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Great Recession Reshapes Retirement Planning

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A white paper released by Allianz in May identified three "waves" of, or broad mind shifts in, retirement thinking over the last 70 years.

The first wave was the result of the greatest generation's experience in the Great Depression and World War II. Investors were cautious, and the experiences of that time, as well as the government's reaction, led them to seek "rock solid guarantees" in financial planning and careers.

Allianz noted that this is the genesis of the traditional "three-legged stool," a model that "worked fairly well for 30-40 years."

The stock market crash of 1929 had a long-term effect on that generation's investing habits – in 1952, just 4% of Americans invested in the stock market. By 1980, that number increased by just 9 percentage points.

That long-term reluctance to join the stock market is an indication of investors' limited interest in controlling their retirement assets, according to Allianz, and their willingness to rely on government-sponsored Social Security and employer-sponsored pension plans.

The second wave is made up of boomers whose financial experiences were vastly different from those of their parents. "Growing up in primarily favorable economic conditions and energized by solid economic growth for most of their early working years, baby boomers were mostly fearless and emboldened as investors," according to the white paper.

The boomer-led second wave was defined by investors' eagerness for returns and control over their investments. Technological advances helped grant their wish for more control as low-cost trading platforms emerged. Self-directed retirement plans like 401(k)s and IRAs began to take root as employers began abandoning pension plans.

Mutual funds were immensely popular. Just under 6% of U.S. households in 1980 owned mutual funds, according to the Investment Company Institute. By 2001, nearly 48% did. Mutual fund ownership now tops $11.5 trillion.

The third wave of retirement thought is not defined by the attitudes and behaviors of boomers' children, however, but by boomers reeling from 2008's financial sucker punch, and has more in common with the first wave.

"Memories of the Great Recession will not fade quickly (especially as many are still feeling its effects) just as the greatest generation never let go of beliefs formed from their experiences of the Great Depression," according to the white paper.

As Allianz notes, having shouldered much of the burden of planning and saving for retirement, boomers are hung over after indulging in too much control over their portfolios. Unfortunately, while boomers are eager for lifetime income and guarantees as their parents were in the first wave, the three-legged stool has tipped over, leaving boomers to face "greater uncertainty about the future in terms of income, the value of one's portfolio and longevity risk."