Financial Services Companies Get Ready for Boomers

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Last updated on July 23, 2019 Comments: 5

The Baby Boomer Generation consists of Americans born between about 1946 and about 1964. Many individuals in this generation are approaching the typical retirement age, as defined by the U.S. government’s tax and benefit policies. While some are delaying their retirement thanks in part to recent poor stock market performance, underfunded nest eggs, and the need for continuing income, retirement is still a concern.

Financial companies that create products designed for retirees will likely have several successful decades. With would-be and actual retirees interested in stretching and perhaps guaranteeing income for the remainder of their lives and likely beyond, investment and insurance companies will devise new products to sell. Annuities will probably be the core of any set of products marketed towards retirees, with the promise of guaranteed returns regardless of a stock market that has scared many people away from riskier investments.

Those of us who have several decades before retirement should consider taking advantage of this growing business by investing in companies that offer products to retirees and Baby Boomers.

While I occasionally hear suggestions that investors should leave the stock market now before the mass exodus of Baby Boomers who rebalance from primarily equities to primarily bonds, that shift will probably be too slow to make a difference to an average investor. Baby Boomers won’t suddenly shift from stocks to bonds by virtue of their age or employment status. In order for funds to last as long as possible, Boomers’ investments will have to stay somewhat aggressive.

So I don’t think that it’s a good idea to try to get out of stocks before Baby Boomers do, but I do believe that if your time horizon is beyond the next few decades, invest in the financial services industry. This industry, and therefore the investors in this industry, stand to gain from the number of individuals thinking about retirement in an age group that is both large and willing to spend money on financial services.

Is this market timing? Maybe, but it doesn’t have to be stock trading. The only question that remains is whether the next twenty or thirty years of profits is already considered or included in the share prices of companies in the financial services industry.

Article comments

Anonymous says:

That’s an interesting thesis – that the financial services industry as a whole will benefit from the continued aging of the baby boomer generation, leading to their stock prices rising disproportionately to the rest of the market.
I can’t say whether it will happen or not, as there are so many unknowns: Will products targeted at retirees be more profitable than products targeted at 40-65 year olds? Will the gradual decline of assets owned by the baby boomer generation offset the profitability of these retirement-oriented products? Will changes in other areas of the financial services industry overwhelm the impact of changing demographics? (This last question gives me the most concern: it was the reduction of profitability in the financial services’ core businesses such as trading commissions that forced them into the extremely risky trading businesses that lead to the market meltdown in 2008).

Anonymous says:

You have to believe that the company you invest in will use the money they get up front in a profitable manner, otherwise they will just be saddled with debt obligations they can’t pay….also you have to believe that they are working with correct actuary assumptions

Anonymous says:

What are some examples of products financial companies are creating for retirees? Anything noteworthy?

Luke Landes says:

From what I’ve seen, some companies are focusing on a variety of annuities, and retirement products business-to-business or institutional clients, like group retirement plans.

Anonymous says:

Anything for individuals?