[Reuters] 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.