At the heart of these concerns about baby boomer retirement is something economists call the “life-cycle hypothesis” of economic behavior. Most people tend to save very little when they are young, accumulate savings during middle age, and then spend it in retirement. That leads some seasoned analysts to predict that the boomers’ retirement will be marked by sell-offs in stocks and bonds.
Alan, however, was quick to point out that this is unlikely to happen given that there will be many new rich millionaires from China and India grabbing these surplus financial assets. This is true to a degree, as we can see how it really plays out with Singaporean investment holding company Temasek Holdings and GIC taking large chunks of shares in US banks due to the endless subprime mortgage problems. My personal opinion is that this will not be a long-term solution with the sensitivity of such purchases. There are many political implications underlying such acquisitions. Just take a look at the debacle of China Eastern Airlines and Singapore Airlines (SIA) and you’ll have a clear idea of some of the protectionist attitudes towards such acquisitions. The Baby Boomer population is huge and certainly requires large investment inflows to fill the huge deficit. The huge gap between supply and demand in today’s US real estate market is a significant example.
Singapore, a small island, is also facing the prospect of declining birth rates. The government’s response is to invite capable foreign talent and provide incentives to encourage more babies to make up the shortfall. A few years ago, the Singapore government implemented a baby bonus package aimed at encouraging Singaporeans to have more babies. Examples on the list are longer maternity leave and monetary rewards.
My point today is not so much about the impacts of baby boomer retirement on the stock market, but rather about the long-term impacts it has on the entire global economy. Baby boomers selling their stocks will most likely lead to an increase in consumer consumption as baby boomers’ disposable income increases. This will really help in the working dynamics of the economy and will not have much of an impact on the stock market as the companies that are listed on the stock market, especially the consumer oriented products, will be the main beneficiaries of this increase in the demand.
However, if baby boomers retire en masse in the next few years, there will be a severe shortage of specialized talent. This will inherently have a devastating impact on companies that are ill-prepared for such contingencies and also on the economy. Singapore, to me, has taken such a long-term view of such an inevitable issue that I think it’s a pretty good and meaningful strategy. Many of the government agencies are actually providing free refresher courses for seniors to ease their transition to a new occupation. Our government is also encouraging SMEs and multinationals in Singapore to also hire seniors and make the working environment more senior friendly.
In fact, this will open up new options for baby boomers in Singapore and make retirement less painful.