Countless words have been written about the effects the aging Baby Boomer population will have on the U.S. economy, society and healthcare as they reach retirement age. While politicians debate Social Security and the medical profession debates healthcare concerns, some economists are debating the future of another phase of many Americans’ retirement plans — the stock market.
According to a recent article by E.S. Browning in The Wall Street Journal, some economists think stock prices will suffer as a rash of boomer retirees sell off assets to maintain a comfortable lifestyle. Finance professor Jeremy Siegel of the Wharton School makes that argument and says it will take a massive investment in U.S. stocks by people in India, China and other developing countries to prevent a market meltdown.
Meanwhile, in the same article, Robin Brooks, an economist at the International Monetary Fund, takes a different viewpoint. He thinks the wealthy individuals who own a large percentage of U.S. stocks won’t need to sell, and companies may boost dividends so retiree investors can hang on to their shares.
Dr. Marcelo Eduardo, chairman of the school of business at Mississippi College in Clinton, finds the viewpoints interesting but has no strong opinion either way. “It strikes me that ‘uncertainty’ is the main operative word, and anyone who goes out on a limb and makes a prediction about it does so at their own peril,” he said.
Germaine Weldon with the Alexander, van Loon, Sloan, Levens & Favre accounting firm in Gulfport also takes a measured view.
“Professor Siegel builds a fair argument for stock prices to decline in the next 20 years,” she said. “On the other hand, there are studies that dispute this and his colleagues provide equally good arguments on why this won’t happen. They concur that we have far more worries than the stock market, such as the strain on government programs by an aging population.”
Weldon is a certified public accountant, personal financial specialist and a certified financial planner. She says that since few of us have crystal balls that accurately tell us how to invest for the future, we need to focus on the possibilities that we may live longer than our parents.
“There are a couple of constants. We know this population is aging and many will be 70 years old at a time,” she said. “Government programs as we know them may not be available, and we may not get the kinds of investment returns our parents received. It is important that we have a clear understanding of investment risk and rethink our assumptions when planning for retirement.”
She says it’s too difficult to predict and the most learned people disagree on what will happen. “It’s just different opinions and premises,” she said. “All retirees will not sell stock. It depends on whom you work for and whether or not you’re getting a monthly pension. It’s different in every case.”
Life expectancy increases
Weldon is more concerned about Social Security and the lack of savings in the U.S. as life expectancy increases for men and women.
Most people do not realize that their life expectancy increases as they age. For example, life expectancy for adults age 65 is 16 years for males and 19 years for females. At birth males have a life expectancy of 74. However, if they reach the age of 65, their life expectancy changes to 81, an increase of seven years. For females, the comparable figures are 80 and 84, an increase of four years. This means some retirees will outlive their savings if they planned for retirement by using life expectancy data.
“We need to be very diligent about saving. We can not just keep spending,” she said. “We need to pay attention to consumer debt. My advice is to be conscientious in how you save and don’t expect grandiose returns on investments. I’d rather be wrong about investment returns and have too much money instead of not what I expected.”
Contact MBJ contributing Lynn Lofton at email@example.com.