Current Events > Baby Boomers are starting to retire and the economy is starting to tank.

(+) Yeah! (+)

Few investors understand the magnitude of the looming demographic crisis and its ramifications.

The first Baby Boomers turned 70 last year. At the same time, the US fertility rate is at its lowest point since records began in 1909.

This disastrous combination means by 2030, those aged 65 and older will make up over 20% of the population.

[...infographic here...]

In the meantime, the percentage of working-age cohorts are in decline. Combined together, these trends create a perfect demographic storm for the US economy.

Here's why.
A deflationary environment

The chart below shows that growth in the working-age population has been a leading indicator of nominal GDP for decades.

[...another infographic...]

One of the reasons for that is that spending drops on average by 37.5% in retirement. Given that consumption accounts for 70% of US economic activity, this is a major deflationary force.

Economic growth and corporate profits go hand in hand. Which means this trend will cut down company earnings and, in turn, investors' returns will go down further.

That's not yet the worst news. Along with declining profits, America's aging population has ever more profound implications for investors.
A big shift in financial markets

According to BlackRock, the average Boomer has only $136,000 saved for retirement. Even assuming 7% returnswhen they're more like 2%it's a yearly income of only $9,000. That's $36,000 shy of the ideal retirement income.

This huge funding gap in pensions means Boomers will be forced to look for income elsewhere. Historically, that has come from bonds.

The research shows once you hit the age of 65, you go through the most profound asset class shift since you were in your 30s. You start to trim your equity and start to raise your bond exposure.

[...infographic...]

This shift has been visible for decades. However, it's about to become much more pronounced.
Bearish for stocks

As mentioned above, the first Boomers turned 70 in 2016. That means this year they turn 71.

Due to IRS mandatory minimum drawdown laws for retirement plans like IRAs and 401(k)s, when you turn 70 , you are forced to withdraw at least 5% of the value of the plan each year.

This spells trouble for the stock market as Boomers have 70% of their portfolios in equities.

In 2016, the Tax Policy Center found that 37% of the US stock market was owned by retirement accounts like IRAs and 401(k)s.

Therefore, this wave of forced selling will flood the market with billions of dollars' worth of equities and bonds, which will push down prices.

With millions of retirees forced to divest their portfolios over the next decade, and markets sitting at all-time highs, investors should start thinking about exit strategies.

http://www.businessinsider.com/impact-of-baby-boomers-retiring-on-the-economy-and-stocks-2017-9

I wasn't finding info that supported boomers will leave behind a large void in the workforce, in fact it seems Millenials will replace them fairly smoothly so long as they retire. If they don't retire it will be worse for the labor markets and the economy, since they will take institutional knowledge with them.

I also haven't found a source that lays out their impact on Medicare (or medical overall) and social security.
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I don't see fertility rates being fixed soon since millennials cannot afford to have children since they have bad jobs.
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And they tend to have bad jobs because Baby Boomers aren't retiring.
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And theyre forced to spend more time in school to get better jobs delaying things even further...and as a result getting into further debt which isnt helping either.
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And they have to spend 12 hours a day blaming baby boomers online.
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Were_Wyrm posted...

And they have to spend 12 hours a day blaming baby boomers online.

There's no blame. The hole that baby boomers were going to leave has been known about since the 50s, if not longer. We are just starting to see some actual effects of it recently. It's more difficult to predict the labor markets I think.
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Any way you look at it, we are headed for another financial crisis in the US. The question is, which one will hit first, the housing crisis exploding, the wage gap getting too out of hand, automation crippling the workforce, or the retirees problem as stated in this topic.
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Well pure automation is still a ways off.
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So if boomers retire it's bad. And if they don't retire it's bad. Alright.
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Were_Wyrm posted...

And they have to spend 12 hours a day blaming baby boomers online.

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these people fearmonger because theyre hoping for another crash so they can invest in real estate and stock at a discount

for all we know this could become the longest growth by 2x
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FLUFFYGERM posted...

these people fearmonger because theyre hoping for another crash so they can invest in real estate and stock at a discount

for all we know this could become the longest growth by 2x

These people? The baby boomers crash has been a long while coming. As soon as they cash in their 401ks the stocks will plummet.

