Will the stock market crash when the boomers cash in?

Probably not, the Government Accountability Office (GAO) says. The analysis of national survey and other data suggests that retiring boomers are not likely to sell financial assets in such a way as to cause a sharp and sudden decline in financial asset prices.

A large majority of boomers have few financial assets to sell. The small minority who own most assets held by this generation will likely need to sell few assets in retirement. Also, most current retirees spend down their assets slowly, with many continuing to accumulate assets.

If boomers behave the same way, a rapid and large sell off of financial assets appears unlikely. Other factors that may reduce the odds of a sharp and sudden drop in asset prices include the increase in life expectancy that will spread asset sales over a longer period and the expectation of many boomers to work past traditional retirement ages.

A wide range of academic studies have predicted that the boomers’ retirement will have a small negative effect, if any, on rates of return on assets. Similarly, financial industry representatives did not expect the boomers’ retirement to have a big impact on the financial markets, in part because of the globalization of the markets.

Our statistical analysis shows that macroeconomic and financial factors, such as dividends and industrial production, explained much more of the variation in stock returns from 1948 to 2004 than did shifts in the U.S. population’s age structure, suggesting that demographics may have a small effect on stock returns relative to the broader economy.

While the boomers’ retirement is not likely to cause a sharp and sudden decline in asset prices, the retirement security of boomers and others will likely depend more on individual savings and returns on such savings.

This is due, in part, to the decline in traditional pensions that provide guaranteed retirement income and the rise in account-based defined contribution plans.