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Why Are Boomers Cashing Out In Droves? Because "Everyone Understands The Market Went Crazy Last Year"

Tyler Durden's picture




 

"This issue of participation in the labor force is a highly contentious one," notes RDG's Jon Ryding and has been extensively discussed here as some people leave the labor pool and retire after giving up on the job search (do people really want to work past age 65 given the choice? Are that many people doing what they love?) But, as Bloomberg reports, there is a growing segment of boomers who are paying for retirement with the proceeds of rallying stocks. For the select few, last year’s 30% surge in the S&P500 capped a bull market now in its sixth year (with 'wealth' trickling down to 401(k)s), but as one wealth manager warned "everyone understands that the market went crazy last year," and while 8 million people aged 65 and older are working, a 72% jump from a decade ago; there are a lucky few who are cashing out with the view that "if I need to, I can go back to work, but right now I’m going to enjoy life."

 

As Bloomberg reports, most economists agree that boomers will drive declines in the labor force for years to come. The Bureau of Labor Statistics projects that the aggregate participation rate will be 62.5 percent in 2020, 1.8 percentage points below the level in 2010.
 
But as UBS' Drew Matus notes, wealth effects and retirement aren't just coincidence...

“You’ve seen a drop in the participation rate for people over 55, and you look at it in the context of a rebound in wealth, and it all makes sense,” he said.

 

Do people really want to work past age 65 given the choice? Are that many people doing what they love? Let’s put it this way: I’ve got an 8-year-old son, and he doesn’t exactly say, ‘When I grow up, I want to be an economist.’”

And the result is an increasingly bifurcated boomer population...

Some people leave the labor pool and retire after giving up on the job search. Others pay for it with the proceeds of rallying stocks. Joblessness and labor participation levels reaching pre-recession lows are stoking debate among Federal Reserve policy makers and politicians about what’s behind the swings in data underlying the most important economic barometer, employment.

 

“This is not some abstract discussion about sociology or demography, it’s really a discussion about interest rates. The stakes are huge.”

And a pumped up stock market has enabled some to exit...

What’s not in dispute: the sheer size of the aging baby-boomer generation and that an unprecedented demographic shift distorts statistics. It means, for instance, that retirees can play a significant role in the shrinking labor force even as people are staying on the job longer than ever. About 8 million people aged 65 and older are working, a 72 percent jump from a decade ago.

 

It is the sharp rise of departing retirees from the workforce in the past two years that suggests more is at play, according to an analysis by Shigeru Fujita, a senior economist at the Federal Reserve Bank of Philadelphia. While demographic trends have headed this way since about 2000, retirees became a more prominent block of the drop in the participation rate in 2010, and then grew to account for 80 percent of the decline since early 2012, he found.

 

Last year’s 30-percent surge in the Standard & Poor’s 500 Index capped a bull market now in its sixth year, while the benchmark gauge reached a record high this month. Wealth has trickled into 401(k) accounts and home valuations, tempting those who may have delayed retirement during the financial crisis, said financial adviser Jay Barish.

However, this is limited to a lucky few...

Stock market gains haven’t helped everyone. Those who want a job but have given up looking reached 783,000 in April, almost triple a low in 2007. That figure has remained stable since the beginning of 2012, ruling it out as a key factor behind the drop in participation rate, Fujita said.

 

Further complicating matters: Stock holdings are concentrated among the top 20 percent of the wealthiest boomers, who have 96 percent of all the equities owned by the group

The bottom line... if stocks rise - don't expect boomers to stick around...

“Everyone understands that the market went crazy last year,” said Barish, who advises 155 clients as a partner at Murphy Matza Wealth Management in Raleigh, North Carolina. “If they’re not in love with their career, the natural question is, ‘Can I go?’"

Read more here...

 

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Thu, 05/22/2014 - 16:00 | 4786110 PAWNMAN
PAWNMAN's picture

Understandable that people have a hair trigger. After getting toasted twice in the last 15 years it's amazing to me that anyone at all has faith in this rigged, BS market anymore.

Thu, 05/22/2014 - 16:04 | 4786120 lordylord
lordylord's picture

Are your investments keeping up with inflation? Is the small upside worth losing it all? Cash out and buy physical anything.

Thu, 05/22/2014 - 16:10 | 4786150 Xibalba
Xibalba's picture

"if I need to, I could leave something for my grandkids, but right now I’m going to enjoy life."

Thu, 05/22/2014 - 16:18 | 4786179 lordylord
lordylord's picture

Xibalba:

That sums it up perfectly.  Fuck responsibilities to oneself and one's family.  There is always SS (fingers crossed) and government assistance! My hard-working 20-30 something year old neighbors can go fuck themselves!

