There’s been talk about the “coming stock market crash” for years now, and one of the presumed causes is retiring baby boomers suddenly selling their stocks en mass. The reason seems sound enough. Baby boomers are no longer working and saving for retirement, and once their golden age arrives they take the money and run. But there are a few problems with that line of reasoning.

Here are 5 of them.

The top 1%.

According to the CBO (Congressional Budget Office), about 1/3 of all U.S. financial assets are held by the wealthiest 1% of the population. Think Soros and Buffett. These people don’t need to sell their assets to retire, they can live quite well on the interest and returns generated by their portfolios.

Longevity.

Retirees are realizing that retirement can be almost as long as their working life. Because of this, they get cautious and become wary of selling their assets in case they might need that money later in life. Many people think of retirement as the end game, a point where they take their savings off the table and live out the rest of their lives in happiness. But the reality is that they still need to invest in stocks so that their saving will continue to grow and be there for them 15 or 20 years into retirement.

Inheritance.

Some retirees want to leave something for the next generation, by way of bequests. If they cash out their portfolio, they won’t have as much left over for the next generation to inherit.

Foreign demand.

We’ve all heard stories about China owning America, or funding the U.S. deficit and the like. Hyperbole aside, there is a certain amount of truth in that sentiment. The world is a much smaller place than it once was, and that’s certainly true in the stock market. Foreign investors will continue investing in the U.S. stock market, even if some boomers decide not to.

Working longer.

One of the most consistent pieces of financial advice given to prospective retirees who realize they haven’t saved enough is to continue working. The longer you can defer retirement, the less money you’ll need. This effectively spreads out the retirement dates of boomers even more than they would otherwise be, lessening the likelihood of a mass exodus from the stock market.

Photo © by dan paluska

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