Some have argued that baby boomers' retirement poses a threat to working Americans' savings. The value of workers' saved assets, they say, could drop once retiring boomers stop buying new assets or sell off current assets in order to have more cash on hand.
Such swings in supply or demand would have to be substantial to have a real impact on asset values, and the notion that 78 million baby boomers, who own 50 percent of all financial assets in the U.S., could create critical mass was a common refrain of those opposed to Social Security reform in 2005. However, a new report from the Congressional Budget Office (CBO) has found that boomers are unlikely to dump assets or create a demand vacuum that would cause asset values to fall. This finding is significant because it means that pre-funded retirement savings in IRAs, 401(k)s, or other personal savings vehicles of today's workers will not lose value when boomers retire.
Boomers and Supply
One hypothesis about why boomers would negatively impact asset values is that they would sell off large amounts of assets during retirement to fund their consumption. Theorists contend that 78 million asset sellers, who became eligible for retirement in 2008, could cause an asset glut. The CBO analysis reveals that this is unlikely to occur for the following reasons:
Boomers and Demand
The second reason many have suspected that boomers' retirement would drive asset values down is that, when they are no longer earning an income, they will stop buying assets and depress demand. But CBO's analysis diffuses these concerns:
Boomers Are Not Busters
The sheer number of baby boomers is often considered the driving force behind many future budgetary dilemmas, such as the affordability of Social Security and Medicare. However, with the new CBO study, retiring boomers and working savers can now rest assured that asset values are insulated from any damage that may be caused by the coming tidal wave of boomer retirement. This finding should give savers and policymakers more confidence about the returns of pre-funded retirement savings accounts.
Nicola Moore is Assistant Director of the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.
Survey of Consumer Finances, quoted in Congressional Budget Office,
"Will the Demand for Assets Fall When the Baby Boomers Retire?,"
September 2009, at http://www.cbo.gov/ftpdocs/105xx/doc10526/09-08_
Baby-Boomers.pdf (September 8, 2009), p. 8.
Congressional Budget Office, "Will the Demand
for Assets Fall When the Baby Boomers Retire?," September 2009, at
105xx/doc10526/09-08_Baby-Boomers.pdf (September 8, 2009), p. 8.
Ibid., pp. 10-11.
McKinsey and Company, "Why Baby Boomers Will
Need to Work Longer," November 2008, at http://www.mckinseyquarterly.com/Why_baby_boomers
_will_need_to_work_longer_2234 (July 2009).
Congressional Budget Office, "Will the Demand for Assets Fall?," p. 15.