YOUNG INVESTORS FACE THE LIFESTYLE DILEMMA

BY JANET KIDD STEWART | CHICAGO TRIBUNE

March 26, 2006

Like other thirtysomethings navigating their careers today, Jason Erkes is no stranger to job volatility.

Early in his career, his television-producing job was eliminated. Then he dabbled in a few small entrepreneurial ventures.

Today, Erkes, 38, is president of Sport & Social Clubs Inc., a Chicago company that hosts events for upscale singles 21 to 35 in Chicago, San Francisco, Orlando and Philadelphia.

Erkes and a partner took over the business in 2001 when it was near bankruptcy. Today, Erkes said, the business is profitable and growing. Revenues have risen 70 percent since 2001. Getting from there to here required his constant attention, leaving little room for thinking about building a retirement nest egg, he said.

Now, as he begins to contemplate the future from a position more flush with cash, he feels surrounded by impossible expectations.

As the ranks of his young and wealthy peers swell, so do their goals and their expectations for their investment returns.

“People see all this wealth, and it becomes the norm,” Erkes said. “It’s not normal for a 35-year-old to live in a $2 million house, but it’s happening.”

And there is the conundrum. In a world where one person in her 30s may be climbing a steady corporate ladder while another starts a company and a third might be laid off, can a single asset-allocation strategy possibly do it all?

Even more important to some, can it generate the kind of portfolio growth that will support those ever-expanding lifestyles?

At the margins, it can pay to screen out personal risk, said Christine Fahlund, senior financial planner with T. Rowe Price.

A condo developer building properties near amusement parks might avoid leisure stocks, and a young worker with little hope of seeing a payoff from Social Security can explore annuities with escalating payments to cover future inflation, Fahlund said.

And frequent job changers can make a big impact on their retirement savings by paying more attention to vesting schedules at their companies when they are plotting their next move, she said.

But the far bigger factor is the sheer amount of savings being socked away, she said.

“One thing we’ve been looking at recently is the example of the $200,000-a-year executive who may have access to a free company car, club memberships and lots of company-paid travel. What happens to these people when they retire and the perks disappear? If they haven’t saved a lot, they are really going to have to change their lifestyle,” Fahlund said.

Younger executives often hear these warnings as a signal to ramp up their investment risk, Erkes said.

“Money has jaded a lot of younger people,” he said. “They think because they’re young they can keep the wealth coming by taking even greater risk.”

After he was profiled last year in a business magazine as a rising star, Erkes said he received dozens of calls about investment opportunities–mostly from stockbrokers–all of which he turned down.

“I just thought if it were that easy, everyone would be doing it,” he said. But he knows many other execs who are taking the plunge.

Fahlund agrees that workers facing frequent job changes and longer retirements probably will have to invest more heavily than previous generations in the stock market, rather than the fixed-income markets.

But an even bigger difference for future generations as life expectancies grow is the sheer amount of current income that will need to be saved, she said.

“Today the biggest risk for young workers is longevity. The only way you’re going to cover a 40-year retirement is by working longer and putting more away,” she said.

And rather than talking about a huge lump sum that will have to be amassed, planners are beginning to start these discussions in terms of replacement income.

“A $1 million portfolio provides $40,000 in income the first year of retirement,” Fahlund said.

And that simply won’t cut it for a large number of people. The figure–or the lifestyle–is in for drastic change by retirement.