Know anybody between the ages of 45 and 54?
If they’re not panicking about their personal financial future, they haven’t been reading the newspapers.
That’s the age group with the biggest fears and phobias about not being able to afford to retire at 65, according to a new study conducted for Bank Rate Monitor by Behavioral Science Research, Coral Gables, Fla. The outlook for the 40-somethings is pretty grim:
– Nearly half the U.S. population between 45 and 55 believes that Social Security will be gutted by the time they retire.
– Four out of 10 people in their early 40s are convinced they will have to work beyond age 65 to survive. The same ratio believes that when they do quit working, they’ll have to settle for a lower standard of living.
– Half the people between 45-54 are concerned that the cash value of their life insurance policy won’t be as much as they expected. Half expect to be disappointed with the money they’ll get out of their house if they sell it.
“The bottom line,” says Dr. Robert A. Ladner, president of Behavioral Science Research, is that “people, especially those in their 40s, are giving up on the American dream of retiring in luxury. The myth used to be that Social Security, life insurance and company pensions were rock-solid bets. Now all bets are off.”
So what can you do, if you’re 45-54?
It depends on the stage of life you’re at, Ladner says, because that determines the right mix in your investment portfolio. The younger you are, the more you probably stand to gain by investing more heavily in stocks and bonds, because despite the gyrations on Wall Street, those investments have been the fastest growing. In the past 10 years, for example, stocks have gained at an average annual rate of 14.6 percent, government bonds at 9.7 percent and less risky Treasury bills at 5.7 percent.
By contrast, the average one-year, federally insured bank CD-assuming you kept rolling it over-grew at an 8.33 percent annual rate.
But can your bank do more for you? Yes, it can, by beating their plain-vanilla CD yields with higher-paying bank mutual funds and annuities. Example: Retail stock funds distributed by 475 banks have delivered a total return of 87.3 percent in the past five years, or an average of 13.1 percent a year, according to Lipper Analytical Services. The same funds are up 18 percent this year.
A more conservative balanced-funds portfolio offered by 44 banks, with 60 percent in stocks and 40 percent in bonds, has returned 72.17 percent over the past five years. The annual return has averaged 11.47 percent.
But suppose your heart can only stand insured bank CDs. All is not lost, because at 7 percent interest you’d be able to double your CD money every 10 years. Ten thousand dollars invested today would yield $20,000 in a decade, and $40,000 in 20 years. That’s the magic of compounding interest.
The secret is in starting to save. Don’t be thrown for a loop because you don’t understand the bookkeeping and tax ramifications of mutual funds and annuities. Or because, for some foolish reason, you haven’t yet caught up with the fact that you can easily double your money market account interest, or add 1 to 2 percentage points extra to your CD yield. How? By calling safe, high-yielding, out-of-state banks on their toll-free 800 numbers.
Says Ladner: “People can maximize their yield on the safest investments, but the irony is that they don’t know how to do it. They think it’s much harder than it is. There are all kinds of information that people can get to get started. And start they must, because the old safety nets they counted on for retirement may not be around when they turn 65.”
Places to begin: For a copy of “Buying Treasury Securities,” send $4.50 to Federal Reserve Bank of Richmond. P.O. Box 27471, Richmond, Va. 23261. For a free copy of “A Consumer’s Guide to Annuities,” write the American Council of Life Insurance, 10001 Pennsylvania Ave., N.W., Washington, D.C. 20004.
Mutual funds? Contact ICI, P.O. Box 27850, Washington. D.C. 20038 (Ask for “What is a Mutual Fund?”) For a free copy of the Behavioral Science study, send a stamped, self-addressed envelope to BSR, 2121 Ponce deLeon Blvd., Coral Gables, Fla. 33134.
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Robert Heady publishes Bank Rate Monitor, a newsletter based in North Palm Beach, Fla.
