Boomers Suffering from Withdrawal?

Not likely you say? Since when are baby boomers getting shy? Not talking about that kind of withdrawal. We’re talking about the kind of withdrawal you make at the bank, and specifically, what happens to the U.S. economy when a lot of baby boomers start withdrawing their savings and portfolios all at once.

Is this scenario just one more event that the 24 hour news machine would have you freak out about? Or is it real?

Let’s look at the numbers. There are 78 million or so boomers -- but they are not all retiring at once. However, according to the Investment Company Institute, 44 percent of all mutual-fund shareholders are baby boomers. So let’s say that over the next couple of decades, they all start drawing down on these funds. Are there enough younger investors behind them to pick up the slack? Doubtful.

The theory is that the economy drives the market, but you can’t discount demographics. Ten thousand people retiring every day for 20 years (and drawing down on their savings) is going to have a dramatic effect on the markets. Twenty years from now, almost 20 percent of Americans will be age 65 or over, and that’s a lot of people slurping away at their savings. Experts point to Japan’s stagnant economy for a lesson in what happens when more than a quarter of your population is over 65.

Yet another sign of trouble in paradise is the increasing number of boomers who are shifting to bonds and dividend income stocks as they near retirement. Investing for the long-run is no longer a viable option for boomers on the cusp of their twilight years.

So, is the sky falling or not? Boomers did have a bunch of kids and those kids are now investors themselves. That helps, but experts suggest three specific courses of action: 1) Avoid Japan and Europe and look to invest in countries with younger populations. 2) Match stock picks to national demographic trends (e.g. agriculture in India). 3) Stick with income-producing equites and corporate bonds.

Finally, my personal advice: stop watching the 24-hour news cycle and try to enjoy your final years on earth.

Jay Harrison is a graphic designer and writer whose work can be seen at DesignConcept and at BoomSpeak. He's written a mystery novel, which therefore makes him a pre-published author.

Retirement Income Obsession

Is it just me or are you also amazed by the blizzard of information directed at us about how much savings we will need for retirement? One look at the little charts and tables and your amazement turns to depression. Who are these people that have a million or two in the bank? Did they have any kids? Were they ever sick? Did they have to care for their aging parents? Did they rob banks?

The next thought that occurs to me is that there are way too many retirement income experts. Whether it’s Parade Magazine on one end or Forbes on the other, I have never seen the same expert quoted more than once. That means there is a surplus of these experts and that, in turn, means they have to come up with completely different income projections in order to differentiate themselves from the next expert.

My favorite statistic was from a survey of baby boomers in which 90% or so of the respondents had savings of $30,000 or less, but 75% thought they would have enough money in retirement! Enough to live under the official poverty level maybe! You could drive a Class A RV through this reality gap. Those who perpetually bash baby boomers (and there are quite a few bashers around still), would chalk this up to the fact that we are genetically unrealistic, and that this may often be combined with fatal doses of optimism. We think we are going to be okay. And why not? We lived through the sixties without overdosing on drugs, we haven’t damaged our hearing as much as the iPod generation is doing right now, and our music, fashion, and art have all come back for a second or third go around. That’s reason to be optimistic.

Jay Harrison is a graphic designer and writer whose work can be seen at DesignConcept and at BoomSpeak. He's written a mystery novel, which therefore makes him a pre-published author.