Wealth Management Advisor David Maxwell Speaks to Seniors About the “Baby Boomer 401(k) Generation” Volatility Threat

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David Maxwell, a retirement and wealth management advisor at Lake Point Advisory Group in Fort Worth, spoke to a group of retirees July 26 about the future of the retirement industry in the wake of Baby Boomers’ mass exodus from the workplace. Withdrawals from their 401(k)s, IRAs, and retirement portfolios are already in the billions of dollars, and Boomers will ultimately claim an estimated $51.6 trillion before all of the roughly 79 million post-war babies retire in 2050—an economic paradox that Maxwell says could have serious implications for the U.S. retirement industry.

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Lake Point Advisory Group

This shift—from the $14 trillion in growth these plans cultivated over the past 40-50 years, to their recent stasis and decline caused by sudden and substantial outflow and sluggish inflow—could foreshadow future volatility.

Retiring Baby Boomers are set to withdraw their nest eggs from tax-deferred retirement savings plans like 401(k)s and IRAs at a rate that exceeds new contributions to the plans, after decades of expansion. This shift—from the $14 trillion in growth these plans cultivated over the past 40-50 years, to their recent stasis and decline caused by sudden and substantial outflow and sluggish inflow—could foreshadow future volatility, and turn the U.S. retirement industry upside down.

The government stands to collect more than $2 trillion in federal tax dollars from these withdrawals, even if the money comes out at the relatively low marginal income tax rate of 15 percent.

Wealth management and retirement advisor David Maxwell of Lake Point Advisory Group in Fort Worth spoke to a group of Dallas-Fort Worth area retirees July 26 at the Texas Land and Cattle in Bedford about the inflection point the U.S. retirement industry has reached in the Baby Boomer nest egg narrative. And according to Maxwell, as sweeping withdrawals from the 401(k) cache accelerates over the next 10 years, things could get volatile.

According to an analysis of government data provided by financial information company BrightScope Inc., Boomers withdrew $11.4 billion from tax-deferred savings plans in 2013, one year before assets held by 401(k) plans peaked at $4.6 trillion in the fourth quarter of 2014. According to Maxwell, asset managers hope to replace the outflows with a new influx of investment dollars from millennials, although Maxwell told his audience he is not convinced.

“Millennials aren’t savers, they’re spenders,” he says. “And what they inherit from their parents is not likely to be reinvested, it will quickly disappear. It is not likely to be reinvested because more than half of all inheritance is lost, donated or spent; the situation could create some volatility that we all need be prepared for Maxwell says.

And this is only the beginning, as the first swell of Baby Boomers hit an important milestone on July 1, 2016. The first generation of Boomers born in early 1946 turned 70½--the age that mandatory required minimum distribution (RMD) withdrawals kick in, and right behind them are the younger Boomers, following at the rate of 10,000 people per day for the next 18 years. They too will be obligated by law to begin mandatory withdrawals from their retirement savings.

The first generation to develop their retirement plans around traditional 401(k)s, IRAs, and other tax-deferred savings vehicles, Boomers were introduced to these retirement savings plans in the mid 1970s before they came into broad circulation in the 1980s. It was part of a tectonic shift from the defined benefit plans of their parents’ generation, to employer-sponsored 401(k) plans, a replacement for costly pensions.

Now the “401(k) generation” is set to take their money out of savings as the number of Americans reaching age 70 this year is expected to be 2.5 million, according to AARP..

And the number of people reaching this milestone birthday will continue to increase, at least for the next 20 years, as more and more Baby Boomers hit their 60s, 70s, and 80s. According to Tom Sightings, a retirement writer and contributor to U.S. News & World Report, by 2030, the 65-and-up crowd will grow to 72 million people—up from 40 million in 2010.

Estimates vary on how long the 401(k) net outflows will last and how severe they will become. Financial-services research firm Cerulli Associates projects outflows will persist at least until 2019 when investors will pull an estimated $51.6 billion, according to a December report.

J.P. Morgan predicted in April the trend will last through 2030, with outflows peaking at $40 billion in 2019.

According to Cerulli, that money could stay with the retirement industry if Baby Boomers move 401(k) funds to IRAs upon retirement. Contributions into IRAs are expected to reach $546 billion by 2019, up from $205 billion in 2003.

Some industry insiders are betting that millennials will reverse this shift, although many acknowledge that it will require some convincing.

“One of the single biggest keys to a successful retirement is becoming a saver,” Maxwell says. “Millennials have not yet become the savers they need to be.”

But even if millennials boost their savings, it will take some time for asset managers to see the 401(k) decumulation trend start reversing. Redemptions in the industry—the return of an investor's principal in a fixed-income security—are going to get worse for the next 10 – 20 years, Maxwell says.

Maxwell will be hosting two more seminars for retirees on the potential for volatility due to the Baby Boomer retirement outflow in August. The first will be at the Fort Worth Pappadeaux Aug. 16, 2016, and the second at Fort Worth Cattleman’s Steakhouse Aug. 18, 2016 from 6:30 – 8 p.m. The seminars are part of Lake Point Advisory Group’s Seminar series, designed to inform area retirees of trends in the retirement industry.

To learn about attending a seminar, or to learn more about the firm, visit the Lake Point Advisory Group website, email info@lakepointadvisorygroup.com, or call 214.771.3363.

About Lake Point Advisory Group:

Established in 2000 by President Reid Johnson, Lake Point Advisory Group is committed to helping clients meet their financial needs. By evaluating and assessing their clients’ financial situations, the firm’s wealth management team provides suitable recommendations to improve each client’s portfolio, and they do so with integrity and transparency. Lake Point Advisory Group’s experienced professionals are not only knowledgeable about finances, they also understand the importance of priorities, family and confidence in the client’s financial future.

Lake Point Advisory’s wealth management team employs members of the Financial Planning Association (FPA®), the largest membership organization for personal financial planning professionals in the United States. FPA members are those who commit to the highest standards of professional competence, ethical conduct and clear, complete disclosure to those they serve. They deliver advice using an objective, client-centered, ethical process.


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