The Golden Years of the Baby Boomers
August 17, 06Summer holidays are a great time to catch up on one’s reading. Picking only materials by perennial optimistic and good humored authors, I selected some of the recent reviews by my colleague
I cannot help but look at the supply side. The WGC this week reported on gold supply/demand in the second quarter of 2006. The Council noted a massive drop in jewelry demand, which represents some 70 percent of total gold demand, of 24 percent over the same period last year. The higher gold price is clearly having a very sharp negative impact on demand – especially in
Nevertheless, quarter-on-quarter jewelry demand (second quarter versus first quarter) actually increased by 2 percent even though the average gold price had jumped by 13 percent.
Trying to look for the positive: when gold price goes up, jewelers tend to “shave” weights off the jewelry they are selling to maintain the price under certain below price points – and they are turning to diamonds and other gemstones. The extreme price volatility in gold has affected the distributors’ appetite to maintain stocks (not everything can be hedged) and the WGC quite “worriedly” refers to the “ongoing shift from plain jewelry to gem-set.” Bad news for the Council; good news for us.
Gassman’s data refers specifically to the
Interestingly, the rising gold price does not seem to have an immediate impact on consumer purchases. Last year’s data suggests that most retailers did not raise their prices, mostly because of supplier agreements, which ultimately saw manufacturers and wholesalers absorb a large portion of the higher raw material costs. (This sounds awfully familiar to a diamond person.) The same, however, could not be said for the independent and small chain stores, which lacked the buying power of the major retailers. Thus, as a result of their reduced price competitiveness, this sector continues to see a raft of closures. This, in contrast, with the top-end jewelers that continue to do well, as their target consumer groups remained unaffected by, for example, rising heating and gasoline prices.
I have been wondering if these aging baby boomers still have a role to play in consumption after retirement. Asking this question, I received astounding answers, with some suggestions that the retirement of baby-boomers may actually become the beginning of an economic disaster, including a stock market crash.
The “Future” of the Baby Boomers…
Quite shocked, we did some further homework. Apparently there are many members of U.S. Congress who hold similar fears and they asked the General Accounting Office (GAO) in
There is good news. The GAO’s analysis of national survey and other data suggests that baby boomers would be unlikely to sell enough financial assets in retirement to precipitate a market meltdown, or a sudden and sharp decline in asset prices (including houses). Firstly, a large majority of boomers have few financial assets to sell, and the small wealthy minority that holds the large majority of this generation’s assets will likely need to sell little, if any, of their assets in retirement.
The GAO’s examination shows that the wealthiest 10 percent of boomers owns about two-thirds of the financial assets held by this generation, excluding assets held indirectly in defined benefit (DB) pensions. About one-third of all boomers do not own any assets in stocks, bonds, mutual funds, or retirement accounts. Secondly, if baby boomers behave like current retirees, a rapid and large sell off of financial assets also appears unlikely. The GAO analysis of data on current retirees’ saving and investment behavior reveals that most retirees slowly spend down their assets in retirement, with many actually continuing to accumulate assets.
Other factors that would mitigate against a sharp and sudden decline in asset prices include the 19-year span over which boomers will reach retirement age, the extended life expectancy of boomers, and the expected increase in boomer employment past traditional retirement ages, which would facilitate additional asset accumulation and reduce the need to sell assets to provide retirement income. Finally, to the extent that boomers may be less reluctant than prior generations to treat their homes as a source of retirement income through such strategies as reverse mortgages, they may also depend less heavily on selling their financial assets for income. Thus, concludes the GAO, “Researchers and financial industry representatives largely expect the baby boom retirement to have little or no effect on stock and bond markets.”
This gets me back to the good news of Gassman’s survey on the future weddings of the baby boomers’ children. If we don’t live “too” long, they will have far more money to spend on their wedding jewelry – and if we decide to hang in there somewhat longer, our money will be spent on the gifts at anniversaries or at special moments of the Millennials. But jewelers shouldn’t write off the baby boomers. “The share of the population aged 65 and older is projected to continue increasing until 2040 – at which point it is expected to plateau.” Don’t write off the Golden Years – yet.
Have a Nice and Relaxed Weekend.