Baby Boomer Retirement May Cause Poor Economy

Approximately 79 million baby boomers will turn 59 ½ and will start withdrawing their hard earned money from the market around 2012. The effect on the stock market and the younger generation's prosperity is expected to be dramatic; if not catastrophic. It is possible that the retiring Baby Boomers might just damage the economy enough to send it into a depression.

The Effects of Withdrawal:

Baby Boomers have been saving money for the past 30 to 40 years and they are now at a stage in their life where they can start taking out money and enjoying the fruits of their labor. This BMW driving, high-end service using, social change toting group will have a major impact on the stock market and the economy as we know it.

The good news is that not all of the money will be withdrawn immediately. Many of these Baby Boomers are now 59 ½ and can take their money without the 10% tax penalty. However, there is no need for them to starting withdrawing from their accounts because most of them are still working and will do so for at least another five years.

Baby Boomers have at total of 14 trillion dollars invested. Few analysts can truly say what will happen when they reach true retirement age and start to withdraw their money at unprecedented rates. From the years between 2015 to 2025 large amounts of capital are expected to leave the stock market as these Baby Boomers must life off of their savings.

"The demographic trends of the past have just not been strong enough to offset all the other influences on the stock market. But this is the granddaddy of all demographic shifts. We have never witnessed anything like this, and I am convinced it is going to be a determinant of asset prices going forward" says Jeremy Siegel, the Wharton finance professor and author of the book "Stocks for the Long Run."

Jeremy Siegel believes the stock market could crash to as much as 50% of current worth. This would spark a downward spiral in stocks as not only the baby boomers rush to take out their money but also anyone else that wants to salvage their investments will likely sell as well. In light of America's economic slow growth rates the effects could be as much as double what others are predicting.

Baby Boomers Effect on U.S. Business:

Despite what people believe most Baby Boomers are relatively poor when it comes to retirement savings. According to Hewitt and Associates the average Baby Boomer has around $44,000 in his or her retirement account. This is hardly enough to make retirement much fun and can cause additional stress on the younger generation that has to take care of their needs.

Likewise the richest 10% of Americans own 90% of the stocks which means that the majority of the stocks are not needed for retirement. Of this 11 trillion dollars in assets 3.1 trillion will be withdrawn by the 90% of Baby Boomers who need the money to live off of. Approximately 8 trillion dollars will be left in the market by the wealthiest 10% who don't need it.

The average income of the Baby Boomers is around $47,300 per year. When they plan on retiring and not spending their money anymore it will pull a total of around 1 trillion dollars out of the economy; once living arrangements are factored in. This may cause hardship for many businesses that have relied off of Baby Boomer money to keep them going.

The Solution:

Foreign investment will come as an important solution to the future woe's the country will experience. As stocks become depressed after Baby Boomers remove their money these stocks could be a potential "buy" for foreign investors. These suppressed stocks will likely draw additional foreign investors if marketed to them in the right way.

Likewise companies will have to learn to do more with less. Without all the money coming into the market from the Baby Boomers companies will have a harder time maintaining a customer base. Therefore these companies will either have to downsize or go global in their approach. To stay the same isn't likely.