Will the Market Rock and Roll?
September 28, 2002

Here's an email Sound Money received the other day:

"Dear Sound Money, we are beginning to see a lot of discussion in the press about what happens to the U.S. stock market when the baby boomers start to retire and cash in their stocks for retirement living expenses. What do you think the effect on our markets will be of having such a large group of stock buyers turn into stock sellers?"

What do you think?

Hair turning gray and tummies soft, boomers are aging. And the Woodstock generation owns a big chunk of the $11 trillion dollar retirement market, more than half of it in 401(k)s, 403(bs), IRAs, and other self-directed retirement savings plans.

Now, aging Americans can't live on stock and bond returns. They'll have to sell their investments to get the cash they need to eat and travel. Some academic studies suggest that market values could fall by a third as boomers cash in their trillions and trillions of dollars of savings stored in stocks and bonds during their Golden Years.

A pension asset implosion is a risk. But it's doubtful, thanks to the move toward market economies around the world. While the populations of the industrial world are getting older, the number of people in developing nations is on the rise. The spread of private property rights and openness to the world economy is encouraging vast amounts of goods, services, and capital to flow across borders. By the time boomers need to sell, markets will be even more international than they are now. We all have a stake in faster economic growth elsewhere in developing regions of the global economy.

The talk of a demographic crisis also ignores changes in the workplace. People will work longer, and older people will contribute more to economic growth. The information economy will make working in our elder years much more attractive. Look at Mick Jagger and Keith Richards of the Rolling Stones. Both are 59, and they're still rock'in and roll'in with vigor.

So Kevin, I think living standards will rise rather than fall over the next several decades, and that the markets won't collapse from the age wave.

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