Will the Boomers take the Boom with them?
For a number of years now there has been a cloud over Social Security, brought on by the fact that as the Baby Boomers retire the number of individuals drawing on social security will be greater than the number of individuals paying in. This has been used as a justification and impetus for changes to the Social Security system. But what else will be effected by the retirement of the Boomers?
For a good long time now, the stock market has been seen as the most viable and rewarding investment for individuals, over the long term. Boomers have been investing in the stock market for years, and are expected to in increasing numbers as they get closer to retirement. If you need proof of this, just look at the advertising from Ameriprise Financial, and the focus of many of the other financial advisement firms. But as they grow older, they will change their investments, and eventually pull out of the stock market entirely.
How will this effect the market? Their eagerness to invest in the market has assured that any sell offs of older generations are readily absorbed into the market. But their influence could quite possibly go beyond that. Have the Boomers, in their eagerness, propped up the stock market in much the same way that they have propped up Social Security? If so, to what degree have they done so? Will their exodus from the market take a measured pace, at which younger generations can pick up the slack? Or will it happen at such a rapid clip as to create a panic, and send us into a recession or worse? How will it effect the housing market, will Boomers move into smaller more affordable homes as they grow older? How will their retirement effect the rest of the economy as a whole?
Many of these questions I have, at best, a partial understand of and answer to, and there are many more to which I have no answer at all. It is my intention to more fully explore these questions, and the effects that the Boomers will have on our retirement planning and our economy as a whole. Stay tuned.
3 Comments Add your ownSubscribe
1. Brian | June 2nd, 2006 at 5:01 pm
This is obviously not meant to be exhaustive but I would imagine that boomers with fair sized retirement accounts lined with stock would be “not-poor” people and I think it’s fairly well ccepted that the “not-poor” people of the world typically have longer life expectancies. If I was 57-63 right now looking to retire withing the next 5-10 years I would expect to live for a long time after retirement and would there fore value a little more risk in my portfolio to generate gains throughout retirement. I don’t think I’d be investing in emeging markets but I’d keep my money in dividend paying stocks.
The 5-10 years before retirement plus the first 5-10 years or so worth of retirement would be plenty of time to minimize volatility and realize stock appriciation while earning dividend income, whether that income is reinvested or not.
My assumption is that most boomers would see that their money will be around for another 30 years and would not pull out of stocks but merely move their portfolios into more mature companies with long histories of paying dividends. These companies are less volatile and provide consistant income year after year.
If I were a betting man I would bet that these people would put money into large-cap dividend paying companies and force these stock prices up slowly over the next 10 years while pulling out of small-cap stocks and holding there stock prices down. I think the boomer shift will cause the stock market to act slightly differently over the next decade but not for the worse. I think small-caps will continue to experience the same volatility but l will lose some of it’s 10-year pace of gowth while large-cap value plays will maintain their diminished volatility compared to small-caps but will increase their 10-year pace of growth.
In 10-15 years once the entire boomer shift has taken place I thnk things will revert back to the way stocks perform right now.
2. Trenet | June 2nd, 2006 at 6:51 pm
Have you checked out the savings rate lately? Boomers as a whole aren’t doing much investing. Chances are they will work well past 65, improving the outlook for social security in the process. Since they are also expected to live longer, what money they do save will need to be spread over many more years than is typically planned for, which may mute the stock market effects.
3. Michael Patzer | June 4th, 2006 at 1:22 pm
In “The Future for Investors” by Jeremy Siegel, he postulates that because individuals in some developing countries (China, India, etc.) are seeing increases in their wealth, they will likely provide the investment in our economy to prevent a depression or recession. This means foreign investors may take controlling stakes in US companies, which may be opposed by protectionist US lawmakers.
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