The idea is that aging Boomers will fund their retirement by selling off equities, thus causing a large stock market bust. While this is a legitimate concern, people need to keep in mind that only unexpected events have an impact on stock market prices. We’ve all seen the demographic data and know about the impending influx of Boomers who will be retiring. One would assume that investors in general are aware of this trend and have incorporated this into retirees’ equity sales.
A recent white paper by Vanguard’s investment research team examined this issue and gave five reasons why they believe this stock market bust scenario is simply overblown:
- Sales should be spread out over a large portion of time, seeing that the Boomer generation spans a significant portion of years and will be retiring over a large swath of time.
- Boomers’ share of total equities is similar to that of groups age 46-64. Those groups won’t be retiring in the near future and thus won’t impact the stock market.
- Boomers’ wealth is highly concentrated. The wealthiest 10 percent hold 90 percent of the assets. Wealthy Boomers will not be selling equities to meet short-term spending needs.
- Global demand of U.S. equities is increasing. Any selling pressure from retiring Americans could be offset by foreign demand.
- There’s no significant relationship between retirees as a proportion of the population and U.S. stock returns.
To find out more about the possibility of a stock market bust related to Boomer retirement, please click here.