Aug. 4, 2006 - Baby Boomer Retirement Bust?

The Government Accountability Office (GAO) released an interesting study about the impact of retiring baby boomers on the stock market.  It caught my eye because the study contradicts some crazy ideas that have been floating around about what will happen when that fabled generation hits retirement.

Some background.

A few self-appointed gurus, like Robert Kiyosaki, have made quite a bit of money selling their "prophecies" of doom and gloom for the stock market when baby boomers retire and begin to withdraw money from retirement accounts.  These theories are not backed up with any data, but are based on simplistic notions and fairytales, just like the original Rich Dad Poor Dad book.

Oops!  The gurus forgot about logic and reality.

As the GAO study points out, most baby boomers don't have much money for retirement to begin with.  In fact, the wealthiest 5% of baby boomers own over 50% of the assets!

The wealthy ones aren't going to sell all of their assets all at once.  If you think about it, neither will the other 95%.  It's just not how retirees normally behave.

No matter how much money a person has at the start of retirement, he isn't likely to go out and blow it all in one fell swoop.  Most people carefully avoid dipping into their savings, especially if it's a small amount, because they know it has to last a long time.  Rather, they try to stretch it out for as long as possible.

The GAO study cites two logical reasons in support of this behavior.  First, people are living longer and will need to stretch out their retirement asset sales over a longer period of time.  Second, baby boomers are delaying retirement and working longer because they aren't prepared for retirement.