For longer than most of us care to remember, we have been hearing about the impact that the baby-boom generation is having on our country's culture, politics, education, and industry. Aside from all that, baby boomers spend money - on toys, jeans, television sets, stereos, and cars.

The oldest baby boomers, those born in 1946, have entered middle age and have developed, along with at least a few gray hairs, concerns that will help fuel the country's investment engine for several decades.

In relatively short order, these Americans will have put their high-expenditure years behind them, having paid off mortgages, seen kids through college, and bought most of the big-ticket frills their hearts desired. Next must come accumulation of the wherewithal to finance a comfortable retirement.

The boomers realize, first, that advances in science, medicine, and nutrition mean they will live longer and more actively than previous generations. With health-care costs rising, fear of serious illness will impose on aging baby boomers a fiscal restraint they have not exercised before.

Most harbor some doubts about the role of Social Security in financing their future lifestyles. At the least, they are realistic about the government program's limitations. Finally, integral to all the retirement fears, inflation will continue its relentless assault on the dollar's purchasing power.

Simple Arithmetic

Although many Americans have been lulled to sleep by inflation at around 5%, they will gain a new appreciation of the phenomenon when, as retirees, they see that the real (inflation-adjusted, before-tax) return on an 8% certificate of deposit is only 3%. After taxes, a $100,000 CD at 8% yields the equivalent of only $760, assuming 5% inflation and a 28% tax load.

The arithmetic: An 8% or $8,000 yield is reduced to 3% or $3,000 by the inflation. But the tax on the full $8,000 is $2,240. That leaves only $760 after taxes and inflation.

Baby boomers will not take these facts lying down. On the contrary, they will agressively save and invest their way to prudent levels of wealth.

We look for rates to trend downward, generating attractive total returns on fixed-income securities; and we look for an increased commitment to stocks, either directly or through mutual funds and annuities, because stocks provide the best long-term cushion against inflation.

The changes will be evolutionary but powerfully positive and will show significant progress in this decade.

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