Real estate is another matter, sort of, since boomers are still working and keeping their houses.
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P4wn4g3 posted...

FLUFFYGERM posted...

these people fearmonger because theyre hoping for another crash so they can invest in real estate and stock at a discount

for all we know this could become the longest growth by 2x

These people? The baby boomers crash has been a long while coming. As soon as they cash in their 401ks the stocks will plummet.

Real estate is another matter, sort of, since boomers are still working and keeping their houses.

I get the sense you think you know a lot more than you think you do about this topic
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It goes from saying they don't have adequate retirement funds, then says they have required drawdowns that can affect equity prices when they shift these inadequate funds to bonds. Also only 37% of equity investments are held in retirement accounts while Boomers are 20% of the population.

So this is talking about like 7% of equity investments?

I mean it seems kinda disconnected to me.
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P4wn4g3 posted...

And they tend to have bad jobs because Baby Boomers aren't retiring.

They have bad jobs because they thought that Gender Studies degree was going to get them good jobs.
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SK8T3R215 posted...

It goes from saying they don't have adequate retirement funds, then says they have required drawdowns that can affect equity prices when they shift these inadequate funds to bonds. Also only 37% of equity investments are held in retirement accounts while Boomers are 20% of the population.

So this is talking about like 7% of equity investments?

I mean it seems kinda disconnected to me.

I'm not sure, I couldn't corroborate that information. This source seems to have some similar information but it wasn't as easy to put into a topic:
https://www.investopedia.com/articles/investing/080614/boomers-slow-down-will-economy-follow.asp
If you find better sources feel free to post them.
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fan357 posted...

So if boomers retire it's bad. And if they don't retire it's bad. Alright.

yea its bad either way. its not really a point of saying "omg NOW the Boomers are doing THIS"...its been fucked for some time. there was really no way out of it...the reality is just being pointed out and the likely outcome of whats happening is being predicted.
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P4wn4g3 posted...

One of the reasons for that is that spending drops on average by 37.5% in retirement. Given that consumption accounts for 70% of US economic activity, this is a major deflationary force.

Seems like a good argument for raising middle class wages and taxes on the rich.
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DirkDiggles posted...

They have bad jobs because they thought that Gender Studies degree was going to get them good jobs.

Yep. That definitely applies to every young person. Totes not anything else.

Totes.
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Zanzenburger posted...

Any way you look at it, we are headed for another financial crisis in the US. The question is, which one will hit first, the housing crisis exploding, the wage gap getting too out of hand, automation crippling the workforce, or the retirees problem as stated in this topic.

The wage gap?
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Zanzenburger posted...

automation crippling the workforce,

nope
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Monolith1676 posted...

Zanzenburger posted...

Any way you look at it, we are headed for another financial crisis in the US. The question is, which one will hit first, the housing crisis exploding, the wage gap getting too out of hand, automation crippling the workforce, or the retirees problem as stated in this topic.

The wage gap?

I'm not sure the wage gap alone can cause a recession, but the wider it gets, the more impossible it will be to recover from a recession. We're still recovering from the 2008 one and it's because we bailed out the rich and never helped out the bulk of the population that actually spends money.
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This is only going to get worse every year as each generation falls further and further behind
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uh-oh tobacco isn't taking them out? RV resorts are in then, with harleys.

lilORANG posted...

Monolith1676 posted...

Zanzenburger posted...

Any way you look at it, we are headed for another financial crisis in the US. The question is, which one will hit first, the housing crisis exploding, the wage gap getting too out of hand, automation crippling the workforce, or the retirees problem as stated in this topic.

The wage gap?

I'm not sure the wage gap alone can cause a recession, but the wider it gets, the more impossible it will be to recover from a recession. We're still recovering from the 2008 one and it's because we bailed out the rich and never helped out the bulk of the population that actually spends money.

I thought dude meant the imaginary wage gap between men and women. Thank goodness I was wrong.
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Monolith1676 posted...

lilORANG posted...

Monolith1676 posted...

Zanzenburger posted...

