Boomer Retirement: Headwinds for U.S. Equity Markets?
Baby boomers are fast approaching retirement age. Today's economic climate is challenging enough for investors of any age. Baby boomers, born during the Post-World War II period, are now planning for retirement. As equity markets face ups and downs due to volatile stocks and nervous investors, boomer retirement investment decisions could add to the chaos.
Patrick Vidal | US Gov Connect
A new report by the Federal Reserve Bank of San Francisco suggests that selling by baby boomers over the next decade could have a negative impact on the stock market. The study predicts that stock prices may drop as much as 13 percent over the next decade due to baby boomers dumping existing stocks to get into more conservative investment choices.
Boomer retirement is expected to reach its peak during this same period. The report, compiled by researchers Mark M. Spiegel and Zheng Liu, suggests that equity markets could take a hit through 2027 when levels are likely to return to levels seen last year. The team behind the government report describes the predicted scenario as "quite bearish."
In layman's terms, this refers to a general decline in the stock market over a period of time. Here, the period spans more than a decade as baby boomers shift their investments as they retire. The report suggests that, assuming current baby boomer investment trends continue, stock prices are directly related to demographic trends over the past 50 years.
The report correlates stock prices in previous years with the age boomers were during these periods. Stock prices appear to relate directly to points when boomers hit their prime earning and saving years. This is excluding outside market forces. The suggestion by the researchers is not new. Analysts have speculated on this connection in the past. Some market observers are questioning the timing of the report since it comes when the market is reacting to a stagnate economy.
The report contends that selling by baby boomers (specifically identified for the purposes of the report as those born between 1946 and 1964) could forestall any current market recovery trends when paired with the global financial crisis impacting world markets. The report adds that conservative investment choices by boomers could "potentially slow down the pace of (economic) recovery." On a positive note, the report suggests that stock prices could spike by as much as 20 percent from 2010 peak values as the boomer generation further ages from 2025 through 2030.