A report on Boomer retirement and demand for stocks by researchers from the Federal Reserve Bank of San Francisco got a fair amount of play recently. The full report is available here. I noted it here. The report showed that historical data indicate a strong relationship between the age distribution of the U.S. population and stock market performance. Obviously, a key demographic trend is the aging of the baby boom generation. As they reach retirement age, the authors argue that Boomers are likely to shift from buying stocks to selling their equity holdings to finance retirement. Their statistical models suggest that this shift could be a factor holding down equity valuations over the next two decades.
This report isn’t the first such claim. Analysts have speculated about how the retirement of the Boomer generation will affect demand for financial assets for years now. However, reporting on the piece neglected a Congressional Budget Office background paper published in 2009 which comes to a different conclusion. The CBO paper argues that Boomers won’t sell assets very rapidly to finance retirement on account of several factors.
- Boomers will be careful — they are concerned that they might live longer than expected or might face higher than anticipated medical costs.
- Boomers desire to transfer assets to the next generation, which should also blunt asset sales.
- Since the wealthiest one percent of Americans own about one-third of the nation’s financial assets and, for the most part, the very wealthy don’t sell assets to finance retirement, this asset concentration will help to keep demand steady.
- Many Boomers may work longer than they otherwise would have due to losses of retirement assets due to the 2008-09 financial crisis (but the empirical evidence on this point is inconclusive and the impact might be small).
The CBO conclusion:
“Although the retirement of the baby boomers is not likely to cause a large decline in aggregate demand for assets, several economic studies suggest that the retirement and aging of baby boomers could cause a temporary decrease in asset prices. … Empirical evidence, however, has not revealed much connection between demographic trends and the changes observed in financial markets.”