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5 stocks for the coming retirement boom
80 million Baby Boomers will retire over the next two decades. As they scramble to save, these financial companies will thrive.
By Jim Jubak
Now that you've filed your tax return (You have, haven't you?), it's time to take a step back and see what stocks that good ol' 1040 form is telling you to buy.
Think about what you and your accountant have been up to getting ready to file your tax return. You've been managing your money, more or less aggressively and more or less successfully, by shifting it, where you could, from activities that produced a big tax bill to activities that resulted in lower taxes. In recent decades the federal government has actually encouraged this kind of asset management by giving preferential tax treatment to things like IRAs and 401(k)s and a welter of other tax-advantaged vehicles. And that trend isn't played out by any means. The government now wants to use tax advantaged accounts to encourage savings and to discourage excessive spending on healthcare.
So where is the tax form you just filled out telling you is a good place to invest some money? In the shares of the asset management companies that collect fees for handling the money that the government encourages all of us to put into Roths and IRAs.
It's not like the asset management industry needs the government to throw more money its way -- these companies are already riding a huge demographic trend. About 80 million Baby Boomers are set to retire over the next two decades. That now puts many of them in the prime years, 55-64, for savings -- that time when pay is high and obligations such as paying for a college education ended (well, for some Boomers, anyway) -- when the amount of money socked away for retirement soars.
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And it's not just how much we're putting away for retirement, but also where we're putting it. The retirement asset market is seeing a huge shift away from traditional pensions managed by traditional pension managers to plans such as IRAs and 401(k)s that are managed by mutual fund, life insurance, and other kinds of asset management companies.
While total retirement assets, in private and government plans, increased by 3% to $8.41 trillion in 2005, assets in traditional pension plans, called defined benefit plans, fell by 2%. That just continues the decades-long trend away from traditional pension plans that pay out a set benefit in retirement. In contrast, the amount in private defined contribution plans, where how much you get back in retirement depends on your contribution level and the performance of your portfolio over time, grew by 7% in 2005 to $2.84 trillion. That follows a 13% increase in 2004 and a 24% increase in 2003.
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