The Boomers

[Gizmo]

The boomers start retiring in two years. Does anybody really believe all will be well and we can all get out of the market at a peak?

I contend that at some point soon the market starts to price in these future outflows and the most likely scenario will be the boomers are forced to liquidate at low prices.
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Gizmo

[rffrydr]

[rffrydr]

More and more boomers taking early SS. 50 may be the new 40...but 60 is still 60, 201K or no. Watch for labor force to shrink despite "jobless" recovery.
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Today is the Tomorrow you worried about Yesterday!

[rffrydr]

Maybe the most loved story out there (yes, more than Apple); the long-term is built right in and it's just so obvious:

http://www.economist.com/business-finance/displaystory.cfm?story_id=15549105

[rffrydr]

Total Returns: Boomers continue with their "charmed lives."

http://finance.yahoo.com/focus-retirement/article/109242/401k-losses-linger-for-young-people?mod=fidelity-buildingwealth

These are the very investors piled into bond funds and, having tasted it once, will have to resources to try a "little more."

Meanwhile, as usual, nothing is obvious when it comes to the Boomer Trade:

http://www.economist.com/specialreports/displaystory.cfm?story_id=15793116
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Today is the Tomorrow you worried about Yesterday!

[rffrydr]

Peter Day's second part of two focuses on GE investment in this area--and some startling profit expectations that come with it:


http://www.bbc.co.uk/programmes/b00pl1h3#synopsis

Meanwhile Authers' says just follow the money--bubbles:

http://www.ft.com/cms/s/0/bc01cba8-17fd-11df-91d2-00144feab49a.html
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Today is the Tomorrow you worried about Yesterday!

[rffrydr]

Almost no place not facing this phenomenon (by which we will at long last get an aftrican investment); the redefinition of life is explored in this two parter from Peter Day:

http://downloads.bbc.co.uk/podcasts/radio/worldbiz/worldbiz_20100208-2306a.mp3
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Today is the Tomorrow you worried about Yesterday!

[rffrydr]

Retiring--from taxes:


http://www.cnbc.com/id/35259864
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Today is the Tomorrow you worried about Yesterday!

[rffrydr]

Many of those bottom 50 will be saved as they always have--by mom and dad.
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Today is the Tomorrow you worried about Yesterday!

[HenryTo]

Delphi's pensions to be cut as the PBGC takes over its pension plan:

http://www.detnews.com/article/20100129/AUTO01/1290356/1148/Delphi-salaried-workers--pensions-to-be-cut

I am still of two minds when it comes to whether "the feces will hit the impeller," as Bill would say. No doubt 50% of baby boomers are screwed either way - as they don't have the sufficient savings to get through retirement nor the educational attainment to work after turning 65. Whether this will result in a generatonal conflict, however, is still up in the air. Just look at how much the Spanish youth is suffering (in relative silence) as the country's baby boomers mortgaged its future yeas ago is definitely a sight to behold.

[rffrydr]

Mr. Kass is here to rub it in. There is still the generational wealth transfer prospects....and the nursing homes.

[nodoodahs]

Census projections of U.S. population by age.

Age 2006 2010 2015
0-21 30.4% 29.8% 29.1%
22-35 19.0% 18.9% 19.2%
36-59 33.6% 32.9% 31.4%
60-64 4.5% 5.4% 5.8%
65-69 3.5% 3.9% 4.8%
70-74 2.9% 2.9% 3.4%
75+ 6.1% 6.1% 6.3%

With coming changes to SS to make retirement later (to preserve solvency), the extensions of life expectancy, and with the lack of savings by the boomers (and consequent delays to retirement), I don't believe the feces will hit the impeller for another 5-8 years, if at all (a lot can change in 5-8 years).
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I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.

[Gizmo]

Pensions are already eroding. I think SS follows suit one way or another. Hence the need for accelerated outflows. Echo boomers are already holding the bag on SS and if the market does show net outflows I doubt they'll want to fund the Boomer retirement further through their 401k's.

I'll be in CD's at retirement. After all, a bird in hand........
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Gizmo

[HenryTo]

Stuff like this is always difficult to quantify. McKinsey did a good job of that in one of their reports. See the last chart in the following older commentary:

http://www.marketthoughts.com/z20050811.html

Assuming folks don't change their retirement trends, the net aquisition of financial assets are projected to decline each year by 5% to 6% going forward. Keep in mind that the stock market is basically an auction market. All the action thus occurs at the margin.

