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Retirement Planning > Retirement Investing

Retirement for the Less-Than-Affluent

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The entry of AARP into the field of private retirement saving vehicles has received a mixed reception from professionals in the retirement industry.

The recently launched funds have been designed as simplified, low-cost savings vehicles for baby boomers who are not saving enough for retirement, AARP Financial says. But while some believe that the funds will indeed help to fill a gap in the retirement space, others believe that there are already enough avenues available for people–even those from middle- and lower-income strata–to save adequately for their retirement, and that other than adding to its own revenue stream with the new products, AARP is not serving a greater purpose.

According to certified financial planners like Bob Mecca, founder of Robert A. Mecca, LLC, an independent life-planning consulting firm in Mount Prospect, Illinois, what baby boomers really need is proper financial planning advice. “The problem is not one of providing affordable saving vehicles to baby boomers, but more of getting them to recognize the importance of financial planning services,” he says. “People need to be educated as to their retirement needs and goals, and they need proper asset allocation models to meet those goals. Whether these include indexed funds like the AARP is offering or non-indexed funds is beside the point.”

Mecca believes that it is only through sitting down with a financial advisor that an individual can really know what is right for them. Once that has been achieved, proper asset allocation is the way to go. But while there is no refuting the value of sound financial planning advice, not everyone has access to it–even if some advisors like Mecca will tailor their fees to suit the income bracket of their clients–and there are some for whom the concept itself is extremely intimidating. Indeed, there still remains a large segment of the baby boomer population that needs help with the simplest and most economical solutions for retirement, argues Lauren Prince, an independent financial planner in New York City, and founder of Prince Financial Advisory. She says an organization like AARP is perhaps best positioned to offer such help.

“The middle-income and lower-to-middle income population is underserved by the retirement finance industry, and people in that strata do feel intimidated by the idea of investing for their retirement,” Prince says. “If the AARP can grab their trust and attention and come up with a product suited for them, that is great.”

To be sure, the three new AARP funds are trying to come up with a safe and affordable answer for people who thus far have either been intimidated by the complexities of retirement investing, or simply cannot afford to invest, says Nancy Smith, VP of investment services for AARP Financial, a subsidiary of AARP Services Inc., and the investment advisor to the funds. “We really felt that middle- to lower-income investors were not being served by the retirement finance industry, and these people need to retire, too,” Smith says.

The AARP funds, which are being managed by State Street Global Advisors, invest to varying degrees of risk in U.S. stocks, international stocks, and U.S. bonds by matching the performance of three market indexes, which is an important feature, Smith says.

“It is hard for an active manager to outperform indexes over time, and it is also hard for an individual to choose a fund as there are so many others out there,” she says. “Our funds are investing in underlying index portfolios, which makes things a lot easier for people.”

In addition to an affordable investment minimum of $100, AARP Financial is also offering clients access to investment counselors, who can provide advice on investment objectives and risk tolerance. “People really want to talk to someone to know what is right for them,” Smith says.

Smith hopes the funds-which at present are available directly from AARP Financial-will be of interest to financial advisors as they gain ground, and that in time, advisors will recommend them to clients. AARP Financial also plans to offer a money market fund and an income fund.


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