Any way you look at it, we are headed for another financial crisis in the US. The question is, which one will hit first, the housing crisis exploding, the wage gap getting too out of hand, automation crippling the workforce, or the retirees problem as stated in this topic.

The wage gap?

I'm not sure the wage gap alone can cause a recession, but the wider it gets, the more impossible it will be to recover from a recession. We're still recovering from the 2008 one and it's because we bailed out the rich and never helped out the bulk of the population that actually spends money.

I thought dude meant the imaginary wage gap between men and women. Thank goodness I was wrong.

lol.

The gender wage gap isn't imaginary, but that isn't what I was referring to anyways. I was talking about income inequality between the poor and the rich and the lopsided distribution of income.
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lilORANG posted...

Which means the rich are getting quit possibly another large tax cut
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One generation has had 20 or so years to fix this mess that's coming, the other one hasn't. It's pretty clear to me who is responsible for it. Baby Boomers think they are entitled to a decent living after they retire. No participation trophies for a generation that sat on it's hands instead of taking action to fix things! If I don't get a retirement or pension neither will you, I guarantee it pewpew.

@Zanzenburger posted...

The gender wage gap isn't imaginary,

Uhh...

You realize the whole wage gap statistic is entirely misleading, and that when it is adjusted for the same job position and hours worked, the wage gap vanishes, right?
http://www.ncpathinktank.org/pdfs/ba392.pdf

But it does seem interesting that it would be possible for the average boomer to not have a lot of savings while they are also predicted as having a huge effect on the market? Maybe the savings figure isn't counting stocks?
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$136,000 saved. Lmfao
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I picture CE as Captain Kirk yelling into the walkie talkie

"BABY BOOMERS! BABY BOOMERS!"
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SK8T3R215 posted...

It goes from saying they don't have adequate retirement funds, then says they have required drawdowns that can affect equity prices when they shift these inadequate funds to bonds. Also only 37% of equity investments are held in retirement accounts while Boomers are 20% of the population.

So this is talking about like 7% of equity investments?

I mean it seems kinda disconnected to me.

I'm sure that boomers have a disproportionate share of the existing investments in IRAs and 401ks, though idk the exact numbers
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Balrog0 posted...

I'm sure that boomers have a disproportionate share of the existing investments in IRAs and 401ks, though idk the exact numbers

But were those factored into the savings figure quoted?

If so, then they really don't have a lot invested. If not, why not?
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QassTank posted...

@Zanzenburger posted...

The gender wage gap isn't imaginary,

Uhh...

You realize the whole wage gap statistic is entirely misleading, and that when it is adjusted for the same job position and hours worked, the wage gap vanishes, right?
http://www.ncpathinktank.org/pdfs/ba392.pdf

But it does seem interesting that it would be possible for the average boomer to not have a lot of savings while they are also predicted as having a huge effect on the market? Maybe the savings figure isn't counting stocks?

Bro, not only does that article use misleading visuals (such as adding "volume" to the bars) it also clearly shows that women make 80% of men in the very first figure, which is hard to tell since they did their best to obfuscate the information.
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QassTank posted...

@Zanzenburger posted...

The gender wage gap isn't imaginary,

Uhh...

You realize the whole wage gap statistic is entirely misleading, and that when it is adjusted for the same job position and hours worked, the wage gap vanishes, right?
http://www.ncpathinktank.org/pdfs/ba392.pdf

But it does seem interesting that it would be possible for the average boomer to not have a lot of savings while they are also predicted as having a huge effect on the market? Maybe the savings figure isn't counting stocks?

Let's look at just one specific type of job: Management.

https://www.jstor.org/stable/25472487?seq=1#page_scan_tab_contents

In companies where there are more male managers than female managers, income inequality between genders is more pronounced. However, once women reach more high status positions, the wage gap becomes more narrow. Not just for the "high status" women, but women at lower levels of management in the company. That's because they put more effort into giving more equal pay to other women, something male managers are less likely to do.

And part of it is an institutional sexism problem. Women are less likely to negotiate for a higher job salary because they are discouraged from doing so by society.

https://www.themuse.com/advice/why-women-must-ask-the-right-way-negotiation-advice-from-stanfords-margaret-a-neale

One of the questions she asked people is, When you got your offer, did you attempt to negotiate? She found that about 7% of women attempted to negotiate, while 57% of men did. Of those people who negotiated, they were able to increase their salary by over 7%. So, you can see that if women and men negotiated in similar proportions, that 7.6% difference would be cut dramatically.

