Consumer confidence in the economy, including stocks, bonds, mortgages, credit cards and structured products, is dropping, but experts say consumers need to stay invested in a fully diversified portfolio of mutual funds for their own good and for the good of the economy.

Money managers should be doing more to educate investors by providing them with easy-to-use tools and emphasizing how important these products are to saving for retirement.

Only one in three Americans surveyed say they are on track with their retirement planning efforts, and 23% report they haven't started planning at all, according to a survey conducted by Braun Research on behalf of Bank of America.

"Many individuals don't know where to begin or how much they need to save," said Jeffrey Carney, president of Bank of America Retirement and Global Wealth & Investment Management Client Solutions.

Familiarity with financial products does not necessarily mean participation. Even though 79% of those surveyed said they were familiar with 401(k) plans, 22% of those with access do not participate. Approximately 68% said they were familiar with Individual Retirement Accounts, but only 40% said they had one. Of those who have an IRA, only 43% fund them each year.

Volatility in the stock markets and daily headlines about the subprime crisis hasn't done anything to reassure investors.

Based on results from the first quarter of 2008, equity funds posted their worst three-month returns in 23 quarters, declining 9.74%, according to research by Lipper.

"People who are worried about a recession have jumped into alternative asset classes, and many people are turning toward blue-chip stocks, focusing on steady-performing, multinational companies," said Tom Roseen, a senior research analyst for Lipper, during a conference call last week in which Roseen and two other senior Lipper analysts gave their analysis of the just-released first quarter data. The conference call was unusual in its frankness over subprime's derisory effect on equity and fixed-income markets, and its in-depth historical comparisons.

Roseen said he is confused by the behavior of investors.

"Most investors should be looking at a long-term horizon," he said. "This is the time to be putting money into the market. As they say, time in the market is more important than market timing."

Instead, people are investing at the top and selling at the bottom, when they should be doing it the other way around, he said.

People who invest when the market is down can buy stocks, bonds and mutual funds at a discount, under the realistic assumption that the market will rebound in the future. The argument is logical once you understand it, but how do you convince an inexperienced investor that they should climb aboard a sinking ship? For that matter, how do you convince a Baby Boomer near retirement to ride out the storm?

Americans' confidence in their ability to save for retirement has dropped to the lowest level in seven years, according to the Employee Benefit Research Institute's annual retirement confidence survey.

"Overall retirement confidence has dropped sharply," said Jack VanDerhei, a professor at Temple University and an EBRI fellow, during a separate conference call last week. The percentage of workers who said they were very confident about having enough money for a comfortable retirement dropped from 27% in 2007, to 18% in 2008, the biggest one-year drop in the 18-year history of the survey.

"Americans clearly need guidance and education regarding how much of their pre-tax annual income they will need to maintain a similar lifestyle in retirement," said Dan McNamara, retirement products group executive for Bank of America. "A 401(k), 403(b), pension plan, IRA or Social Security is typically not enough to enable individuals to reach their retirement goals."

Increasing healthcare costs, the ability to find health insurance in retirement and the fear of outliving retirement savings continue to be among the top worries of workers, according to the EBRI survey. Other worries: the economy, job market and the decline in home values.

"The typical worker expects to retire at age 65, and 20% of workers plan to push on into their 70s," the retirement confidence survey found. "However, the typical retiree retired at age 62, and 51% say they retired sooner than planned."

Like other polls before it, the survey consistently found that 51% of retirees leave the workforce earlier than planned, with reasons including health problems or disability (54%), changes at their company including downsizing (33%), and having to care for a spouse or another family member (25%).

"The consequences of an unplanned, early retirement can be heavy," the survey continued. Retirees who retire earlier than planned are more likely to report a lack of confidence about having enough money to pay for basic expenses.

Optimism an American Trait

"This expectation of working longer will be monitored," said Mathew Greenwald, president of Greenwald & Associates. "Two thirds of people expect to work after retirement, but only one quarter do. Optimism is an American trait, but this assumption of being able to work in retirement keeps people from saving as much as they can."

Greenwald said it's disheartening but understandable that retirement confidence is going down, and said the fact that retirement confidence was high for so long suggests that many people may have had a false sense of confidence while times were good.

Successful firms are placing emphasis on education, training and building their online and phone sites. Offering the right level of tools and advice to customers is key to retaining and growing business.

"Our customers are telling us that planning for retirement is their No. 1 need," said Keith Piken, managing director of personal retirement solutions for Bank of America. "Frankly, it hasn't been a very hard sell."

Accounts have been up, he said, and interest in CD IRA products has gone up dramatically.

"We have been attracting investors by leveraging our brand name as a big, stable company and a trustworthy bank," Piken said. "We have been pretty fortunate to stay out of headlines."

Bank of America recently made a corporate decision to waive all fees for investors who have an IRA account, in part to attract more customers and also to let its existing customers know the bank values their business, Piken said.

New products like a personal retirement calculator and an IRA shopping wizard help customers make these important decisions based on their individual needs, he said.

(c) 2008 Money Management Executive and SourceMedia, Inc. All Rights Reserved.

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