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I had long hypothesized that the retirement of the baby boomers would lead to a market decline, as they withdrew money to support themselves. I came across this comprehensive report by the GAO which debunks that theory. In short, the report says that baby boomer retirement will not impact the financial markets because:
- A large majority of boomers have few financial assets to sell.
- The wealhty minority that holds the majority of the assets will be unlikely to sell little, or any of their assets.
- The nineteen year span between the start and end of the baby boom generation will mitigate against sharp sell-offs.
- The trend for boomers to work past traditional retirement ages.
- Boomers accumulation of real estate equity.
The full report is fascinating and a good read for anyone interested in this subject.
Submitted: Jul 3, 2007
Views: 1390
Comments: 8
Likes: 5
View Article: http://www.gao.gov/new.items/d06718.pdf
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This is an excellent article and I agree with many of the points. I do think though that it may minimize the impact retirement will have. Retirees may not be withdrawing from their funds but they also will not be contributing as much. I know that is true for me. Surely even that decrease in funds flowing in will have an impact on the financial services industry.
I believe the mountain of assets produced by the baby boomers is why financial services firms have been growing so quickly. As this mountain subsides, these firms will be in fierce competition and the finanancial services industry will begin to consolidate and contract.
Posted: Jul 5, 2007
I tend to agree with Marc. I don't think the market will collapse (since most boomers aren't going to yank their assets out) but there will be a long lag as boomers no longer sock away their cash either. I think this impact will be felt on rising interest rates, a flat stock market, and overall lack of growth in the financial services industry.
Look at the FI insdustry now from a market perspective. All of their ads are targeted at retiring boomers. Once the crest of this market passes, they have a much smaller pool of people to market to - a la the 70s with the boomers. The 70s economy was a flat stock market and high interest rates.
Posted: Jul 5, 2007
Here's an article I found that agrees with my point above. All of these boomers changing their consumption and savings patterns will have an impact:
http://news-info.wustl.edu/tips/page/normal/7269.html
Posted: Jul 5, 2007
I think that the impact is most likely to felt in terms of increased market volatility - but not market stagnation.
Posted: Jul 5, 2007
@AronLive
I disagree. I also think stagnation is what we'll see. It's going to be a slow leak as money starts to be slowly diverted from the financial markets. I also agree that financial services companies will be the big losers as the growth of assets under management slows down and then potentially declines.
But I see higher long-term interest rates and less money invested in the market.
Posted: Jul 5, 2007
Loganaxo
(Unregistered)
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Posted: Oct 8, 2007
Ronald F. Greek
(Unregistered)
The 77+ million members of the baby boomer generation have been a demographic hump in the economy. Why is anyone surprised that as the beginning wave reached retirement age in 2008 that the stock market collapsed?
This bulge in population sought someplace to "invest" their earning, hoping for a high dollar retirement. They speculated in stocks.
As more dollars were speculated in stocks, prices rose.
When the inflow of dollars slows, there is a bear market. With new retirees coming on scene essentially daily, in a rising tide, how can anyone be surprised that the market faltered, falling to more realistic levels?
Wealth did not "disappear", anymore than wealth disappeared when the price of a gallon of gas fell from $4.00 back to $2.00.
Those who bought inflated price stocks still own the stocks. Those who sold the inflated price stocks still have the money.
Posted: Mar 11, 2009
Skeptical Steve
(Unregistered)
I appreciate someone sharing this article because I have been hypothesizing about this since the late 90s when I was discussing with my Econ. profs.
Seems like a typical government self serving study. It makes some good points about how the wealth is distributed, but the bigger factor here I think is global impact. 80s & 90s the US market was where foreign investors wanted to be. Now the other markets are just as sophisticated and the internet allows more access to other investment alternatives to the US market. Add-in distaste for the US market based on our recent meltdown due to poor regulatory oversight and it may be a recipe for more money flowing out than in for the next quarter century.
For someone in their early 30s like me that is concerning. I don't want to be the first to experience the 30-year period where the market is negative. At the end of the day, I have to be glad that this meltdown happend early in my career and that we can build back from here.
Posted: Mar 31, 2009
