The Most Vulnerable Generation

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Call it irony, fate, or just plain bad luck, the baby boomer generation can now also be known as the most vulnerable. A group of Americans born out of World War II, and once yielding enough power to change the course of an entire country, now yield less than 4 percent in annual retirement income. Currently, as a result of underfunded entitlements, they have simultaneously jeopardized the future of a country, and had theirs jeopardized by that same nation, which they helped build.

Technically defined as someone born during the birthing boom from 1946-1964, the first of this generation reached age 65 this year (2011). This timing — their retirement commencing just after the Great Recession — has put an entire generation on alarm, creating a monster problem in our economy and markets.

Once a financial powerhouse and responsible for much economic success in the United States, many boomers lost fortunes in the market downturn of 2008. And, with actually two recessions in the past decade, they have been playing constant catch-up with their portfolios and their emotions (a recipe for disaster).

If any generation has played a leading role in the prosperity of this country, it is the boomers. If any generation has been impacted more than others by the economic downturn, it is the boomers. If any generation quickly ages toward entitlement liabilities that could crush the fiscal status of this country, it is the boomers. And, if any generation has emotionally reacted to market peaks and troughs as their retirement looms, it is the boomers. The latter — boomers’ attempts to react to and control market fluctuations, and their inability to do so — may be the lasting challenge that eventually defines them. A generation so use to prosperity through hard work and determination finds itself at the mercy of markets. Their work ethic and influence coupled with the recent downturn have left boomers high on resolve, but extremely low on resources and options.

For a generation that built much of this country, their innate grit is often an investor’s worst enemy. In markets, one cannot control the outcome. Much like sports, you can practice and put great effort into preparation. But, once the whistle blows, anything can happen. Boomers must step back from their history and recognize a new paradox — though they created much of the economic success experienced by this country, they may also bring it to its knees. Outside of entitlements, both adjustments to lower their spending and a reduction in their hopes of “making up losses” will go a long way toward mitigating volatility and avoiding yet another downturn.

With their size and impact, boomers could, of themselves, create another crash. They must, perhaps for the first time, abandon their pre-existing vision of retirement in favor a new paradigm. And it won’t be easy. Income will have to be lower, travel perhaps less. Their alternative — trying to make up losses by being more aggressive as retirement approaches, is, needless to say, a terrible idea.

Boomers made much of this great country and, if they are honest with themselves and realize their vulnerable state, they can react properly and maybe, just maybe, lead us out of this economic malaise.

Jonathan Citrin is founder and CEO of CitrinGroup, an investment advisory firm located in Birmingham, MI. He is an adjunct faculty of finance in the School of Business at Wayne State University.

Founded in 2003, CitrinGroup specializes in portfolio management and advises clients on investment planning.

Contact: 248-569-1100 or www.citringroup.com or jcitrin@citringroup.com.

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