Thu, 05/22/2014 - 17:29 | 4786452 Georgia_Boy
Georgia_Boy's picture

If you read up on retirement, you’ll learn that high-earning employees actually stay on the job longer and retire later than low-paid, low-skill ones.  The majority of millionaires aged 70, have yet to retire. So I’m not so optimistic about why more boomers might leave. Not that they can better afford to due to stocks gains, but mostly because the marginally employable ones are getting kicked out, due to health problems, cheaper and younger competition, etc.  But if you have a good niche in a specialty with lasting value, you can pretty much work as long as you want.

My view is the low interest rates have increased the riskiness of deciding to quit, because you have little income stream other than principal.  You can use the stock market to juice your nest egg, but again, that’s more risk, and a paycheck goes a long way to making you feel better.  It’s the punishment of savers, stupid … that’s why people keep working.

Thu, 05/22/2014 - 18:10 | 4786608 Handful of Dust
Handful of Dust's picture

"If you don't hold it....."

Thu, 05/22/2014 - 18:53 | 4786772 Crawdaddy
Crawdaddy's picture

Yep. If not then it isn't yours. That includes everyone's "safe" 401ks and Roths.

Thu, 05/22/2014 - 19:07 | 4786807 Georgia_Boy
Georgia_Boy's picture

Indeed, and the other side of that if you don't have any of that and are going to end up dependent on the government anyway, and have health problems (I have relatives like that), you have not much to lose by quitting. My mother in law was about 55 when she quit her last job, like five years ago, and I doubt she'll ever get another.

Tue, 05/27/2014 - 13:57 | 4798981 Kprime
Kprime's picture

millionaires have yet to retire??  from what?  Since when did a millionaire ever have a real job?  Besides most of the millionaires in the US came from the government mafia.

Thu, 05/22/2014 - 16:58 | 4786338 de3de8
de3de8's picture

A bird in the hand.......

Thu, 05/22/2014 - 19:05 | 4786802 max2205
max2205's picture

Nflx fb ect all up over 400%....they should all retire ....right? 

Thu, 05/22/2014 - 16:11 | 4786151 Xibalba
Xibalba's picture

Thu, 05/22/2014 - 17:00 | 4786344 mrdenis
mrdenis's picture

Could I buy a phiscial Sharon Stone ? 

Tue, 05/27/2014 - 13:53 | 4798972 Kprime
Kprime's picture

if you could spell

Thu, 05/22/2014 - 16:19 | 4786192 williambanzai7
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Tue, 05/27/2014 - 13:52 | 4798967 Kprime
Kprime's picture

they don't.  bullshit media keeps repeating how great the market is and how the retail investor is back.  Study the djia volume over the past ten years plus.  Then as you stare at that ever falling line mentally subtract the HF trades and the bullshit manipulation trades,  what's left?  the only trade volume left is the few remaining retail holders leaving the show.

Thu, 05/22/2014 - 16:01 | 4786114 fonzannoon
fonzannoon's picture

" this is limited to a lucky few..."

That is an understatement. The boomers, as I mentioned in the fed thread, owned a mix of div payers and bawnds, and absolutely did not bank that 30% S&P gain last year. 

Thu, 05/22/2014 - 16:37 | 4786259 Greenskeeper_Carl
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I was kinda wondering about that. I wouldn't have figured boomers would have that much money riding on the stock market, especially after getting taken to the cleaners twice in 15 years. I'd expect them to be more into some thing 'safe' like bonds at that point in their lives. (I put that in quotes since I don't really consider loaning money( at what ends up being negative interest rates real inflation rates are taken into account) to bankrupt govts a safe place to keep my money.

Thu, 05/22/2014 - 17:04 | 4786357 sessinpo
sessinpo's picture

Greenskeeper_Carl    I wouldn't have figured boomers would have that much money riding on the stock market, especially after getting taken to the cleaners twice in 15 years. I'd expect them to be more into some thing 'safe' like bonds at that point in their lives.

----

Have you considered that those cashing out are doing so because they are having financial problems? In other words, they are cashing out to keep them floating until they can collecct SS, if SS is still around.

Thu, 05/22/2014 - 17:12 | 4786383 fonzannoon
fonzannoon's picture

we need to define the boomers we are discussing here. By me boomers are all the retiring federal workers who are collecting mega pensions and have their healthcare hooked up. They have a spare 200-300k that they stuffed away in their deferred comp that they have in div paying investments. They move to North Carolina and tell me how awesome it is that their 125k pension (unless they stubbed their toe and their doctor signed off on the 150k tax free disability pension) goes so much further wherever they are.

I presume there are some hardworking boomers who were in the private workforce who are now draining the remains of their small DB plan that got converted into a 401k and got roasted twiice in the last decade. But I don't see them around here.

