Magazine article USA TODAY

Baby Boomers Threaten Entire Pension System

Magazine article USA TODAY

Baby Boomers Threaten Entire Pension System

Article excerpt

First they strained the schools, then the job and housing markets. Now, baby boomers are being warned that their sheer numbers could reduce the three main sources of their retirement income: private pensions, individual savings, and Social Security. Their retirement also negatively could affect the capital available for the nation's economic growth.

According to John Shoven. dean of Stanford University's School of Humanities and Sciences and the Charles Schwab Professor of Economics, the private pension system faces potential problems when the time comes that there are more baby boomers wanting to cash in their pension assets than younger buyers wanting to purchase them. The selling price for individual investments in assets also would be affected. "The question that begs to be answered is, who is going to be buying the assets that the pension funds [and individual investors] will be selling and at what prices? The answers are not obvious. and probably all one can say is that there is extra uncertainty about asset prices during the baby boomers' retirement years. It doesn't seem too much of a stretch to think that something like the housing price run-up of the 1 970s will be played out in reverse in the second and third decades of the next century, although this time the assets affected could be stocks, long-term bonds, houses, and perhaps even gold."

He is not suggesting that the price of stocks, bonds, and other assets will go down in value as the retirement of the baby boom generation approaches, but that "returns will likely not be as high as they have been in the last decade." A decline in asset earnings might be as high as one-third, which is not a Depression-level drop, but similar to the 1970s, when stocks were selling for one-third less than they were worth in terms of the cost of replacing the factories, trucks, computers, etc. that stockholders owned.

The impact extends beyond individual baby boomers to the entire economy, because pension fund investments and individual savings for retirement have provided much of the cash available for borrowing by industry and government. Investment capital is necessary for national economic growth. Under the influence of the baby boom, pension assets have grown from less than two percent of national wealth in 1950 to almost 25%.

"In the whole period since World War 11, the funded pension systems in the United States have been large net buyers of financial securities such as stocks and bonds," Shoven points out. "Pension assets have grown more rapidly than any other form of wealth and now total approximately $4. …

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