Will Boomers Sink Equities During Retirement?
There’s been lots of speculation that Baby Boomers – the wealthiest generation in American history, not to mention one of the largest – have the potential to seriously impact equity returns as they use up their savings during their retirement years. A newly released Vanguard research paper offers a number of reasons why investors have no need to worry.
This longstanding fear is based on the perception that the huge stock market gains of the past 30 years will now be replaced by massive liquidations starting in 2011 (when the first Baby Boomers turn 65) and lasting for 18 years (the span of the Baby Boomer generation). Vanguard asserts that this presumption is wrong. First, they cite a 2006 study by the Government Accountability Office showing that demographic variables, which lie at the heart of this fear, account for less than 6% of stock market return variability.
The Vanguard study additionally looked at pre-retiree stock ownership over the last 20 years and found it to be relatively stable (around 48%). The implication is that boomers are not especially equity-heavy as compared to other generations. Not only that, even as that figure has moved up and down, there have not been any downturns as a result of pre-retirees retiring. And since equities have remained a sizeable portion of retiree portfolios (44%), there does not appear to be a wave of stock selling among over-65 investors of any generation.
A third reason is that the top 20% of all Baby Boomers own 96% of all the equities. The portfolio goals of these wealthier top-tier baby boomers may well be oriented toward estate planning and intergenerational wealth transfers. The likelihood that they will be hanging on to these assets for the long-term or transferring them without selling them is quite high.
Vanguard also points out the growth of foreign demand in U.S. equities, from $6 billion in 1980 to $109 billion last year. It appears that there are more than enough foreign investors to take up any slack in American investor demand for U.S. stocks.
Putting it all together, Vanguard sees no long-term relationship between U.S. stock returns and the over-65 percentage of the population. For more details, you can read the study at https://institutional.vanguard.com/iam/pdf/Baby_boomers_and_equity_returns.pdf.