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Wall Street Facing Headwinds as Boomers Forced to Liquidate Their IRAs, 401Ks

Under the law those reaching age 70 and a half must start taking their “required minimum distributions” (RMDs) from their various tax-deferred accounts. These include IRAs, 401Ks, profit-sharing plans, and SEPs. The trouble is that there are so many of them, and they control so many assets, that their RMDs are going to put enormous pressure on the stock market, according to Chris Hamilton, writing at his Econimica blog.

The Baby Boom population cohort is nearly 80 million people, and those born in 1946 are now 71, with millions following right behind. 

The real question, according to Hamilton, is this: Who will buy when they are forced to sell? His conclusion is dismal: There are so few buyers compared to sellers that stock prices will be forced down as the sellers are forced to liquidate their holdings. As Hamilton explains:

At 70.5 years of age, retirees are mandated by force of law to sell tax-deferred assets accumulated over their lifetimes and do so over a 15-year period. Conversely, buyers [the younger cohort age 25-60] have a 35-year window of accumulation.... 

Over the past 65 years there were three new buyers for every new seller. [But] over the next 25 years there will be three new sellers for every new buyer.

So, although the stock market “run” exceeds historical averages, there must be more than enough buyers coming into the market from somewhere to soak up those RMD liquidations. Here are a few possible explanations. First, Trumponomics has encouraged many who have been standing aside to take positions in companies likely to benefit from it. Many of those forced to take their RMDs are paying the taxes and then putting the remainder right back into the market. Many of the boomers are continuing to work, not only adding to the economy’s GDP but also adding to their savings and investment accounts. Wall Street doesn’t operate in a vacuum, which means that investors from abroad (i.e., China, India, the UK) are finding America to be a better, safer, and more liquid and more profitable place to put their investable assets to work.

DYI:  The reason why the market on a valuation basis has remained in its overvalued territory Boomers are staying in the work force far longer in desperation to fund some basis of a retirement.  As with all things in life this cannot be maintained as many employers will tire having their corporations run by the old folk’s home.  My suspicion most boomers will leave the work force in statistical significant numbers around the age 75 as a corporate directive AND the individual themselves as even part time employment will become too difficult.  Whether the age is 71 or 75 the U.S. stock market is on borrowed time.

      DYI