Baby Boomer Retirements Won’t Hold Down Market Returns


Screen Shot 2017-05-29 at 12.18.28 PM

Many people are concerned about the impact of the Baby Boom generation will have on stock market returns.  The fear is that with so many people retiring at once – and cashing out their retirement accounts – Wall Street is sentenced to lower than historical returns over the next 15-20 years.

Baby Boomers, currently aged 53-71, according to Pew Research, are half into retirement already with the average age of retirement at 63 in 2016.  Since mandatory disbursements from 401ks and IRAs start at age 70, 2017 is the year that those mandatory disbursements must begin for the leading edge of the Baby Boom generation.

While my wife and I are Gen X-ers, and our early retirement began just last year, I have done a lot of reading on this topic.  Here are nine reasons I think equities will still produce strong returns over the next few decades:

LATER RETIREMENT – It is expected that people will work longer.  Companies (and government) are looking at delayed retirement as a solution to the ‘brain drain’ that might otherwise impact business productivity.  Japan already has adopted new regulations that encourage workers to stay employed longer, even at lower wages.

GRADUAL SELL-OFF – The government does not require you to take out all of your tax deferred retirement funds at once. The required minimum withdrawal annual rate makes the cash-out gradual – in the low single digits annually for people in throughout their 70s.  Not until people reach age 79 are they even required to withdraw as much as 5% of their balances.

HOLDING STOCKS – Since people are living longer, they are getting advice to hold onto stocks for longer.  With a 62 year old retiree looking at 25-30+ years of retirement, there is a long runway for buying and holding stocks.

NOT OVERLOADED – Stocks only represent 40% of average household investment holdings today.  The great majority of Boomer money is tucked away in fixed investments, like bonds, or to a lesser extent in cash.  While stocks are the riskiest part of their portfolio, Boomers do not carry as much in equities as younger generations.

PENSIONS – More than any generation to come, the Baby Boom generation still has the traditional benefit of a traditional defined benefit plan.  These plans have been waning in availability over the last 20 years, but many Boomers will still have a pension as a core part of their retirement plan.

ENTITLEMENT STABILITY – With all of the proposed budget vitriol coming out of Washington DC these days, two programs seem to be missing from the debate: Social Security and Medicare.  Neither party is interested in discussing changes to either of these programs because they are so broadly important to Americans.  They will need to be recharged in their funding, but this has been the history of these programs for decades.

REINVESTMENT – Once when Boomer money comes out of 401(k)s and IRAs, they won’t necessarily hold all of that money in cash.  Many will reinvest these accounts in taxable accounts – including in equities, owing to their longer planning horizon.

ALREADY HAPPENING – The leading edge of boomers retired a decade ago and have already been tapping into their retirement savings.  Yet, the stock market has continued to rise with the S&P 500 currently +64% versus the pre-Great Recession high of 2008.

NEXT GENERATION – The millennial generation (currently age 18-34) are just as big as the Boomer generation (both 75M strong) and building their retirement nest egg.  They will start buying stocks in larger amounts as they enter their peak earning years.

Lastly, much of the discussion of the impact of Boomers on the stock market misses the point that companies compete in a global market, and while the US may be going under a significant demographic transition, the same isn’t true around the world.   

While North America and Europe tend to be older, Asia and Latin America are much younger.  Africa, which will likely emerge as an economic engine for the globe over the next 20-30 years is the youngest region on the planet today.  This will have a big impact on the growth prospects for today’s multinational corporations.  Even today, S&P 500 companies generate half of their revenues from outside the USA.

What other considerations do you think early retirees should consider with respect to the number of Baby Boomers retiring right now?

Image Credit: Pixabay

6 thoughts on “Baby Boomer Retirements Won’t Hold Down Market Returns

  1. Chief, I really like your analysis, including assessment of fundamental factors that underpin changes. Though media thrives on “the sky is falling” diatribes, we can turn down the volume to look at facts objectively, and realize that grounds for reasonableness stand secure. I’d like to forward your post to my financial advisor – who (like me) plans for decades, eschewing market twitches and doomsday scenarios. Is that OK with you?

    Liked by 1 person

    1. Yes, please do – I would be interested in your Advisors thoughts and firm’s outlook, too.


  2. Great points! Years ago, I read Kiyosaki’s book “Rich Dad’s Prophecy” which was an eye-opener for me about FI. What was interesting though was his prediction about the baby boomers retiring that would be a big contributing factor to the market crashing.

    Obviously, no one can predict the future, but it’s interesting to hear both sides of the conversation. 🙂

    — Jim


  3. Interesting assessment indeed, tend to agree with you on most of the points. Another point to potentially add is the ever growing world population and the exposure of many US stocks to this growth. There is bound to be more equity created with way in the coming decades that could offset any potential/limited selloff within the US.
    But what about real estate? Any ideas on how this will be affected by the aging population and the desire of the younger generation to start living smaller/more cost efficient?

    Liked by 1 person

    1. I do think we are seeing quite a change in the kinds of homes that younger households want versus what their parents did. In fact, many baby boomer homeowners are selling the family two-story, and moving into town homes and smaller condominiums – the same kinds of homes that millennials want. I’m not sure a family home will keep up with the rest of the market in value over the next 15 years.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s