Thu, 05/22/2014 - 17:48 | 4786517 DR
DR's picture

"I presume there are some hardworking boomers who were in the private workforce.."

The majority of boomers don't have defined pensions and Federal Workers have the safest and best defined pensions that are available.

Thu, 05/22/2014 - 17:50 | 4786528 fonzannoon
fonzannoon's picture

well first, as I said, those majority of boomers don't live by me. I see the minority who "have the safest and best pensions" right up until they are detroit.

Thu, 05/22/2014 - 18:16 | 4786632 Handful of Dust
Handful of Dust's picture
Big investors are betting against housing Jeff Gundlach, Larry Fink warn on sector; Bill Miller is still positive

 

http://www.marketwatch.com/story/big-investors-are-betting-against-housi...

 

My parents bought and paid off their mortgage looong ago. That was a ToP Priority. Now they have zero debt and live comfortably but hold thier expenses down to minimum since they were taken to the cleaners by the stock crash in 2008. For those who jump in an buy an OverPriced house it has to be tough when the correction comes back down to normal [which it inevitably does].

Thu, 05/22/2014 - 19:00 | 4786761 Crawdaddy
Crawdaddy's picture

Can't happen soon enough.

I am private sector as are most everyone I know. Watching my fellows hit that age where they think their sack of money is enough, they unplug. They unplug from the money train and are surprised to find they can't afford the lifestyle anymore and they are gonna need a bigger sack. When reality sinks in and they break out the pencil, they realize how much cash they blew on worthless stuff over their working lives. One friend said he figures he and his wife wasted half his after tax income on crap he never had time to enjoy (boats, horses, cruises) and now that he has time, he can't afford it. At least he didn't buy the crap with debt.

Thu, 05/22/2014 - 16:02 | 4786116 lordylord
lordylord's picture

deleted

Thu, 05/22/2014 - 16:04 | 4786126 LawsofPhysics
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People are simply parking more cash/capital in real assets, many that will generate revenues should things really be improving but that will at least leave them with something fucking real should things go south.  Nothing wrong with profit taking.

Thu, 05/22/2014 - 17:15 | 4786396 detached.amusement
detached.amusement's picture

Did people forget about Obamacare and the fact that damn near anyone who was within reach of retirement was forced out the door at a lot of places?  Retire, and keep your healthcare till you die, or continue working and give it up and be in the same boat as everyone else come retirement time.

 

A lot of people I worked with retired because they had little financial choice, if they had any health issues whatsoever, boom, they retired.

 

'course, then the company just turned around and hired 'em back as contractors, so they got to start collecting retirement AND a paycheck...

Thu, 05/22/2014 - 17:31 | 4786464 grid-b-gone
grid-b-gone's picture

The "buy-in" template may not have directly affected many in the U.S., but it is clear it could not have taken place without the approval of the entire financial community.

The 10% early withdrawal penalty is not much greater than the hit that investment would take by heirs. After all, 10% is the going rate for an executor.

Why not transfer at least the $10K tax-free annually if it is not needed by the Boomer couple?

The Corzine moves since dot.com were warning shots. Anyone with too many eggs is a basket authorities can touch got the message.

 

Thu, 05/22/2014 - 18:25 | 4786671 August
August's picture

>>>Anyone with too many eggs is a basket authorities can touch got the message.

Yep.

Thu, 05/22/2014 - 16:06 | 4786139 buzzsaw99
buzzsaw99's picture

hey i took some off the table and i'm not even that smart. :/

Thu, 05/22/2014 - 16:34 | 4786245 toady
toady's picture

Everyone with half a brain already has. Hell, even my mom said the market is going crazy and she's a shut-in that doesn't own a computer.

That said, retiring isn't about traveling the world or golfing every day anymore, it's about surviving outside the system. If you can cover the monthly nut, have 2 or more of everything you'll need, and a stash of gold/precious that will cover a new car, roof repairs, etc, in case of emergency, you can retire.

Just make sure your stash is somewhere that it can't be confiscated!

Thu, 05/22/2014 - 16:41 | 4786281 Greenskeeper_Carl
Greenskeeper_Carl's picture

Same here. My IRA was all in an SP index fund until recently. Set up by my dad when I was 18. I sold it all at S&P 1894. I took out everything I could without paying the penalty and tax, and the rest of it is just sitting there as cash, not invested in anything.

Thu, 05/22/2014 - 16:10 | 4786153 taketheredpill
taketheredpill's picture

 

 

"this is limited to a lucky few"

 

Exactly.  How much does the average American have in the stock market versus how much do they (or did they) have invested in their Home?  So why does this article matter? It doesn't.

 

 

 

 

 

Thu, 05/22/2014 - 16:19 | 4786185 oddjob
oddjob's picture

It matters as much as the myriad of self effacing articles that come out after a market decline claiming johnny retail bought at the top.

