PERFORMANCE ANNOUNCEMENT

As Of: November 26, 2003

INHERITANCE

The Facts Are Shocking And Depressing

      More than a decade ago I remember I kept a magazine sitting on the coffee table in my old office in Carefree, Arizona. It was a copy of US News & World Report that had a cover story about the trillions of dollars that were expected to be passed through inheritance from the richest generation of Americans, the World War II generation, to their offspring, the baby boomers. It served as a daily reminder of why financial services should be a great business. All those baby boomers were going to have to figure out what to do with their new found riches. Hopefully a lot of them would need investment advice, and that is where I could be of service.

      Early estimates were that something north of ten trillion dollars would pass by inheritance over a fifty year period starting in 1990. Those estimates were increased as the stock market rose during the decade of the 1990's. But reality seems to be something less than the cheery projections of economists. According to the Wall Street Journal, a study by Boston University economist Laurence Kotlikoff estimates that the recent drop in the market will reduce total inheritances by 15%. Increased medical costs and living expenses have probably also cut into the nest eggs that would otherwise be passed on.

      While economic factors influence projections, perhaps more telling is a survey conducted by AARP. Of the baby boomers born between 1946 and 1964, only 15% expect to receive an inheritance in the future. This expectation seems to be born out by actual numbers from the year 2001. A survey of 1,954 boomer households shows only 17% received bequests, and the mean dollars received was a disappointing $47,909. Not that I would look a gift horse in the mouth, but less than $50,000 is hardly an amount to retire on.

      When I look around and see incredibly lavish yachts in the harbor by my house, multi-million dollar private jets at the airport where I lease a little Cessna Skyhawk, multi-million dollar homes in all the suburbs of Boston (and New York, Chicago, San Francisco, etc.), I tend to think everyone is rolling in riches (as in: "What's wrong with me?"). Therefore it is surprising to learn that the typical baby boomer has a net worth of $100,000 or less. One has to conclude that true wealth is concentrated in a relatively few hands, and/or what appears to be wealth is actually a facade propped up with a lot of debt. When one strips it all away, the average person is going to have a very tough time retiring at a comfortable standard of living.

      Considering the insecurity surrounding the funding of corporate pensions and social security, individual savings and investments are likely to be put under considerable pressure. There is no easy answer for someone facing retirement in ten years or less. In many cases, the "sandwich" generation is trying to support parents and put children through college at the same time they should be saving for retirement. This only emphasizes that every penny and every minute must count from here on out. Having a well thought out investment plan is tremendously important. And this is no less true for younger people who are lucky enough to have more time on their side, because with more time comes more uncertainty as to what the future will look like.

      If you have been waiting for a better time to act, there is no better time than the present.