Starting young

Investment firms court next generation as boomers retire

Kate Albers, a 33-year-old Boston University graduate student, recently began planning her retirement along with her 33-year-old husband, Greg. But neither has a 401(k) plan - the popular tax-deferred retirement savings option provided through an employer - and they don't have a whole lot of money to set aside.

"For the moment, we're just kind of happy we're doing anything," Albers said.

Until recently, most financial services firms have paid little attention to people like Albers, preferring to focus on more than 80 million baby boomers, born between the mid-1940s and mid-1960s, for whom retirement is a more pressing issue.

But now, as the first waves of boomers leave their jobs, financial companies are starting to focus more on recruiting younger generations of savers.

According to KPMG, an international financial and accounting firm, about 83 million Americans are between the ages of 40 and 59 - considered the key period for retirement savings - a 51 percent increase from 15 years ago.

The growth in the age group also contributed to the increase of the retirement assets market from $5.9 trillion in 1994 to $16.4 trillion in 2006.

But KPMG says the 40-59 population will only increase by 1 percent by 2020 as more boomers retire, limiting growth op portunities for companies that offer financial planning services.

To court younger customers, some are relaxing their standards. Charles Schwab Corp., for example, this year lowered its $2,500 minimum balance for new brokerage accounts and $2,000 minimum for individual retirement accounts. Now, either type of account can be maintained with a minimum balance of just $1,000, and customers who can't come up with $1,000 lump sum can reach the minimum by paying $100 a month. Last year, American Century Investment Services launched My [Whatever] Plan, a mutual fund package that allows customers to start off with a $500 balance and make monthly $100 deposits to reach the $2,500 minimum.

"What we see is the long-term potential in these kinds of customers," said Steve McClain, American Century Investments' vice president of marketing. "We'd rather start this now rather than wait until they're 45, because relationships are important."

But diminished entry prices aren't enough on their own to persuade many younger consumers to dip their toes into the sometimes murky waters of retirement planning. Bernard Salt, a partner at KPMG Australia who wrote a report on younger investors, said the biggest problem is lack of knowledge about basic financial and investing concepts.

"The reality is that this is the first generation that has to make lifetime decisions early in life to shore up their financial security much later in life," Salt said in an e-mail. "These are important decisions that require education, and there seems to be no formal method to delivering this education."

One way to solve the problem is to offer set-it-and-forget-it retirement products. Fidelity Investment's myPlan, for example, is an Internet-based application that devises basic investment plans based on customers' income and the amount they want to contribute monthly. Fidelity's target-date funds automatically make a customer's investment mix more conservative as he or she nears a predetermined retirement age. Schwab and American Century offer similar services.

At the same time, McClain said, younger investors also want to control their retirement planning and will actively seek assistance to make that happen.

"I think one of the things that they know is they have to rely on themselves," he said. "They understand that Social Security probably will not be there for them, they know they need to get help, and they're not shy about asking for help."

But many younger investors face a long road ahead - they are not saving nearly enough for retirement. An Employee Benefit Research Institute survey earlier this year found that 68 percent of workers age 25 to 34 have retirement assets of less than $25,000, and only 38 percent of them have tried to calculate how much they must save to retire. In comparison, 52 percent of those ages 35 to 44 and 35 percent aged 45 to 55 said they had less than $25,000 saved.

"The cost of healthcare for future generations of retirees will represent a huge burden, especially given the financial problems facing Medicare," according to a statement from Mathew Greenwald, president of Mathew Greenwald & Associates, a Washington, D.C., research firm that helped conduct the survey. "Most are not accumulating enough money to even cover the insurance and health care costs they are likely to face in retirement."

Jonathan Craig, a Schwab vice president who is leading the firm's younger-investors initiative, said the aim is to provide as much clarity to the process as possible. In addition to the easy-set products, he said, Schwab offers live help through its website and by phone.

"If we do it right, we think there's even more potential down the line as these folks grow," he said.

Albers, who recently switched to Schwab from another brokerage firm, said she has established a relationship with a consultant at a branch who is working with her to navigate the investing maze.

"I definitely recognize the value of doing some of the legwork myself so I can personally feel a sense of ownership and sense of investment in what I'm doing," the Boston resident said. "But at the same time, just having someone there keeping me on track makes a huge difference. I've got a long way to go and I'm not there yet. But I've started, and that's something."

Se Young Lee can be reached at vlee@globe.com.