LOS ANGELES, December 6, 2017 — Baby Boomers are learning to expect the unexpected as they transition into retirement, according to a survey of 1,200 investors conducted by Capital Group, home of the American Funds®. From what expenses cause sticker shock, to why people retire earlier or later than they planned, and whether they expect bull or bear markets for the coming decade, the research highlights what keeps Boomers up at night and lessons they have learned about investing for a secure retirement.
“Decades of weathering market highs and lows have turned the Boomer generation into seasoned buy-and-hold investors who take a long-term approach,” said Heather Lord, senior vice president and head of strategy and innovation at Capital Group. “There has never been a generation as active, healthy or well-off, but they are encountering unexpected financial realities. Boomers are looking to protect against market downturns and keep costs down to grow their nest egg in retirement.”
Wisdom of Experience: Five Golden Rules From Retired Boomer Investors
Through years of investing and saving for retirement, Boomers have learned many lessons — some good, some bad and all beneficial to future generations of investors. The survey found five rules that Boomer investors believe to be essential to saving for a secure retirement.
Sticker Shock on Health Care, Travel and Taxes — But Not Housing, Credit Cards or Kids
Health care tops the list of surprise costs. Forty-three percent of retired Boomers report spending more on health care than they had planned. Retired Boomers want to travel, but 40% are spending more on this activity than they anticipated. Thirty-four percent say they are paying more than expected in taxes as retirees.
By contrast, Boomers seem to be budgeting well for other costs: Only around one in 10 retired Boomers (9%) say they face higher than expected housing costs or believe they carry too much on their credit cards. Eleven percent are paying more than they expected to support dependent family members, which could include adult children living at home or in need of financial support.
Retired Boomers Are the Least Worried
When asked, “How does your life in retirement compare to the expectations you had before you retired?” six out of 10 (60%) Boomers said they feel positive about their retirement, and 30% said it’s about what they expected. Only 10% feel disappointed or negative about their retirement, mainly citing financial stress.
Financial worries differ less between generations than between retired and non-retired Boomer investors. Six out of 10 (59%) working American adults and 65% of non-retired Boomers are worried about not having enough money for retirement, compared to only 27% of retired Boomers. Importantly, this difference in worry levels holds up even when comparing retired and working Boomers with similar-sized nest eggs. But more than a third (37%) of Boomers are concerned about how ensuring long-term care for themselves or a family member could impact their retirement.
Almost a third (31%) of Boomer investors indicate no financial concerns, compared to only 16% of Generation Xers and 11% of Millennials. The number of Gen Xers and Millennials who are worried about how household income, debt, education costs or caregiving for an aging parent could hold them back financially is two to three times higher than for Baby Boomers.
Boomers Bullish About the Next 10 Years
Boomers may worry less about retirement savings because their life trajectories mapped the long bull market in stocks since 1980. But what’s their outlook for the future? Most Boomers are positive about the next 10 years of markets returns. Fifty-three percent believe the market will go higher and perform at least as well as the past five years or so, or it will average single-digit returns in line with historical averages.
Not all Boomers are bullish: 29% believe there will be significant ups and downs and market corrections over the next 10 years, resulting in lower than average historical returns, or there will be a market crash similar to the 2001 tech bubble or 2008 financial crisis. And 17% have no sense of the direction of markets over the next decade.
Best Outcome: A Smoother Ride in Retirement
Given this outlook, Boomer investors are thinking about their long-term financial needs for a retirement that could last decades. They want to continue growing their nest egg while guarding against the short-term whims of the market. When asked what they consider the best investing outcome, 51% said, “Doing better than the market over time,” and 21% replied, “Reducing my losses during market downturns.”
This desire to create a buffer from market ups and downs is also apparent in how Boomers are investing their retirement savings. When presented with a number of choices about which investing approach best aligns with their retirement savings objectives, two outcomes — outpacing market averages over the long term and protection against market downturns — rise to the top of the list.
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About Capital Group
Since 1931, Capital Group, home of the American Funds, has been singularly focused on delivering superior results for long-term investors using high-conviction portfolios, rigorous research and individual accountability. Today, Capital Group manages more than $1.4 trillion in equity and fixed income assets for millions of individual and institutional investors around the world.*
The Capital Group companies manage equity assets through three investment groups. These groups make investment and proxy voting decisions independently. Fixed income investment professionals provide fixed income research and investment management across the Capital organization; however, for securities with equity characteristics, they act solely on behalf of one of the three equity investment groups.
*As of December 31, 2016
Methodology
The survey was conducted by APCO Insight, a global opinion research firm, in March 2017. The research consisted of an online quantitative survey of 1,200 American adults — 400 Millennials (ages 21–37), 400 Generation Xers (ages 38–52) and 400 Baby Boomers (ages 53–71) — of varying income levels, who have investment assets and also who have some responsibility for making investment decisions for their families. The overall sample reflects national representation on key demographic measures according to the U.S. Census Bureau.
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