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ARCHIVED  November 19, 1999

Economists debate role of boomers in bull market

Regional and national economists offer differing perspectives on what factors — and which investors — affect financial markets, but two things are certain:

1) Baby boomers are rapidly approaching retirement age and preparing for retirement, in many cases, by investmenting in the stock market; and

2) There are a lot of them.

The American Association of Retired Persons has estimated that the population of baby boomers (individuals born between 1946 and 1964) in the United States is as high as 76 million.

If recent investments by a nationwide population of baby boomers has pumped up the stock market, as many, including a number of regional economists, believe, when those funds are withdrawn, a reversal in the market would have to be predicted.

But economics is not so simple, said Marie Livingston, professor of economics at the University of Northern Colorado.

“There are a lot of different factors,” she said. “In general, if you have a large group of people selling stocks all at the same time, it will drive stock market prices down, but there could be a change in technology or something else [drawing new] investors into the market to buy when the baby boomers sell.”

It is difficult to predict how a market will behave by looking at only one piece of the puzzle, she suggested, echoing the sentiments of others in the region.

John Olienyk, professor with the Department of Finance and Real Estate in the Colorado State University College of Business, agreed.

“It’s tough [to predict] because baby boomers for the most part won’t retire for another 10 years,” he said. “It’s so hard to predict what the investment climate will be like 10 years from now. But I don’t think we can expect a mad rush of people suddenly cashing out their investment. It’s going to be a gradual process.”

John Green, a regional economist and affiliate of CSU, added a new dimension to the issue (and likely two to three decades to the forecast), as he considered the effect on local economies when retired baby boomers die.

“Where they retire to is extremely important, because areas will get all this spending in their local economies without providing them jobs,” Green said. “The danger is that when they die, they don’t have the jobs to fill, so the communities lose the money — all the money flows out to where their kids are — which is not likely [to be] where the parents lived.”

Olienyk has a different theory. “If they’re retired here, have money invested in the market, and they’re drawing income from the stock market, yeah, that would be a net loss to the economic base of the community if they died, all other things being equal,” he said.

“But for every retiree that passes away here, there are others passing away with children living here,” he noted, suggesting that money lost to out-of-town heirs would be compensated by local heirs with out-of-town parents.

He added: “Now if it’s a community with a relatively high population of people retired here that don’t have children here, then you might have some impact, but I question how much.”

If there’s any area on its way to becoming the community Olienyk describes — heavily populated with out-of-town retirees — Northern Colorado is it; Fort Collins in particular has received national recognition in recent months as a prime community for retirement.

Other potential repercussions of baby boomer withdrawals from financial markets include increased interest rates from lenders, Livingston noted.

“When people save money these days, they invest and (indirectly) lend money,” she said. “When we take it out, there’ll be fewer funds out there for others to borrow from. So it could increase interest rates because of a lower supply of loanable funds.”

It’s basic economics, she explained: “As supply decreases, price goes up. And in this instance, price is the interest rate.”

But despite overwhelming uncertainties, some things can be counted on, Livingston said. “What we can say in general is that wherever this big mass of population does end up spending will be a growth market and wherever they take their money out (in terms of spending) is going to be hurting.

“So I think that part’s kind of certain,” she continued, “and we know more or less what retirees spend their money on — retirement communities, medical facilities, vacations, leisure time activities — these areas will be booming. It’s the financial markets as they take money out of there, that’s what’s hard to predict.”

Gary Thayer, chief economist for A.G. Edwards and Sons Inc., based in St. Louis, reported that “what determines the value of the market is not so much who’s putting money in, but the state of the economy.”

“If one group puts in, there’s a reason to put money in,” Thayer said. “And I don’t think there’s a real difference with whose money is in there compared to what the economy is doing.”

People might attribute the rise in the stock market to an influx of baby boomer investments, Thayer said, but it’s the robust economy that’s driving the market.

“We’ve been worried for decades about what would happen if people pulled money out of markets,” he said, “but there’s always somebody else putting it in for equally legitimate reasons.”

Regional and national economists offer differing perspectives on what factors — and which investors — affect financial markets, but two things are certain:

1) Baby boomers are rapidly approaching retirement age and preparing for retirement, in many cases, by investmenting in the stock market; and

2) There are a lot of them.

The American Association of Retired Persons has estimated that the population of baby boomers (individuals born between 1946 and 1964) in the United States is as high as 76 million.

If recent investments by a nationwide population of baby boomers has pumped up the stock market, as many, including a number…

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