I have heard that the average return of the S&P over time is 8% annually. However, never in our history have we had so much market wealth concentrated among middle to upper-class Boomers, who are going to liquidate their holdings as they go through retirement. This is further exacerbated by the polls showing that many Boomers don't intend to leave wealth for their children.
My question is: will this create a new semi-permanent drag on the market, given the sheer magnitude of the 401K withdrawals? Of course I understand that there are more working-age people adding to the 401Ks than senior citizens pulling money out. However, the withdrawals will end up canceling out a substantial proportion of the investments, from what I understand. And it makes me thing that the 8% average growth will be tough to keep up given that pervasive drag.
Has there been research and/or projections on this?
Will the market face a persistent drag as Boomers begin liquidating 401Ks through retirement?
byu/paleselan1 ininvesting
Posted by paleselan1
5 Comments
Interesting question, it is nothing to worry about for a couple of reasons
1 – assets don’t vanish, most the money is not used, when they perish most is passed onto family and continues on
2 – this is a slow consistent drag, but so consistent that you won’t notice it or ever see it on a graph, people die at fairly consistent rates, nothing will shock the market
3- in simple terms, birth rates and inflation rates are greater than the money lost here, even when most that money finds itself back in the market
Nothing to worry about imo
US stock market isn’t just local boomers, people overseas and institution investors also buy them.
My guess is that 401k and retirement planning on general that builds on the stock market is something for wealthy people. How many of these are really going to sell a lot of stocks anyway?
So yes, they will not invest additional money, which will drag the index. But I would think that there’s a bottom line where dividends begin to make sense again due to the p/e ratio. When people at the age of 80 with a 1 Million stocks portfolio get 2 to 3 percent dividends, there’s not much to gain with additional sales.
In the end, most of the retirement portfolios are going to land in the hands of their children, just about when these are soon going to retire themselves, also probably wealthy people with their own 401k …
The oldest boomers are 79, they started liquidating their 401k’s 20 years ago
Most 401k plans use target date funds, which convert more and more to bonds the closer to retirement you get.