Following is a table summarizing net wealth by age - straight from the Survey of Consumer Finances from the Federal Reserve. This was last published in 2000:

http://assets.aarp.org/rgcenter/econ/graphics/dd44_2.gif

The boomers have a tremendous amount of wealth. The savings rate is substantially lower, but they are gaining more wealth through higher incomes, building companies, inheritances, greater risk taking, and so forth. Keep in mind that the pre-boomers grew up in the Great Depression and World War II and thus are naturally more conservative, and most probably never inherited anything from their parents. The boomers are different. And taking risks have generally been rewarded tremendously in the post WWII period.

Let's play further. The market cap of all exchange traded equities in the United States is approximately $18 trillion. Last year's TOTAL stock mutual fund inflows (including flows to international and emerging market equities) were approximately $135 billion according to ICI:

http://www.ici.org/stats/mf/trends_12_05.html#TopOfPage

Total stock mutual fund inflows (keeping in mind that these include inflows into international equities) during 2005 represented only 0.75% of the total market cap in the United States. My point is that even a small swing in inflows/outflows relative to the total market cap has a huge effect.

Case in point: During 2001 we "only" had a net inflow into equity mutual funds of $32 billion, and look what it did to the market. In 2002, there was actual an outflow of $27 billion - and although still small, that outflow actually resulted in one of the worst years in stock market history:

http://www.ici.org/stats/mf/arctrends/trends_12_02.html#TopOfPage

If we have just a 1% swing on the negative side, then this could turn into a rout for the bulls pretty quickly. Remember, the stock market is an auction market. There does not have to be any bids for your shares and there does not always have to be a buyer for every seller out there.

[nodoodahs]

http://money.cnn.com/2006/03/01/retirement/summit/index.htm

Baby Boomers only have enough in savings and other income sources to replace 59 percent of their pre-retirement income. Of those with 401(k) accounts, the average account balance is just $80,000...

http://money.cnn.com/2006/01/05/pf/retirement_planning/index.htm

As life expectancy rates climb, people are living in retirement much longer than previous generations. And it's happening at a time when Social Security and pensions are becoming less secure.

...

Life expectancy has increased 30 years in the past century. Someone born in 1900 only would be expected to live 47 years, while someone born in 2002 is expected to reach the age of 77, according to the CDC's National Center for Health Statistics.

Living longer in retirement can have a significant impact on your nest egg, according to estimates from Darlene Simard, a certified financial planner based in New Hampshire.

...

Working longer is one of the most effective ways to secure your retirement, according to Munnell.

...

There are already signs that more people are retiring later in life. According to surveys from the Association for the Advancement of Retired Persons, more than two-thirds of 50 to 70 year old workers say they plan to work into their retirement years or never retire at all.

...

Whereas just a few years ago it was typical for retirees to withdraw as much as 6 percent from their nest egg annually, experts agree 4 percent is now the norm.

If you withdraw from your savings at a rate of 6 percent each year, or $60,000 from a $1 million portfolio, you'll run flat out of money in 12 years, Cannizzaro estimates, after taking taxes and inflation into account.

Reducing your withdrawal rate to just 4 percent will help those savings stretch 30 years.
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I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.

[nodoodahs]

What future outflows?

The boomers are largely unprepared for retirement - the average american has nowhere near enough savings to retire. Most will continue working long after retirement age.

Consider also that with lifespans increasing, assets must last longer, and thus those with saving will continue to be overweight equities as opposed to cashing out into "conservative" investments, because only by being active with more speculative investments will they be able to make their limited savings last through their lifetimes.

Let's play!

59% of the U.S. population in 2000 was between 20 and 64, inclusive. 37% were between 20 and 44, and 22% were between 45 and 64. The population density (persons per year) is actually 33% HIGHER for the younger group (echo boomers).

Another way to put it ... assume ALL the stock market investors are in the 59% aged 20-64. The density of 45-64 is about 1.9% of all investors per year. So this less than 2%, adjusted for the relative rate of investing, is the amount that would be withdrawn from the markets. Not too scary.

Keep in mind, the density of 65-84 is about 1/2 that of the 45-64, AND that generation was more likely to save than the current near-retirees, so we are already seeing withdrawals from the market that are probably 50%-75% of what we'll see from the boomers.

All in all, I don't think the impact from demographics will be that large. Plus, I think it will pale in comparison to the impacts of monetary policy et al.
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I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.