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

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"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?’"

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