Baby Boomers affect on Market

[CaucasianAsian29]

Warning: newb post, rambling and many general questions.

With the Baby Boomer generation reaching retirement and cashing out their nest eggs, How is this likely to change the market? and how much does this affect you?

Is this something that is frequently discussed in investment forums,conversations and articles? I would assume, the fact that baby boomer generation is reaching retirement will affect the market. But how much?

Personally, and as of now I will still invest in the stock/mutual fund market. But, I feel that from looking at history and taking "the boomers" into consideration, diversification is very important.

Assuming that many of the boomers cash out, and the market takes a hit on a whole, what areas of the market will suffer the most? Also, do certain generations invest in different stocks?

[mtgordon]

Just taking a stab at it (aka I haven't read anything on this subject), but I believe that people tend to go more towards bonds, etc when they are nearing retirement. This allows them to plan more accurately and they feel safer in general. I believe that this will limit the affect on the market to a great extent.

[ayamaguc]

[ QUOTE ]
With the Baby Boomer generation reaching retirement and cashing out their nest eggs, How is this likely to change the market? and how much does this affect you?

[/ QUOTE ]

This is huge. It will affect us all. Those who are forward thinking, aware, and plan accordingly will have the smoothest ride. But it's a big reality for all of us looking into the future.


[ QUOTE ]
Is this something that is frequently discussed in investment forums,conversations and articles? I would assume, the fact that baby boomer generation is reaching retirement will affect the market. But how much?

[/ QUOTE ]

Not usually. That would require actual, genuine, original and outside-the-box thinking. Plus it's somewhere amorphously in the future. Plus it would take research and projections, which many (most?) people are bad at.


[ QUOTE ]
Personally, and as of now I will still invest in the stock/mutual fund market. But, I feel that from looking at history and taking "the boomers" into consideration, diversification is very important.

[/ QUOTE ]

Diversification can be important in general, not necessarily for the reasoning you indicate.


[ QUOTE ]
Assuming that many of the boomers cash out, and the market takes a hit on a whole, what areas of the market will suffer the most? Also, do certain generations invest in different stocks?

[/ QUOTE ]

It's not so much that boomer's 'cash out', at least from a stock market perspective. Boomer's investment profiles will change (more bonds, more income), but for most of them it's not like they'll hit a magic day and go 100% TIPs or something. How long is someone's retirement? 20 years? More? The goal is to never hit zero / spend your last dollar with your last breath. So the nth dollar coming out of the pool comes out much later than the first, and thus needs a different risk/return profile given inflation and timelines.

A bigger area of concern might be in asset markets that are less liquid, non-standardized, and lumpier in distribution. Like housing. Huge house values are looked at as nest eggs and as part of retirement planning, but those analyses happen in a vacuum. Markets aren't vacuums. As populations demographics change, demand for housing (and subtypes of housing) will change. Maybe less 4-6 bedroom suburban McMansion demand and more small city condo/oceanfront community/retirement home type stuff. Etc.

Don't worry though. The sky is not falling.

[dazraf69]

[ QUOTE ]
This is huge. It will affect us all. Those who are forward thinking, aware, and plan accordingly will have the smoothest ride. But it's a big reality for all of us looking into the future.

[/ QUOTE ]

I think the biggest problem that will rise is the shrinking of the working middle class. I have not looked at any statistics but common sense tells me that the baby boomers make up a large portion of the middle class. This being said, once they retire they no longer contribute in the form of taxes. This will obviously have economical effects as the governemnt has no course of action in the event tax revenue drops. In addition, with the declining middle class, the burden on the middle class will increase.

On a side note, a bigger worry might be the shrinking middle class and growing lower class. I attribute this to the reproduction rate of the middle class compared to the lower class. Something in the range of 1.6 for middle class and 2.4 for the lower class. At this rate over the next 100yrs or LESS, the middle class dies off and we return to the dark ages....

[almostbusto]

the middle class doesn't actually pay all that much of the U.S.'s federal income taxes. the middle class isn't going to shrink enough.

the idea that middle class families have middle class babies who become middle class parents and lower class parents have lowers class babies etc... is also pretty naive.


EDIT: found this image on google to express my point. not to recent, but nothing too dramatic has changed recently.
(each color is a quintile, the bottom color is the top 20%, next up is the 40-21% range, the third color is the middle quintile, which some might consider the middle class though i am guessing the dazraf would suggest the middle class is much smaller since its apparently shrinking away)

[maxtower]

The baby boomers movement of some funds out of stocks could have some affect, but it is difficult to say how much. Since most people have not saved adequately for retirement, I am going to go out on a limb here and say the majority of baby boomers don't have much money in the market to move out of stocks.
So where does all this money in the market come from? I think there are a lot of upper middle class and rich people with a lot of money in the market. If someone has $10 million invested in the market, they aren't going to need to pull so much back into bonds. Why shouldn't they continue to try to earn the highest returns. They already don't need the money for income in retirement.
Factor in that this change will not be sweeping and will happen over the course of 20 years, and I think that probably the affects of the boomers retirement will be lost in the noise of the market.
This is 100% pure speculation on my part. If significant money moves out of equities, we could be in trouble. Diversify in Europe or other countries with stronger pension plans than the US. Those retirees don't have to save since their pension will take care of them. Therefore they will be pulling less money out of the market.

[Thremp]

Isn't most of the market institutional investors... I know that mutual funds etc comprise this as well... But what % are non-profits and schools or endowments etc that will not be pulling out for the long term?

[BradleyT]

If on averagey they each have $25,000 in the market that's $2.25 trillion. No clue how close to accurate that number is tho.



I think their impact on the workforce will be quite large. A few years ago they had a news report on the workforce here in Milwaukee. Over 50% of the workforce is baby boomers (I believe overall they're 40% of the US workforce). And they also noted that as more people retire, the need for service industry jobs to support those people increases greatly.


http://www.bls.gov/opub/mlr/2000/07/art2full.pdf older but informative PDF on baby boomer retirement effect. Interestingly 69% of U.S. farmers are baby boomers.

[mtgordon]

Just extrapolating on what Bradley wrote: does that mean that baby boomers will have a positive effect on the economy? When they all retire that opens up a lot of jobs for everyone else. Also you mentioned the service industry which gets a boost as well.

[maxtower]

Hopefully it will have a positive effect and increase every Gen-Xer salary, but I think that a lot of those baby boomers are going to be a drain on the economy since they will be underfunded for retirement. They will really be underfunded if their costs go way up because all of them quit and the cost of labor rises substantially.