Saturday thoughts: “Boomer Bust?” I Don’t Think So!

"One of the stories that I’m quite frankly getting tired of reading about, even peripherally, is the “boomer bust.” The most recent example comes from Random Roger, who references a Peter Brimelow column, which references a Richard Band newsletter. ARRGHH!!!

The typical “boomer bust” argument is that as boomers retire, funding will shift from growth stocks to income investments, and possibly away from stocks altogether. The typical “no bust” argument is that people are more fit and live longer today, postponing retirement and therefore delaying the bust, or forcing them to keep money at work in growth investments.

I find the longevity issue to be arguable, and I promise to argue it – in a later post – but I also find it to be immaterial.

Think about the distribution of wealth in this country.

The vast majority of invested and invest-able assets are controlled by a tiny percentage of the population – and those folks will keep their money hard at work long past their “retirement age,” possibly through trusts and foundations, possibly just growing it aggressively so that they can die with more toys.

There are the non-fabulously-wealthy in the boomer demographic, who may switch their asset allocation. Or they may not. Many of these “pedestrian wealthy” got that way, not from stock market investing, but from owning transmission shops, rental real estate portfolios, insurance agencies, and convenience stores. Even those with stock market holdings don’t comprise a huge portion of the everyday investment flows, and as Henry points out, the up-and-coming from the BRICs will be more than happy to buy some U.S.-market growth assets from them.

So what about the rest of the boomers, the remaining 80%+ of them? Those boomers who are pitifully unprepared for retirement, of whom more than 25% have saved nothing, and 43% of whom will re-enter the workforce almost as soon as they leave it?

Can you say, “Welcome to Wal-Mart!”?

Because that is what most of the boomers will be saying in their golden years! For them to have some impact in the market, they would have to have some impact in the market, if you know what I mean. Who really gives a monkey’s tookus about their negligible investing flows? When they move their four- or five-digit IRAs from growth funds into dividend or bond funds, will it move the markets?

I don’t buy it. For the boomer bust to happen, there would have to be some large portion of the current investment flow coming from boomers that were going to start living off of their assets, and I don’t see that. Most of the wealth is in the hands of those already living off of their assets and/or businesses, and most of the boomers will be spending their retirement showing you where the lawn equipment is at the Ace Hardware, or checking your receipt as you leave through the Garden Center. The few that do switch asset allocations will be more than compensated for by the foreign inflows of capital from the maturing emerging markets.

“Boomer bust?” I don’t think so!"

--From Bill Rempel