with them for years and possibly attract new ones.

Source: The Wall Street Journal, June 2, 2008