Will stocks go Boom?:
"In the United States, for example, the ratio of workers to retirees is expected to fall to just 2.6 in 30 years, from 4.9 today. In Japan, the ratio of retirees to active workers is expected to fall even further, to one to one by about 2050.What about the impact on finance? Not only will the changing workforce impact pension funds, social security, and health care costs, but it will likely drive down the stock market as the boomers end saving and begin to draw down their portfolios.
In other words, the number of potential stock buyers will soon begin a steep decline....No less an authority than Jeremy Siegel, the famous Wharton finance professor and author of Stocks For The Long Run, has sounded the alarm, calling the ageing population the most critical issue facing the developed world."
Now before you panic, the coming tidal wave of retirees in the developed world may be offset by other factors (notably foreign investment as more lesser developed countries develop and formerly impoverished people become investors) but it is something to consider and "gameplan".
Most likely outcome? As baby boomers age they will shift money out of stocks and this will be a factor that keeps returns lower than their historical averages. Which means we should all lower our projected returns. This unfortunately means we will have to save more for a comfortable retirement be it personally, in corporate pension funds, or in government sponsored "social security" accounts.
And if this analysis is wrong and the market continues to earn higher than historical norms? We will have set aside more than needed and you will have more money in your portfolio than expected, which is not the worst thing in the world!
Some past articles on this topic:
Will bomers drive down markets? (October 2004)
Porterba on impact of Boomers (November 2004)