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New Tiburon Research Report - Consumer Wealth, Liquefaction, & the Retirement Income Challenge

	Please click the image above to view the table of contents for Tiburon's newly updated Consumer Wealth Research Report

Tiburon Strategic Advisors, a market research & strategy consulting firm serving a wide variety of financial institutions and investment managers, is pleased to announce the release of its newly updated research report on the Consumer Wealth, Liquefaction, & the Retirement Income Challenge. The purpose of this report is to provide readers with a comprehensive understanding of the vast amount of consumer wealth, the perceived baby boomer savings crisis or retirement income challenge, and baby boomers’ likely pending liquefaction. This research release summarizes some of the report's highlights around baby boomers & the perceived baby boomers savings crisis.

Many consumer households have dual concerns around needing retirement income and not outliving their investments. Consumers seek a reliable source of income that is sourced from a conservative fixed income investment. From the conservative fixed investment, consumers expect an interest payment that will keep in pace with the rising cost of retirement expenses. Furthermore, baby boomers are continually worrying about amassing enough money for retirement and how to make a limited pool of savings last for a lifetime. Some seniors now fear outliving their money more than death itself.

The perceived baby boomers savings crisis is due to six factors, including the concentrated consumer wealth, the decline in pension plans, the social security challenges, the stagnant savings rate, the lack of World War II generation wealth transfer, and longer life expectancies.

Concentrated Consumer Wealth
About 40 million households control 90% of all investable assets. Consumers with investable assets of $100,000 and below, control only $3 trillion to total investable assets. On the other end of the spectrum, consumers with $5 million and above investable assets control $7 trillion of total investable assets. The largest chunk of investable assets is consumer households with investable assets between $100,000 and $5 million, controlling $12 trillion of total investable assets.

Decline in Pension Plans & Retiree Benefits
Many consumers are counting on income from pensions but won’t receive it; 62% of consumers expect to receive pensions when they retire however, only 41% say they or their spouses are currently covered by a pension. This provides a very strange and worrisome gap because it presents a 21% gap which represents people that are counting on a pension, but do not believe they or their spouses have one. Not surprisingly, younger employees are less likely to participate in their employer’s defined benefit plan. Specifically, Generation X investors offered a defined benefit plan enroll at a rate of 59%. This number is rather diminutive in relation to baby boomers offered these plans, with 77% of them enrolling.

Social Security & Medicare Challenges
Consumers collecting social security account for 47 million, an increase of almost 40% since 2006. Consumers collecting social security in 2006 accounted for 34 million, therefore in one year, 13 million additional consumers began collecting benefits from social security.

Any privatization of Social Security could have a significant impact on consumers’ investable assets, adding $1 to $2 trillion in assets to the industry. However, any privatization plan would likely have only a moderate impact on financial services industry revenues, creating between $39 and $279 billion in fees over the next 75 years. This figure would represent an increase of about 1% to 7%, nothing for financial service executives to necessarily lose sleep over. The privatization of social security could have a moderate impact on financial services industry revenues, creating between $39 and $279 billion in fees over the next 75 years.

Stagnant Savings Rate
Consumer income has increased over 30% since 2001 to $12 trillion. Consumer income is defined as the income earned by consumers in the workforce, including labor and capital investment. Consumer income has increased a little less than 5% annually however, had its biggest jump at 8% in 2006 to $11.7 trillion.

Consumer households’ personal current taxes decreased 20% between 2001 and 2004, but have increase over 35% since 2004 to $1.4 trillion. Specifically, personal current taxes decreased from $1.2 trillion to $1.0 trillion in 2004, and the rebounded to its current level of $1.4 trillion in 2007.

Consumer households’ net income peaks between the ages of 45 and 54 years. Consumers under the age of 25 and over the age of 65 years earn an average of approximately $25,000 annually. Between the ages of 35 and 44 years, the period where most people have decided upon a career and begin to build it, the average household earns $55,000. Understandably, the average income of those between the ages of 45 and 54 is considerably higher, as people are at the peak of their productivity and experience. Households in this age group earn an average of $62,000.

Consumer household personal savings has decreased 140% since 2004 to negative $82 billion. Between 2001 and 2004, consumer households’ disposable income was greater than their personal consumption expenditure, increasing over 30% to $174.3 trillion. However, personal savings plummeted in 2005 as personal consumption expenditures became greater than disposable income causing consumer households to borrow in order to satisfy the margin of their disposable income and personal consumption expenditures. Personal savings has only decreased further in 2006 hitting a low of negative $96.4 billion. Consumer household personal savings rebounded in 2007 to negative $82 billion.

Lack of Significant World War II Generation Wealth Transfer
The likely impact of the wealth transfer is less clear. Many believe that there will be an “inheritance boom” over the next 20 years of $17 trillion, although it does have some limiting factors such as life expectancies, increased medical costs, and estate taxes.

The World War II generation wealth transfer has been less impressive than many predicted and it likely will not grow much further; however retirement and intergenerational transfers are more than half a trillion dollars.

The median value of a baby boomers inheritance is $48,000; very few have received more than $100,000. Specifically, only 2% of those baby boomers received an inheritance received more than $100,000. Furthermore, the coming wealth transfer faces several limiting factors, including immediate spending, longer time in retirement, health care costs, taxes, and wealth concentration.

Life Expectancies
The risk of dying too young is increasingly being replaced by the risk of living too long, with life expectancies now averaging 77-78 years old. Consumers who lived in 1900 were expected to only live to the age 47. Life expectancy has its largest growth between 1900 and 1950, growing almost 50% to the age of 68. Today, consumers can expect to live 30 more years longer than consumers in 1900.

The number of years spent in retirement has been increasing since 1950. Post-retirement life expectancy has increased to 19 years from 4.6 years in 1950. Life expectancy post retirement has increased over 300% since 1950 and over 30% since 1993. Life expectancies would increase another ten years if cancer, heart disease, and strokes were cured.

Almost half of consumers worry that they may run out of money during retirement. The worry of running out of money arises from the fear of future cost that the consumer might face. Another source stated that the average cost of a nursing home is $41,000 per year, which can deplete retirement savings rather quickly.