Thu, 05/22/2014 - 16:11 | 4786155 i_call_you_my_base
i_call_you_my_base's picture

"lucky few"

to droves?

Thu, 05/22/2014 - 16:14 | 4786165 ShrNfr
ShrNfr's picture

Rebound in wealth?? How about a "Rebound In Mark to Market"? That does not have a tendency to last. Your capital gains (if any) will be somebody else's capital losses over time.

Thu, 05/22/2014 - 16:15 | 4786168 NoWayJose
NoWayJose's picture

Cashing out to enjoy life???  How about 'Cashing Out to avoid Crashing' when the Fed tapering kicks the legs out from underneath the stock market.

Thu, 05/22/2014 - 16:40 | 4786271 toady
toady's picture

Exactly. Everyone I know says they are avoiding the next crash, not getting cash for a vacation/lifestyle improvement.

Thu, 05/22/2014 - 16:34 | 4786243 p00k1e
p00k1e's picture

Get it while the gett'in is good!

We saw Mr. Market can be reduced to rubble in a matter of a week.

Thu, 05/22/2014 - 16:36 | 4786254 oklaboy
Thu, 05/22/2014 - 16:47 | 4786304 kchrisc
kchrisc's picture

Corzine sure "cashed out."

Thu, 05/22/2014 - 16:54 | 4786327 slightlyskeptical
slightlyskeptical's picture

This thread says it all. No one left to sell. Everyone still in has a mandate to be in. Only means the market is going higher.

Thu, 05/22/2014 - 17:16 | 4786401 Id fight Gandhi
Id fight Gandhi's picture

Nursing homes are fuking expensive. If you thought college was pricey, wait till you see how much it costs to park your wheelchair in a home that ain't a shit hole, talking like min, $120k year, not incl. heathcare expenses.

One thing to advertise retirement as golfing and world class vacations, reality is often you're sick and alone.

Thu, 05/22/2014 - 19:00 | 4786787 p00k1e
p00k1e's picture

Two primary options, means test and euthanize or warehouse them in places like Detroit, MI under the watchful eye of Chinese immigrants. 

If relatives want to chip in to flip the bills, upgrade the warehouse facility. 

 

Thu, 05/22/2014 - 21:27 | 4787122 iamrefreshed
iamrefreshed's picture

Screw the nursing home. After giving my kids the properties, shiny metals and long guns I think renting a Cessna and crashing into any federal building and taking a few leeches with me would be a great contribution to society.

Thu, 05/22/2014 - 17:32 | 4786465 AdvancingTime
AdvancingTime's picture

How do we reconcile the April jobs report that showed 288,000 jobs being created and 806,000 people dropping from the work force with economic reality?  My take on the recent jobs report is that as spring comes upon us ever optimistic and more desperate

Americans are being pushed into making a decision as to whether to leave the work force or take a lower paying job that is often part time. Yes, people are busy scurrying around, but it should be clarified not at a fast pace. The question then arises as to how this will spill over to economic policy. More on this subject in the article below.

http://brucewilds.blogspot.com/2014/05/reconciling-april-jobs-report-wit...

Thu, 05/22/2014 - 19:04 | 4786798 p00k1e
p00k1e's picture

A/T,

 

What exactly does "leave the workforce” mean – are these people going to live down by the river in a repossessed moving van or their sibling’s basement or EBT?

Thu, 05/22/2014 - 18:42 | 4786733 Goldilocks
Goldilocks's picture

ZZ Top & John Lee Hooker-Boom boom boom
http://www.youtube.com/watch?v=nZWQN0n8x00 (3:33)

Fri, 05/23/2014 - 10:01 | 4788312 auntiesocial
auntiesocial's picture

you can't ASS U ME that ALL baby boomers survived the first ass fucking and still have money to play stocks or even have stocks period. A lot of people got completely wiped out. 65 and having to start from scratch has to really BLOW!

Tue, 05/27/2014 - 14:04 | 4799006 Kprime
Kprime's picture

when you get up in the morning and think about going to work the math will make you quit.  Let's see, I earn a dollar, my employer and I give 15% to SS (which they then accuse me of getting a handout if I collect on it).  Then the feds take another 15% for taxes.  The state gets 5%, the city gets another 3%.  I pay taxes on the car I bought and the gas I use to get to work. Taxes on my house.  Now I am forced to fork over 10K per year for obama care.  When I spend what little is left I pay another 8.25% in sales tax, and oh yah the man on the news says the feds are borrowing a third of all they spend..so I owe that back also.

Honey, never mind breakfast, I think I'll sleep in today...uh, if the boss calls tell him, I'm on permanent leave.

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