Aging Baby Boomers Won't Ruin The Economy - Brief Article

USA Today (Society for the Advancement of Education), Dec, 2000

Books, articles, and commentators are predicting the worst when baby boomers begin retiring: The stock market will tumble; their decreased spending will cripple the economy; and the housing market will tank. "But demographics is not destiny. Demographic trends do not occur in a vacuum," Gail Buckner, senior vice president of Putnam Investments, a licensed stockbroker, and a long-time television broadcaster, told the Financial Planning Association, Denver, Colo. She argues that U.S. government fiscal and monetary policy, the investing and spending habits of the rest of the world, and the impact of succeeding generations will mitigate, if not erase, any potential downturn.

"The biggest flaw is that all predictions about baby boomer behavior are predicated on what members of previous generations did at a certain age," she points out. Take stock investing, for example. Traditionally, as they age and retire, investors move from stocks into more conservative alternatives such as bonds. However, boomers grew up under the haunting impact of double-digit inflation and are less likely to abandon the inflation-fighting benefits of stocks. Indeed, even today's households with people age 75 and older are keeping a higher percentage in stocks than previous generations used to do.

Hand-wringing over the stock market ignores the great demand for U.S. equities by foreign investors, Buckner maintains. Furthermore, the baby boom generation covers a 19-year span. Even if boomers grow more conservative in their investments, the shift will be gradual and the impact on the market will be far less dramatic than doomsayers predict.

As for retiring boomers spending less and slowing down the economy, Buckner counters, "This is the generation that grew up on MasterCard and Visa! Do you honestly believe they're suddenly going to stop spending just because they hit a certain birthday?"

This perspective applies to the housing market, as well. The worry is that, as retiring boomers sell their current homes to move to smaller homes, there won't be enough buyers behind them, so the resulting glut will drive down home prices. Buckner believes boomers aren't counting on selling their homes to finance their retirement, and, even if they do, the doomsayers are overlooking the home-buying impact of immigrants.

Perhaps more overlooked by doomsayers, she points out, is the impact on the economy and the market of today's "Echo Boom"--the children of the baby boomers, whose 73,000,000 members constitute a generation almost as large as the 77,000,000 boomers.

Even if the doomsayers ultimately prove correct, predicts Buckner, they are likely to be off by a decade because boomers don't think of old age as starting until age 79.