Is the Age Wave Ruining the U.S. Economy?
By David Glazer, J.D., MSFS, Ph.D., Adjunct Professor of Business
The hidden controversy surrounding the continuing woes in the U.S. housing market and the U.S. stock market has less to do with the recession, which ended – by economic measures – two years ago. It also has little to do with the partisan politics on Capitol Hill. It has little to do with the European banking crises threatening the euro and the entire viability of the European Union.
What it really has to do with is the simple age wave that is seeing tens of millions of people retiring and very few people to replace these soon-to-be-retirees.
Statistically, there are approximately 77 million baby boomers in the U.S. This population, born between 1946 and 1964 are – as of last year – reaching the retirement age of 65. George W. Bush and Bill Clinton, recent ex-presidents, both turned 65 last year and are among the first wave to reach the milestone. Because the baby boomer’s waited so long to have children, or had no children at all, there are only 40 million or so people in the next group –born between 1965 and 1979 – often referred to as generation X. Baby boomers eventually did repopulate the country with generation Y, born between 1980 and 1994. But they aren’t ready yet to take on the assets that the baby boomers are liquidating in droves over the next decade or so.
Take housing for example. Millions of new retirees are sitting in empty nest homes – the four-plus bedroom or split-level single family house in the suburbs that is now too big and expensive to hold onto. These individuals are downsizing to active senior retirement communities. But there aren’t enough buyers in generation X to soak up the available supply of housing coming on to the market. As a result, the housing market remains flat to negative, despite historically low mortgage interest rates.
The stock market is another example. Millions of employees over the past two decades drove the DJIA from 800 in November 1982 to 15,000 in the past decade. Since then, the average has slipped over the last few years and recently settled at 10,300. The Baby Boomer’s were once active employees piling money into mutual fund style investments in their 401(k) or IRA accounts, which bought mainly equities. Now, those same people are liquidating their retirement funds to supply income. The next generation is simply not large enough to match the net redemption phenomenon just now beginning to take its toll on the market.
Eventually, generation Y will restore some balance to the situation. Until then, this remains the largely unreported story behind why we continue to manage a slow economy despite all signals that we should be well into a strong recovery.
Image Credit: Flickr/Anton Mitsov
Dr. David Glazer is an Adjunct instructor of Business at Colorado Technical University. He brings nearly 30 years of experience in the financial services industry where he served in variety of roles raging from Chief Marketing Officer, Certified Financial Planner to Certified Life Underwriter. He holds four degrees including a JD in law, MBA in Human Resources, Masters in Financial Services and a Ph.D. in Marketing.