Filene Study Offers Advice On Boomer Retirement

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MADISON, Wis.-Credit unions kicking back and awaiting aging Baby Boomers to cash out their stock portfolios and use the CU's investment services are likely in for disappointment, according to a new study.

The study from the Filene Research Institute, titled "Pre- and Post-Retirement Asset Portfolios, draws upon Rand Corp.'s Health and Retirement Study, which tracks the asset-selling trends of previous generations. Although stock holding has changed over time in the general population, the holdings among older generations have generally moved in concert, according to the Ben Rogers, Filene research director.

Rogers noted that it appears "that the boomers' retirement will be no more or less significant in the equities market than the retirement of previous generations."

Previous retirement waves indicate that no significant changes to direct stock holdings occur near the time of retirement. The Filene analysis notes that economic theory may assume people will sell off assets to compensate for lost wages and to smooth retirement expenses, but the actual data indicate that real-world behaviors are much more nuanced.

For example, half the households studied did not hold stock before or after retirement. However, one in 10 households acquired stock while one in 10 divested of stock.

Among the research report's findings:

• Households with less than $50,000 in total financial assets hold about 11% of those assets in stock. Those with total financial assets of more than $150,000 have a lower stock-holding rate after retirement than before, indicating they may sell assets to pay for retirement.

• A high school education matters in stock ownership. Those with less than a high school education are less likely than those with a high school education to own stocks after retirement.

• Households with higher mathematical ability and more wealth tend to hold rather than sell stocks after retirement.

• Those with traditional pensions are more likely to directly hold stock than those with defined contributions plans, probably because annuitized retirement plans allow their holders to take more risks elsewhere.

The report indicates that credit unions offering investment services should pay attention to findings that show consumers-especially higher-wealth consumers-maintaining direct stock holdings long after retirement. Although it's tempting to think that members will unload direct stock holdings at retirement, it's also far too simplistic a view, said the researchers.

The report adds that "as credit union membership continues to age, it will be increasingly important to cater to members' actual behavior. While the research suggests that baby boomer retirement surge will not depress the stock market significantly, it's essential to ferret out the individual needs of retiring members."

The study was authored by Jinkook Lee, Filene research fellow and senior economist at RAND Corp.; Arie Kapteyn, senior economist at RAND; Erik Meijer, Ph.D., economist at RAND; and Jung-Seung Yang, a doctorate candidate in economics at Seoul National University, South Korea.

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