Will retiring baby boomers bring down the stock market? Why do some investors view the baby boomer generation’s retirement plans as a potential negative for stocks? Can the stock market or capitalism itself be pulled down by a large generational shift? Some fear that this large group, born in the post-WWII baby boom between 1946 and 1964, will all retire around the same time, and therefore pull all of their money out of the stock market to invest in bonds or hold as cash. And not only will they yank a load of money out of the stock market, but subsequent generations’ Social Security contributions will not be able to support such a large group’s payouts—leading to the downfall of the entire program.

How valid is this fear? It is true many baby boomers are recently retired or soon to retire. It is also true there are a lot of baby boomers—about 72.5 million![i] However, you shouldn’t be overly worried about how their retirement will affect markets. Markets are efficient at pricing in widely known information. This means massive surprises can certainly impact the market, but well-known events, especially those known years in advance, don’t typically drive price movement. The market has long known baby boomers exist and will eventually retire. There is no secret cabal of baby boomers coordinating their efforts to sell out of stocks and take down the markets on one surprise, specific unknown day. Folks have been worried about baby boomers’ retirement for some time, and will continue to worry about it. This doesn’t mean demographic shifts don’t have importance or potential financial consequences. Markets care more about what is not known rather than what is already known.

But is there any validity to fearing what will happen if the baby boomers, or any other generation, withdraw large amounts from stock investments to put into cash or bonds around the same time? Couldn’t that have an impact on the stock market? First, consider that baby boomers aren’t all the exact same age, and even the same-aged boomers don’t all have the exact same plans. Not every 65-year old will choose to retire at the same time. Some will retire early, some late, and some may not even retire at all. Some boomers have younger spouses or children to support, some boomers will invest to leave a charitable legacy and some boomers aren’t even invested in the stock market at all! Don’t overlook another critical factor—longevity. Lifespans are generally increasing. Many people retiring today can look forward to a 20- or 30-year long retirement—or longer! To support that longer investment time horizon, many investors will need to have some growth in their portfolios, meaning that they’re unlikely to dump all of their stocks at once.

Furthermore, retirees are far from the only investors in the market—investing is an intergenerational endeavor. Many different kinds of people invest! Recent retirees and soon-to-be retirees are a significant investor group, but don’t forget all of the other investors—younger investors, institutional investors and the many investors from emerging market economies. They aren’t all throwing up their hands and giving up on capital markets just because a large number of US investors are in or approaching retirement. Companies continue to invest and develop, growing economies continue to make advances, and younger investors have their own retirements to plan.

However, even if boomers don’t ruin the stock market, what about Social Security? How can the US expect to support all of these retirees with Social Security funds running out?

The Social Security program certainly isn’t perfect, but to think that all of a sudden it will have no more money and cease to exist is pretty unbelievable. First, Social Security payouts could potentially come from other government revenue sources. If Social Security payouts exceed Social Security taxes collected, that is not an automatic death sentence. Second, lawmakers are likely not going to allow Social Security to simply cease. Too many voters care too deeply about this benefit to make this probable. The Social Security system may undergo changes, like an increased retirement age, increased Social Security taxes or potentially something even more impactful. We can’t say what will happen in the future. But we can say the complete dissolution of Social Security benefits with retirees left in the lurch isn’t likely.

Baby boomer retirement is not going to singlehandedly bring down markets and all of capitalism in our view. Generational shifts are slow. Baby boomers aren’t going to sell out of all of their stocks as a collective group the day they retire. Their wealth may be passed down, moved around or left in stocks. Furthermore, baby boomers aren’t the only investors in the stock market! Companies will continue to look for growth and new opportunities, investors interested in the market will continue to invest, and the global economy will continue to change. The strength of capitalism is not dependent solely on the actions of baby boomers. Capitalism is global, intergenerational and resilient. Capitalism continues—whether baby boomers retire or not.

Investing in stock markets involves the risk of loss and there is no guarantee that all or any capital invested will be repaid. Past performance is no guarantee of future returns. International currency fluctuations may result in a higher or lower investment return. This document constitutes the general views of Fisher Investments and should not be regarded as personalized investment or tax advice or as a representation of its performance or that of its clients. No assurances are made that Fisher Investments will continue to hold these views, which may change at any time based on new information, analysis or reconsideration. In addition, no assurances are made regarding the accuracy of any forecast made herein. Not all past forecasts have been, nor future forecasts will be, as accurate as any contained herein.

[i]  Source: here, as of 3/28/2019.

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