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NEW YORK (MONEY Magazine) -
When Jimi Hendrix sang, "You better save it, babe. Save it for your rainy day," from his hit "Fire," he probably wasn't trying to dispense lasting financial advice to the throngs at Woodstock.
They waited awhile to start socking away money, but his audience eventually took the lyrics to heart. By 2020, when the last of the boomers turn 55, they will own $20 trillion in assets, or $461,000 per household on average, according to Boston College's Center on Wealth and Philanthropy.
Will it be enough? With Social Security in trouble, companies cutting back pension plans, and life expectancies growing, it's hard to say. But what is certain is that as boomers move from the work force to the golf course, they will want to make their savings last.
That means a repositioning of assets -- swapping houses and redoing financial plans -- that will cause swings in the real estate market and an opportunity for companies offering advice and financial products.
Real estate
Even before they retire, boomers have begun to alter the housing market's dynamics.
"We have seen a lot of pre-positioning. Boomers are buying that retirement home before they have sold their current residence," says Douglas Duncan, chief economist at the Mortgage Bankers Association.
Rising demand for second homes has boosted the housing market and kept home builders and their stocks performing well. But when boomers start to cash out of their suburban homes, developers that concentrate on building McMansions in commuting areas of the Northeast and the West Coast may falter.
A recent study by the National Association of Realtors found that buyers over age 55 are more than twice as likely to buy an apartment than they were at an earlier age, and that they want to live in the South.
Those trends bode well for WCI Communities (Research). WCI generates 91 percent of its revenue in Florida, mostly from building luxury apartment buildings in coastal areas. With 17,000 acres of undeveloped land, WCI Communities has room to expand. Today single-family homes are what's hot, so WCI shares aren't catching fire. At $34, the stock trades for 10 times estimated 2005 earnings, a bit less than the average builder.
Of course, it might be a decade before boomers depart en masse to the sunny South. Until then, AvalonBay Communities (Research), a real estate investment trust that rents luxury apartments and houses in Boston, New York City and Washington, should see growth.
Boomers are trading in their family homes for the conveniences of city life. A quarter of AvalonBay's residents are boomers, up from 10 percent a decade ago. With a dividend of 4 percent, the company's shares, at a recent $72, are a good option for investors looking for income.
"The apartment market is poised to do well," says veteran REIT investor Martin Cohen. AvalonBay is among the largest holdings in his Cohen & Steers Realty Shares fund.
Financial services
The value of assets being withdrawn from retirement savings plans each year will more than double to $400 billion in the next decade. That's good news for financial planners. The majority of retirees seek financial advice, and much of that money will end up in brokerage or savings accounts.
Even better, there will be far more millionaire retirees than ever before. That means more clients for Northern Trust (Research), which manages money for wealthy individuals and large institutions.
"It has the best business model among the trust banks," says Jason Tyler, a portfolio manager at the Ariel Funds, which holds 10 million Northern Trust shares in its client accounts.
The bank has recently been gearing up to capture more boomer clients by conducting surveys on their spending habits and savings needs. "The company is very focused on going out and getting new accounts," Tyler says.
While many boomers will be rich, Northern Trust's shares aren't. At a recent $43, the stock trades at a P/E ratio of 17. That's slightly less than the multiple for other money managers.
Sellers of annuities stand to benefit from retiring well-off boomers also. Over half of all annuity assets are held by people over 65. While an annuity is a costly way to save and invest, it allows retirees, who like the predictability and safety of a paycheck, to turn their assets into guaranteed monthly income.
Lincoln Financial (Research) has been one of the most aggressive marketers of a new breed of annuities that provide a monthly income stream and, unlike traditional annuities, allow the holder to retain control over how his principal is invested and to bequeath untapped assets to heirs.
Insurance analyst Colin Devine at Salomon Smith Barney says rising demand for these annuities will lead to a huge windfall for Lincoln.
"If you can solve individuals' income needs, then they will hand over all of their money," says Devine, who is recommending Lincoln's shares. At $48, Lincoln Financial has a P/E ratio of 11 and a dividend yield of 3 percent.
Next: Why the baby boomers won't really bring down the market
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