In aggregate, the “baby boom” generation is a huge demographic bulge that will soon start to retire. I have a basic understanding of markets - certainly not every boomer will draw down their 401ks and IRAs simultaneously, but the net outflows would seem at first blush to overwhelm inflows. Is this a serious consideration? Chairman Bernanke remarked today that unless Social Security is reformed that the effect on the economy will be severe (no kidding!); so I thought this relevant and have been wondering about this for a while. What say ye, Dopers?
No one knows exactly what’s going to happen, but there’s reason to believe that it’ll be a big deal. In their book Generations, Strauss and Howe offer a theory of generational change that, among other things, predicts a major change in the social order approximately every 90 years. The last one was about 70 years ago, so the timing of the boomers retiring, becoming ill and dying is about right to be the catalyst for that change.
Well, sure. But what will happen to the market? Market fluctuations have a high degree of random-ness but the aggregate seems to my untrained mind to be generally sell, sell, sell, over a period of 15 to 20 some years.
My first hunch is that the opening of the global markets will make the Great Baby Boomer Stock Selloff less likely to trigger a stock market collapse, than it would’ve been had the world capital markets been limited to the US and Western Europe, like they were back in 1929.
Also, it’s not as if they’re just going to dump stocks all at once. Of all the equity controlled by the Baby Boomers a significant percentage of that will be passed on to their heirs, and the majority that is sold will be done so over a 15-25 year span (and is likely already occurring).
My $.02.
I believe the oldest boomers are already starting to sell as the ones over 55 are moving from stocks to bonds. It does not seem to be having an adverse affect yet. I do not know what this proves for the future, but it gives me hope that the stock market is resilient.
Jim
Baby Boomers won’t retire “en masse.” That cohort is spread across 20 years.
Maybe that was a poor turn of a phrase, but should get the point across, and it’s clear enough that there is an absolutely huge demographic bulge that has overwhelmed society at every stage of the way - birth, adolescence, adulthood and soon (some say thankfully) retirement and eventual demise, and as mentioned in the OP, in aggregate this presumably indicates years of net outflows from the market, albeit not all at once, just as the 80’s and 90’s meant huge inflows. My apologies if this was somehow grammatically unclear, but it’s a serious question
These markets are self-correcting as well. As stocks become cheaper, they also become more attractive to other types of buyers which helps stabilize the price.
These markets are self-correcting as well. As stocks become cheaper, they also become more attractive to other types of buyers which helps stabilize the price.
The market is suppose to reflect the values of the companies. Money will get drawn out of retirement funds, get taxed (at lower rates), get spent and get reinvested. It won’t just be one big redemption. The markets are already correcting for these factors. Also, the markets are now international and the total population is growing. As long as people are spending and companies are making money they will hold their value.
The fundamental problem (as I see it) is whether the politicians will continue to turn a blind eye to the changing situation and continue to try to push the deficit problems into the future until it becomes untenable. The American voters have been very good at rewarding politicians that promised them something for nothing. That’s called a Ponzi scheme and we are all participating in the biggest one ever perpetrated.
Seniors when they turn 65 are not going to suddenly dump all their stocks or mutual funds. What would they do with all that cash? Put it in a bank so inflation can devour it? I hope not. The money is for retirement which could mean 20, 30 or more years. Seniors will sell thier stocks eventually, but it will be gradual over a long period of time. Wall Street will hardly notice.
Also, stock markets don’t “tank” when long-predicted outcomes actually take place: the effect of a retiring Baby Boomer population is not something that is catching anybody unawares (especially the Boomers themselves! 
) Markets tank when the predicted outcomes do not take place, when uncertainty reigns and value is perceived as having suddenly disappeared.
I have long worried about this. The way it was explained to me is that all that sold stuff has to go somewhere, and this time it is going to China. The expanding Asian economies will suck up the stuff my generation will be selling. This way we assure our own comfort and ensure Chinese will be the language of the future.
Maybe.
Moved to IMHO.
-xash
General Questions Moderator
As others have mentioned, redemption doesn’t take place all at once. When someone is ready to retire properly and are following their plan, they’re going to allocate more bonds then stocks, and will withdrawl at about 4-6% of their portfolio a year for income. This money will go into paying bills, buying food, and general entertainment. This still feeds the economy the same way as before, and these monies will then go into other investment vehicles for those that are working and want to retire. When a retiree dies, you can only hope (and I think most do), that the portfolio will get reinvested again by its heirs in a higher stock allocation, with income getting added to the nest egg again for their own retirement. Rinse and repeat.
I don’t see it as a big deal. Money that one receives from selling stock goes back into the stock market SOMEHOW. They don’t take money out to burn it to keep warm.
It gets paid to the companies that the rest of us own stock in. . .drug companies, financial companies, companies that make rubber grips for walkers.
Don’t forget Depends. 
I think it could be a major effect. The pool of investors is huge but it’s not infinite - if there’s enough people selling there may not be enough people buying. And while normally, the “cashing in” would be spread out over years and relatively minor, don’t ignore the possibility of the herd effect. Once the first group of retirees starts selling their stocks and the market takes a small dip, the media might make some noise and other potential retirees might decide to sell their stocks now before the market goes down further. That could be what will turn a ripple into a big wave.
My father-in-law is 90, and I think he has more stock now than he did when he retired.
The way we’re setting things up is to have income producing stocks. If you are living on dividends from these, and from bond interest, there is no reason to sell when the market goes down. So that will help.
One thing I read about retirement planning is that you should not be worried about spending more right after retirement. As people get older they tend to spend less (on entertainment, at least). If people follow this principle, we might see a spike, if not, we might see lots left over for the heirs. I’d suspect that those with it enough to have retirement savings in equities are exactly those who won’t spend it fast, just in case.
Personally I’m a lot more worried about those who reach retirement with little in 401Ks, almost no equity in their homes due to borrowing, and little savings.
They’re already retiring now. Do you see the stock market changing because of this? And if so, do you think it’s going to continue changing in the same manner for the next 20 years? I don’t think so. Not to say that the boomer generation won’t have any effect, just that it won’t be sustained over 20 years.