Last week we reported that net distributions from 401(k)s exceeded contributions for the first time. That’s the effect of retiring Baby Boomers. The data is causing some people to say that the Boomers are going to cause markets to decline or even collapse as they withdraw money to pay for retirement. I disputed this argument in my book, The New Rules of Retirement, and continue to believe demographics aren’t going to determine market movements. Here’s a post making many of the same points and updating some of the research.
In his book Irrational Exuberance, Robert Shilller took a look at the data on this topic and came to the following conclusion:
If life-cycle savings patterns (the first effect) alone were to be the dominant force in the markets for savings vehicles, there would tend to be strong correlations in price behavior across alternative asset classes, and strong correlations over time between asset prices and demographics. When the most numerous generation feels they need to save, they would tend to bid up all savings vehicles: stocks, bonds, and real estate. When the most numerous generation feels they need to draw down their savings, their selling would tend to force down the prices of all these vehicles. But when one looks at long-term data on stocks, bonds, and real estate, one finds that there has in fact been relatively little relation between their real values.