I posted this here b/c more people would read it. I skimmed some of the article but here it is:
Baby Boomers and young Americans who furiously worked to buy up as many stocks and bonds as they could.
But the time for work is ending, and the time to "retire" and enjoy these accumulated assets is close at hand.
As the WSJ notes today, many experts are predicting a future market meltdown that will leave U.S. retirees with much less to show for their years of hard work.
One noted Wharton School finance professor, Jeremy Siegel, is warning that over the next 50 years, the anticipated wave of baby "boomer retirees with trillions of dollars of assets to sell over the next 20 to 40 years threatens to crush stock and bond prices."
It is important to note that Siegel has long been a market bull. But he has changed his mind, and today claims a U.S. market collapse is imminent unless the market receives a massive influx of investment from developing nations like China and India.
Over the next 30 years, the ratio of workers to retirees is expected to drop to 2.6-to-1 from the current 4.9-to-1. And the fear is that stock prices will collapse as retirees dump everything they have into a flimsy market to maintain their lifestyle and health.
According to Siegel, a few simple calculations reveal that there is a major problem looming.
"I don't think there will be enough assets from U.S. sources going forward to pay for people's retirement," says Siegel.
Siegel asserts that statistics on future life expectancy, immigration, productivity and taxes all suggest that there is no possibility retirees will be able to sustain even 90% of the standard of living they enjoyed while in the workforce.
He claims this will spur retirees to sell off everything they have in a desperate bid to salvage their comfortable lifestyles.
But unless there is foreign intervention, Siegel says, the disparity between buyers and sellers will drive down stock prices, putting a huge dent in the value people will be expecting from their assets.
Siegel's research suggests that between now and 2050, there will be a whopping $123 trillion deficit between what retirees will require to maintain their lifestyle and what they'll receive.
Interestingly, that gap would be erased if people simply waited until their 70s to retire.
An analysis of other countries proved shocking.
Many developing nations were projected to drastically increase their wealth.
And Siegel feels that their newfound fortune could salvage the U.S. market, essentially subsidizing the boomer retirement.
"By the middle of this century, I believe the Chinese, Indians and other investors from these young countries will gain majority ownership in most of the large global corporations," says Siegel.
But "if the Chinese and the Indians don't come in, it will be bear market times."
For sure, not all "experts" agree with Siegel.
One economist at the International Monetary Fund, Robin Brooks, says there is no danger since the affluent Americans who own a substantial portion of U.S. stocks will not be forced to sell their assets. He also believes that companies will increase dividends to help retired investors hang on.
However, noted economist Milton Friedman completely disagrees, saying he currently sees no real problem. He feels retirees will be satisfied keeping their stocks and bonds while simply living off any interest, pensions or dividends they receive.
But neither Brooks nor Friedman offers an adequate explanation of how the systems can remain solvent without selling off assets - when they will have less workers paying into pension systems.
Yale economist John Geanakoplos says that for the past 40 years baby boomers have undeniably influenced stocks in every decade. And he feels that will continue.
"Baby boomers are reaching the end of the line and soon are going to have to be selling," he says. "We should not rationally expect the same rates of return on our investments that our parents did."
Brooks is aware that the richest 10% of Americans own about 88% of all stocks held.
And he says it is ludicrous to think that this segment will suddenly dump all their holdings. And he doesn't believe we can accurately predict where emerging countries will be spending their new wealth.
He claims the real issue that needs to be addressed is: What do we do about the millions of American retirees who haven't saved?
Neither the Journal nor the experts they cite explain how we will offset the enormous Baby Boomer demographic that will affect not only the United States, but Western Europe and Japan.
Already, the cracks are beginning to show, as private pension systems are coping with waves of boomers who are retiring early.
Baby Boomers and young Americans who furiously worked to buy up as many stocks and bonds as they could.
But the time for work is ending, and the time to "retire" and enjoy these accumulated assets is close at hand.
As the WSJ notes today, many experts are predicting a future market meltdown that will leave U.S. retirees with much less to show for their years of hard work.
One noted Wharton School finance professor, Jeremy Siegel, is warning that over the next 50 years, the anticipated wave of baby "boomer retirees with trillions of dollars of assets to sell over the next 20 to 40 years threatens to crush stock and bond prices."
It is important to note that Siegel has long been a market bull. But he has changed his mind, and today claims a U.S. market collapse is imminent unless the market receives a massive influx of investment from developing nations like China and India.
Over the next 30 years, the ratio of workers to retirees is expected to drop to 2.6-to-1 from the current 4.9-to-1. And the fear is that stock prices will collapse as retirees dump everything they have into a flimsy market to maintain their lifestyle and health.
According to Siegel, a few simple calculations reveal that there is a major problem looming.
"I don't think there will be enough assets from U.S. sources going forward to pay for people's retirement," says Siegel.
Siegel asserts that statistics on future life expectancy, immigration, productivity and taxes all suggest that there is no possibility retirees will be able to sustain even 90% of the standard of living they enjoyed while in the workforce.
He claims this will spur retirees to sell off everything they have in a desperate bid to salvage their comfortable lifestyles.
But unless there is foreign intervention, Siegel says, the disparity between buyers and sellers will drive down stock prices, putting a huge dent in the value people will be expecting from their assets.
Siegel's research suggests that between now and 2050, there will be a whopping $123 trillion deficit between what retirees will require to maintain their lifestyle and what they'll receive.
Interestingly, that gap would be erased if people simply waited until their 70s to retire.
An analysis of other countries proved shocking.
Many developing nations were projected to drastically increase their wealth.
And Siegel feels that their newfound fortune could salvage the U.S. market, essentially subsidizing the boomer retirement.
"By the middle of this century, I believe the Chinese, Indians and other investors from these young countries will gain majority ownership in most of the large global corporations," says Siegel.
But "if the Chinese and the Indians don't come in, it will be bear market times."
For sure, not all "experts" agree with Siegel.
One economist at the International Monetary Fund, Robin Brooks, says there is no danger since the affluent Americans who own a substantial portion of U.S. stocks will not be forced to sell their assets. He also believes that companies will increase dividends to help retired investors hang on.
However, noted economist Milton Friedman completely disagrees, saying he currently sees no real problem. He feels retirees will be satisfied keeping their stocks and bonds while simply living off any interest, pensions or dividends they receive.
But neither Brooks nor Friedman offers an adequate explanation of how the systems can remain solvent without selling off assets - when they will have less workers paying into pension systems.
Yale economist John Geanakoplos says that for the past 40 years baby boomers have undeniably influenced stocks in every decade. And he feels that will continue.
"Baby boomers are reaching the end of the line and soon are going to have to be selling," he says. "We should not rationally expect the same rates of return on our investments that our parents did."
Brooks is aware that the richest 10% of Americans own about 88% of all stocks held.
And he says it is ludicrous to think that this segment will suddenly dump all their holdings. And he doesn't believe we can accurately predict where emerging countries will be spending their new wealth.
He claims the real issue that needs to be addressed is: What do we do about the millions of American retirees who haven't saved?
Neither the Journal nor the experts they cite explain how we will offset the enormous Baby Boomer demographic that will affect not only the United States, but Western Europe and Japan.
Already, the cracks are beginning to show, as private pension systems are coping with waves of boomers who are retiring early.
