Will Boomers’ 401K Withdrawals Create a New Market Drag as They Retire?
For as long as most of us can remember, there have been conversations about what’s going to happen to the market and economy as the baby boomer population begins to retire. The so-called “greatest generational transfer of wealth in history” is already taking place.
Key Points
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The wealth created by baby boomers is immense, raising concerns about the potential impact when they withdraw their money from the market.
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This Redditor is concerned that a sudden shift in wealth could trigger a significant market downturn.
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The thing is, many baby boomers will need money for healthcare, which will boost the healthcare sector and, in turn, help the entire market.
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Despite the extensive discussion on this topic, one Redditor is, thankfully, trying to get a little more specific on the impact. Posting in r/personalfinance, they are asking whether boomers’ 401(k) withdrawals are going to have a negative impact on the stock market.
This Conversation Has Gone On For Decades
To be honest, I’m not at all surprised this question is coming up, although it’s likely to have come up dozens of times in the same subreddit, as it’s been a hot topic for as long as most of us can remember.
There is no question that the baby boomer generation, which ranges from those born in 1946, immediately after World War II ended, all the way to those born in 1964. Thanks to suburban expansion, technological shifts, and a strong economy, for the most part, baby boomers have been able to create what most people consider generational wealth.
The whole argument is that there is so much money available to baby boomers in their 401(k) accounts, and as they start to withdraw this money on a large scale, it might impact the stocks that are seeing big movement.
It’s logical to say that big names like Apple, Microsoft, Google, etc. are in the portfolios of many baby boomers, so it’s a fair question to ask if there will be a negative impact. The thing is, I think this Redditor is looking at this whole thing wrong, and the question isn’t whether or not it’s going to take a drag on the market, but whether or not most of this money will get passed down to the next generation at all.
The Medical Care Industry Stands to Gain
Over the last few decades, the argument has been that baby boomers are going to transfer billions, if not hundreds of billions, to their children or grandchildren over the coming years.
The thing is, I don’t believe this is what is actually going to take place, at least not on the scale that most people imagine. If I could sit down in a room with this Redditor, I would remind them that a lot of the money baby boomers are going to be pulling out of their 401(k) accounts is going to be necessary because of elder care.
Whether it’s living in a nursing home or senior care facility, in-home help, or some other form of elder care, this is where a lot of this money is going to go. As a result, the stocks of these companies are likely to be boosted, and while the healthcare industry doesn’t move the market like the tech world, it’s hard not to see a scenario in which these healthcare stocks don’t start popping because of rising profits.
In other words, I would love to say to this Redditor that there isn’t a strong likelihood that the market is going to be in danger because of baby boomer wealth. If anything, the opposite could happen.
How to Move Forward In The Stock Market
To this Redditor, I say that as a piece of advice, anytime there is a concern over market volatility, remember that diversification is your best friend. There is every reason to believe that you want to have a portfolio that is balanced between stocks, bonds, treasury bills, REITs, ETFs, etc., that can help you in any market downturn.
Given the world right now and market predictability or lack thereof, it’s also important to stay up to speed on market trends. I would say to this individual that having a solid withdrawal strategy is not just useful for them, but for the same baby boomers they are indicating a concern over.
Of course, the very best advice is to speak with a financial advisor, who I would say can help this Redditor create a portfolio that offers the exact level of risk tolerance they can stomach. I would make this recommendation regardless of baby boomer 401(k) withdrawals, either way, as there is a much greater likelihood that world events impact the market than anything baby boomers do.
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