> Rob Schaap wrote:
>
> > The demographically predominant baby boomers are close to
> > retirement, they'd suddenly take notice, and they can't afford
> > to hang in for any possible recovery in the long run. They'll
> > take what they can get when the confidence goes.
>
> I think this possibility was accounted for in The Plan. Since
> withdrawals from retirement accounts incur normal income tax
> rates, lump-sum withdrawals are discouraged. Without the ability
> to completely exit the market, the Market Mentality should keep
> them engaged, perhaps even in growth-oriented vehicles, far
> longer than you might imagine. In fact, with the ever-increasing
> reality of living longer, the threat of exiting the market too
> soon could cause many to never quite exit completely before death.
Up until now there has never been any "exiting the market" by the retired. Marginal propensity to invest increases monotonically with the age of cohorts. It never goes negative, but keeps getting more and more positive.
Think of it this way: on average people live maybe twelve years after retirement, and on average people own a house. So if they live off the draw-down of the house, everything else, Social Security plus income from investments, becomes new net investment.
If there were ever to be a net draw-down of investment by retirees, it would imply a much wider distribution of stock among small holders than exists at the moment. Here's an order of magnitude look at that: General Motors, a roughly $5 billion car and truck assembly shell, is staffed by the United Auto Workers, whose retirement fund owns the old Class E GM stock, now spun off as the $28 billion EDS. (Just for a giggle, this makes Ross Perot perhaps the all-time worst investor in the human race: he sold that $28 billion chunk of stock for a mere two billion a decade earlier.)
Here we have the "poorest" of the present structure of major investors, the union, and what they hold is a big enough chunk of equity to make their trustees a major force for years to come -- if not to become a permanent major institution in the economy.
In the same vein, Calpers, OMERS, and other union funds don't have any plans to shrivel up and die once their baby-boomer membership reach retirement, if only because their managers are from the generation who have done the math on Social Security -- and incidentally have spread-sheets 4000 columns wide on their computers. :-)
What this means for the left, of course, is that the governance of retirement funds is an issue of major importance.
-dlj.