Doom of the Boomers
Depending on who you listen to, somewhere between 77 million to 82 million baby boomers were born between January 1, 1946 and December 31, 1964. Rounding off, let’s call it 4 million births a year. The best estimates have 65 million boomers still alive, but when you add in immigration, there are currently around 80 million people of boomer age in the United States.
The baby boom generation has driven the economy from day one. Their parents had to feed and clothe them, buy houses for them to live in, buy bicycles and take them on vacations and when the day came, send them off to college. At that point, the boomers themselves repeated the process in their own lives and the economy has boomed ever since.
A quick glance at where we’ve come shows that there were 140 million US citizens in 1946 and there are 323 million of us now. So we’ve been busy. The total Gross Domestic Product, or GDP, of the country was 222 billion dollars in 1946 and it was over 18 trillion in 2015. So US GDP has grown over 80 times since the birth of the first boomer and that’s the greatest economic growth in history.
Back in 2002, Robert Kiyosaki wrote the New York Times best seller “Rich Dad, Poor Dad” of which the gist was schools teach you how to work for money, but not how to have money work for you. One of the premises of the book was that 2016 was going to see the beginning of the worst market crash in history because the first boomers would turn 70½ and be required by law to begin withdrawing money from IRA and other retirement accounts. This is known as Required Minimum Distribution, or RMD.
Since then a lot of other pundits have jumped on the bandwagon. The theory goes as the markets boomed for 70 years because of the boomers, now that they are going to take their money out, the end is near. Sort of a lemmings over the cliff scenario.
Well, is that going to happen? No it’s not. Granted, boomers own 50% of the $19.8 trillion in US stocks and 10,000 boomers are retiring daily and that will continue for two decades. So a lot of money is going to come out of the market, but let’s look at the facts.
We hear about the 1% all the time, and they do own 35% of the financial markets, but more importantly, 88% of financial assets are owned by just 10% of the population. While a lot of that
money is in retirement accounts subject to RMD, most of it isn’t. And while the wealthy may have to make withdrawals, that doesn’t mean they have to sell stocks, and they won’t.
Another factor in the markets is the amount of stock that is held by foreigners, and thus not subject to RMD, is 21% of the total. Foreigners purchase over $100 billion of US stocks each year and that amount is increasing each year as well. While these people aren’t averse to selling for a profit, they buy here because we have the largest, safest and despite what we read every day, the least corrupt market in the world.
Let’s look at the demographics. If there are 65 million boomers and they cover 19 years, that’s approximately 5%, or 3.25 million retiring each year. When you consider one third of them don’t have any money in retirement accounts, now we’re down to 2.2 million. RMD is based on actuarial estimates of how long people will live and distributions are made accordingly. The first year’s withdrawal at 70½ is only 3.5% of assets in the retirement account and then it increases from there. That means the last boomers will take their final dollars out of their accounts somewhere around 2060. Withdrawals over that long a time aren’t going to crash the market.
So while retiring boomers aren’t going to crash the stock market because of withdrawals, they will influence the economy other ways. Insurance companies know how many boomers are aging and they have models telling them how much they are going to be on the hook for. Everyone’s health insurance and other healthcare costs are already skyrocketing. The implications for Medicare and Social Security are dire as well. Boomers are going to deplete both systems before the rest of us get there, and that could cause a market crash.
Until the next time, we’ll watch your money.
Nicholas Bertell ChFC®
Redwood Coast Financial Partners, an independent firm with securities offered through Summit Brokerage Services Inc., member FINRA/SIPC. Advisory Services offered Through Summit Financial Group Inc., a Registered Investment Advisor. All information herein has been prepared solely for informational purposes, and is not an offer to buy or sell securities. The information in this article is not intended as tax or legal advice. Certain Statements contained within are forward looking statements including, but not limited to, statements that are predictions of or indicate future events, trends, plans or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties.
Hill, Miriam, Baby boomers and stock markets, Vanguard, 2014
Sisti, George, If the market goes bust, don’t blame boomers, Market Watch, Jan 15, 2014
Kollmeyer, Barbara, Market Watch, Mar 23, 2016.
U.S. Census Bureau
United States GDP 1946-2016, Tradingeconomics.com
Sisti, George, If the market goes bust, don’t blame the boomers, Market Watch, Jan 15, 2014