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The closer people get to retirement, the more they shift their assets to less risky investments. There is cause for concern when the Baby Boomers start switching their investments.
The impact of the Baby Boomer Generation’s aging and retirement is already raising concerns when it comes to health-care costs, employment and social security. Add another reason to worry about the aging boomers: their impact on the stock market. According to research at the Olin School of Business at Washington University in St. Louis, retirees don’t invest as much as younger workers, which could mean a blow to Wall Street when boomers pull out of the workforce.
“When you have voluntary retirement age, as we do in the United States, people tend to invest more from an earlier age,” says Hong Liu, associate professor of finance at the Olin School of Business. “People are willing to take on more risk when they are younger. At that time in their lives they know that if their investments don’t pan out, they can always work longer in their lives to make up for it.”
However, the closer people get to retirement, the less risk they’re willing to take, Liu says. By the time they retire, most people shift their assets to less-dicey investments. That strategy is logical. However, when millions of baby boomers follow that pattern, the impact on the stock market could be formidable. Fewer people investing in the market means the market will weaken.
Source: www.NewsWise.com June 12, 2006
