February 28, 2014

CONSUELO MACK: This week on WealthTrack, the new architecture for retirement. Personal finance pros Mary Beth Franklin and Kim Lankford discuss the different building blocks now needed for a secure financial future and why insurance will be an important part of the foundation, next on Consuelo Mack WealthTrack.

Hello and welcome to this edition of WealthTrack, I’m Consuelo Mack. What is the next big thing in investing? For your answer, think baby boomers and their retirement. The baby boom generation, some 71 million Americans born between 1946 and 1954, have had an outsized impact on the economy, markets and financial services industry from the beginning. As investors, we turned from the individual stock and bond choices made by our parents and grandparents to open-ended mutual funds, mostly actively managed ones to start, but in recent years passive ones, making the switch years after Vanguard founder Jack Bogle launched the first index fund in 1976. According to the Investment Company Institute, the mutual fund industry is now a $13 trillion plus behemoth.


The next big investment idea, the exchange traded fund, or ETF, was created in 1993 by the late Nathan “Nate” Most, an American stock exchange executive at the time who wanted to bring new trading volume to the exchange. The first ETF was the SPDR 500 Trust, managed by State Street Global Advisors. Most was quoted as saying he never thought ETFs would be this big. At the time of his death in 2004, they were a $190 billion dollar industry. Today it’s over $1.3 trillion and growing fast.  Investors, many baby boomers among them, opt for low cost, passive index investments with the instant ability to get in and out.


But now that baby boomers are switching from the accumulation phase of their investing lives to the distribution phase to fund their retirement, their needs are changing and so are their circumstances. What is their biggest need?  Income to last a lifetime. With the demise of the defined benefit plan or old fashioned pension fund, where are they going to find that holy grail?   What is the next big investment trend? Today’s WealthTrack guests have an answer that might surprise you. They say think insurance products!


Mary Beth Franklin is contributing editor of InvestmentNews, a leading publication for financial advisors. For many years she was a senior editor at Kiplinger’s Personal Finance magazine. She is a familiar face on WealthTrack because of her expertise on retirement income and social security.  Kimberly Lankford is a contributing editor and columnist for Kiplinger’s and author of several books including The Insurance Maze: How You Can Save Money On Insurance And Still Get The Coverage You Need. I began the interview by asking Franklin about what she calls the new conversation we should be having about retirement income.


MARY BETH FRANKLIN:  We all grew up with this concept of the three-legged stool of retirement security.  It was pensions, social security, and personal savings. Well, we all know that those pensions are going away, and that personal savings are inadequate, at best. And social security is a bit wobbly.  So right now our three-legged stool has basically become a pogo stick.  And that’s not going to be good enough for most Americans.

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