It's not as cut and dry as "men pay women less" in the workforce. Most of the time it is not intentional. The problem is that women have not been given the same guidance and opportunities as men to improve their careers and salaries. A woman manager, who likely went through the same thing, are more likely to negotiate a higher salary for a new hire since she knows what equivalent male coworkers are making.

But a pay gap does exist. It's just that with more women achieving high ranking positions within companies, they are helping narrow that gap.
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QassTank posted...

You realize the whole wage gap statistic is entirely misleading, and that when it is adjusted for the same job position and hours worked, the wage gap vanishes, right?

I mean, when people do these analyses properly, what they find is that 'lifestyle' factors account for a large proportion of variance, but not all. IIRC, there's a significant amount of variance left over after correcting for these factors. What this means for the wage gap is much less definitive than you'd like, the answer is we don't know. It could be pure measurement error, it could be that we don't have all the factors, it could be that there really is a wage gap, in that sense.

However, a large part of this argument goes out of the way to miss the point, as these 'lifestyle' factors are easily argued as potential proxies for bias/disadvantage. I mean, you have to ask yourself why there is a gender gap in these 'lifestyle' choices. But you don't because that makes the argument prickly.
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So what I'm getting from reading that article Zanzenburger linked is not that employers are sexist, but that women make different lifestyle choices. Which is exactly what I've been saying all along. I don't think that admitting this is a problem because my whole argument is that the wage gap myth is attempting to shove societal trends onto employers as a problem and make them out to be the "bad guy".

I also wonder if they factor in years of service into their calculations... I mean I have two employees that have the exact same position, but one makes more because they have been with the company far longer. At a given level of experience and length of employment, both employees get paid the same. But if you just look at position, there is a huge wage gap there, even factoring in that the higher paid employee works more. But again, this is somewhat a lifestyle choice.
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QassTank posted...

So what I'm getting from reading that article Zanzenburger linked is not that employers are sexist, but that women make different lifestyle choices. Which is exactly what I've been saying all along. I don't think that admitting this is a problem because my whole argument is that the wage gap myth is attempting to shove societal trends onto employers as a problem and make them out to be the "bad guy".

I also wonder if they factor in years of service into their calculations... I mean I have two employees that have the exact same position, but one makes more because they have been with the company far longer. At a given level of experience and length of employment, both employees get paid the same. But if you just look at position, there is a huge wage gap there, even factoring in that the higher paid employee works more. But again, this is somewhat a lifestyle choice.

I do believe that the stereotype that greedy old White men are actively trying to suppress wages for women is inaccurate and not based on reality. Kinda like the stereotype that rape typically happens in a back alley by a stranger. While that does happen, that's not where most of the cases lie.

The gender gap, as Covxy mentioned, is more a number of lifestyle and societal factors that make it difficult for women to compete with men in the workforce. While it is not explicitly the employer's fault, I think the argument is what are employers expected to do to help solve the problem. Women can't singlehandedly solve the problem on their own without employer support.

Obviously, employers are generally happy with the way things are, as changing anything would be costly and take a lot of extra work. Hence why laws against discrimination are passed to force employers to work towards providing a solution.

For the most part, it has been working. Women and minorities, who have traditionally been screwed over in the workplace, have made great gains as far as gaining employment, acquiring promotions, and increasing their salary. But there is still a ways to go.
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Here's another source on the amount of savings. This number is slightly different but pretty close, it's from 2 years ago.

A 2016 survey by the Transamerica Center for Retirement Studies finds that baby boomersthose born between 1946 and 1964have median retirement savings of $147,000. A typical member of Generation X, which includes those born between 1965 and 1978, has socked away $69,000. Meanwhile, the youngest generation in the workforce, the Millennials, who were born between 1979 and 2000, have a median retirement savings of $31,000.

https://www.rothira.com/average-retirement-savings-age-2017

Gen X is doing very poorly according to that study.
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