How Baby Boomers Will Affect The Financial Markets

On January 1st, 2011, Kathleen Casey-Kirschling was the nation’s 1st baby boomer to turn 65, along with around 10,000 more. According to Pew Research, 10,000 of these Baby Boomers will be turning 65 each day throughout 2011. They continue, “26% of the total U.S. population are Baby Boomers…(this) will dramatically change the composition of the country.”

So with all of these baby boomers moving into retirement, how will this effect the financial markets for the working generation? How will this “dramatically change the composition of the country?”

Let’s look into the numbers a little bit deeper, and see what we if we can generate a conclusion.

In 2010, 12.9 percent of the population was over 65 years old (US Census Bureau). This means that almost 40 percent of the current population is retired, or will most likely be retiring, over the next 20 or so years (baby boomers are those age 45-65 currently).

By looking at the data (Baby Boomer Births and Birth Rates) we can easily see that from 1946-1965 there were 79.13 million births and from 1966-1985 there were 69.3 million births. So there is a significant difference in the number of births for the baby boomer generation.

Now that’s not the only problem. From 1926-1945 there were no more than 55 million births. So the spike from the baby boomers from the preceding generation was massive.

Historically, it’s important to understand that there has been a bubble in the markets. From 1978-1999 we had a period in the market where things were going up and up, and there were only 2 down years.

Contrast this to the past century, and you’ll see that it’s the most years historically in the market where something this dramatic has happened.

And what happened in 1978 to cause this market shift? A little thing called the 401k.

So, in 1978, retirement funds began shifting from company sponsored pension to the markets, and with the high demand for stocks now, the market reciprocated with rising stock prices.

So what happens when all of these baby boomers start to retire. They begin to sell quantities of their investments. Supply goes up, demand goes down, and the result is a downward fall in market pricing.

Now also, in the actual product markets, there will be less products purchased, so demand will go down for purchased goods, resulting in fewer dollars made for companies, which also results in a lower market.

So how does this translate into your actual investments.

Stocks – have a higher risk of going down, even as the last 10 years have shown us market losses, this trend likely could continue to occur.

Mutual funds – same story. Higher risk of falling prices.

401k’s, IRA’s, etc – Because these investments are tied to current markets, they run the same risk as stocks and mutual funds, they have the ability to lose money. And the retiring wave coming could leave your 401k with a good deal of loss.

In conclusion, based on the data available, we can easily see that this will be the biggest wave of retirees that we have ever seen. This will not only affect the markets, but also all of our government sponsored plans such as Medicare, Medicaid, Social Security, etc.

Whatever the effect, this is going to be an extremely new situation that we have ever been in before, and coupled with the already massive government debt, this could take quite a toll on our future financial situation as a country.

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Josh

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