From the June 2013 issue of Investment Advisor • Subscribe!

May 28, 2013

A Willing Suspension of Disbelief

Nothing is as bad as it seems. We’re not in a new normal, modern portfolio theory failed from the get-go and—despite oceans of ink dedicated to the premise—baby boomers, far from finding themselves in crisis, are the best retirement savers in history.

I’m now waiting for Morpheus to inform me of the matrix.

Michael Finke’s presentation at FPA Retreat 2013 in Palm Springs, Calif. wasted no time in surprising the advisors in attendance.

“Baby boomers have saved more money for retirement than any generation in history,” Finke, a professor of personal finance at Texas Tech University, said at the outset of “The New Retirement Reality.”

The speaker, a regular contributor to IA’s sister publication Research, said that any talk of a retirement crisis is “a bit overblown.”

He acknowledged that older baby boomers have saved less than younger baby boomers, and that Generation X is on track to save more than younger boomers, even accounting for the poor asset returns experienced by the former.

“And despite the conventional wisdom that it’s only getting worse, there were 40% more assets in defined contribution plans in 2012 when compared with 2005,” Finke argued.

He added that we are still “about a decade away” from this baby boomer “retirement experiment” with defined contribution plans.

As the conference chairman of the Retirement Income Symposium each October, it was all a bit disconcerting. Or maybe not—who knew we were so far ahead of the curve?

“I’m here to tell you that as baby boomers in the middle of the demographic begin to retire, it will be your job to be their pension managers,” he said.

 “What do pension managers worry about?” he rhetorically asked. “They worry about asset returns in this low interest rate environment and longevity.”

He explained that advisors worry about the same thing, but a client’s sequence of returns and risk is theirs alone and cannot be shared.

“The risk is idiosyncratic to the client. Not so with pension managers, who know that if someone lives to age 100, someone else will only live to 70.”

Finke’s rub was that although pension managers get paid “a million dollars a year,” the advisor’s job is much harder. Amen to that—but the conflicting news he delivered won’t make it any easier.

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