August 25, 2011 – The Dead Hand of the Baby Boomer on the Market



4) The Dead Hand of the Baby Boomer on the Market. From this year, the nation's 80 million baby boomers have started retiring in large numbers, creating a major depressive effect on stock prices, virtually assuring that we will endure a second lost decade for the leading stock indexes.

Assuming that you worked every year since you were 21 and earned the maximum amount of income, your monthly social security payment will amount to $2,366, or $28,392 a year. The average payment is $1,200 a month, or a paltry $14,400  a year. This is against an average cost of living for a family of four of $50,000 a year in the San Francisco area, and not much less in the rest of the country.

The average savings of a boomer is now only $75,000. However, some 25% of boomers have no savings at all. Many had pensions that were invested in their own firm's stock, which then went bankrupt. Others who planned on retiring on the equity in their homes have seen it vaporize in the housing collapse.

There are going to be further cash calls than just trying to meet the monthly rent. Many boomers lack health insurance, and will have to meet unforeseen medical bills from savings. The dreadful job market is forcing many into early retirement, forcing accelerated draws on IRA's and 401k's. This adds up to a soaring demand for social services, just when the cash available for these is about to get cut.

How are they going to get the money to make up the difference? Selling stocks appears to be at the top of the list, as this month's record selling of equity mutual funds indicates. When they run out of equities, you can bet they'll move on to bonds, forcing interest rates up. The net net for the rest of us will be higher taxes, fewer benefits, and slowing economic growth.

Which Way to the Welfare Office?