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Understanding the Accidental Investor: Baby Boomers and Retirement

July 3, 2011 Comments off

Understanding the Accidental Investor: Baby Boomers and Retirement (PDF)
Source: Financial Engines

Today’s American retirement system relies in large part on the 401(k), which shifts the responsibility for investing and managing market risk from employers to individual employees. With this shift, plan participants have been tasked with becoming their own investment managers, responsible for both growing their savings during their working lives and converting their savings into lifetime income in retirement. With the first Baby Boomers entering retirement in 2011, the retirement income of an entire generation of American workers will be heavily dependent on 401(k) plans—plans that did not even exist when many Baby Boomers started their careers. The title “Accidental Investor” refers to this generation of employees who find themselves unexpectedly burdened with the challenges of managing their retirement assets.

In the last 20 years, Baby Boomers have seen their traditional pensions frozen or discontinued, their job security threatened, their 401(k) balances rocked by booms, busts, and financial crises, and their health care costs skyrocket. In response, their behavior has been broadly characterized by inertia, one of the most powerful forces affecting 401(k) participant behavior. While many view inertia as irrational, we found that it was often an understandable response to past experiences and valid emotions surrounding retirement.

We developed this white paper to:

  1. Provide perspective on the emotions around retirement we have observed in near-retirees and retirees (also referred to as “401(k) participants” in this report);
  2. Help those responsible for retirement programs better understand how these emotions influence participant behavior; and
  3. Identify what is required to reach these participants so they can get the professional retirement help they need.

To gain a deeper understanding of participant emotional perspectives, behaviors, and needs around retirement income, Financial Engines analyzed interview notes and detailed survey responses collected over a three-year market research effort. We conducted more than 300 one-on-one interviews with near-retirees and retirees between March 2008 and February 2011. To analyze the interview notes and detailed survey responses, we used “thematic coding,” a social science technique used frequently to analyze qualitative data. After coding the interview notes, we identified the most prevalent emotions and needs and analyzed participants’ words to understand the complex relationships between the emotions people felt and the product features they wanted in a retirement income solution.

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