We all know we can’t time markets, but there has been a recent revival of a theory from financial experts that we are ever closer to a market crash we all should have seen coming. The Congressional Budget Office even issued a report addressing the alleged problem.
According to the theory, we are just a few years away from another market crash, though this one won’t be caused by panic, greed, credit, bad loans, or any of the other reasons we’re told crashes occur.
This one will be caused by people retiring.
Baby boomers are retiring. And when they retire they face taking a minimum required distribution (MRD) from their tax-deferred retirement plans every year starting in the year six months after they reach age 70.
The conclusion? They are going to have to sell stocks, and the sustained selling over their remaining years will cause a problem, and this may snowball to cause others to sell.
While on the surface, this seems plausible, but let’s take a look at a few of the several potential arguments why this won’t occur:
|
Page 1 of 7
|
NEXT: Is minimum required distribution worth the worry? >> |
More Resources:
Robert Schmansky, CFP(r), works at Northern Financial Advisors, Inc in Franklin, Michigan. A student of personal finance, Rob holds a Masters Degree in Economics, and post-graduate certificates in financial planning. Rob has been an adjunct instructor of CERTIFIED FINANCIAL PLANNER(tm) courses, and speaker to military families on personal finance issues. Rob writes on financial literacy and investments for his blog Sound Advice.
If you think this infringes on your copyright, contact us.
Comments
Sort by:
Bob
I think that your article was very good but destroyed by the way that it was edited. You aslo know that for every point that was countered by you that the propeonents could have bored us with more words.
The point is that retirees are not selling en mass and converting to cash ( at least not as of now) and excepting a complete paralysis of the government ( wait until next election day}it is unlikely that will occur.
Investors do not always ignore valuations and I dont think that retirees will spell the doom of the equity market,
Is this helpful?
Yes(2)
No(1)
Permalink | Abuse
Robert Schmansky, CFP® replied 28 days ago
I appreciate the comments Morris.
We'll probably always deal with a choppy market around times like you mention, but in the end, as you note, investors don't always ignore value, and retirees simply aren't all of the mindset of some of the authors who wrote about this recently (an aside, the link with the Bob Powell article on the subject was published after I sent this in, so I did not consider those opinions, but it does offer greater insight into the two sides)...
I suppose I was one-sided, but the articles I was referring to came from a few finance experts who simply accept the idea of a crash as a given. So my goal here was to share why it's not... whenever we're told to be 'sure' the market will react one way, it seldom does...
I know FiLife appreciates the feedback. I kind of liked the layout, though they wanted to experiment, so probably recognize that not everyone will... perhaps not so many sections may work better?
Boomers may create selling pressure but I'm far more concerned by how under-saved these people are for retirement. You can't sell off what you don't have.
Folks who are well-saved for retirement won't do "crash selling" b/c they won't need to and will likely keep a longer-term, multi-generational view of their assets. More conservative mix, to be sure, than when they were 40 or 50 years old, but unlikely to be 100% in cash or something similar.
Folks who aren't well saved for retirement will turn to the government for a handout...and that when the real trouble will hit.
My $0.02.
Is this helpful?
Yes(0)
No(0)
Permalink | Abuse
I personally found the separation into so many sections distracting, FWIW. Other than increasing pageviews and ad clickthroughs, I'm not sure what the rationale would be for cutting a piece of this length into seven sections.
Substantively, I think the main drivers of investor behavior going forward (including boomers and other reitrees) will be factors other than savings and consumption patters. We're currently in a period of almost unprecedented uncertainty, unpredictability, and anxiety concerning market and investor behavior. Investors still recovering from the horrifying March 2009 market lows. The savings rates you mentioned are held artificially low via government intervention, making alternatives to equities less attractive. More generally, massive, ultimately unsustainable government intervention is altering market behavior in ways that no one can fully assess.
I'm bearish on equities for reasons that stem beyond the scope of a comment on your piece. But FWIW, I agree that those focused specifically on baby boomer behavior are looking in the wrong place.
Is this helpful?
Yes(0)
No(0)
Permalink | Abuse
Post Comment