The Market Braces for the Baby Boomers – A Singaporean View
At the core of these concerns about baby boomer’s retirement is something economists call the “Life cycle hypothesis” of economic behaviour. Most people tend to save very little when young, build up savings during middle age and then spend those during retirement. That leads some savvy analysts to predict that the boomers retirement will be marked by massive selling of stocks and bonds.
Alan, however quickly highlighted that this is unlikely to happen given that there will be many new upcoming wealthy China and India millionaires who will snap up these excess financial assets. This is true to a certain extent, as we can see it actually unfolding with Singapore’s investment holding company, Temasek Holdings and GIC snapping huge chunks of shares in US banks due to the never ending subprime issues. My personal take is that this is not going to be a long term solution with the sensitivity of such purchases. There are many political implications underlying such acquisitions. Just take a look at the China Eastern Airlines and Singapore Airlines (SIA) debacle and you have a clear idea of some of the protectionist attitudes to such acquisitions. The Baby boomers population is huge and it certainly requires huge investment inflows to fill up the huge shortfall. The huge demand and supply gap in the housing market today in the US is a significant case in point.
Singapore, a small island is also facing the prospect of declining birth rates. The government’s response to it is to invite capable foreign talents and to provide incentives to encourage more babies to make up for the shortfall. A few years ago, the Singapore government has actually implemented a baby bonus package aimed to encourage Singaporeans to have more babies. Examples in the list are longer maternal leaves and monetary rewards.
My point today is not so much about the impacts of baby boomers retirement on the stock market but rather the longer impacts it has on the whole global economy. Baby boomers selling of their stocks will most probably lead to the increase in consumer consumption as disposable income of baby boomers rise. This will actually aid in the working dynamics of the economy and will not have much impact on the stock market as companies listed on the stock market especially consumer oriented products will be major beneficiaries of this increase in demand.
However, if the baby boomers retire in droves in the years to come, it will lead to a sharp shortfall of specialized talent. This will inherently have a devastating impact on companies that are poorly prepared for such contingencies and also the economy. Singapore, for me has actually taken a long term view of such an inevitable issue which i think is quite a good and significant strategy. Many of the government agencies are actually providing free upgrading courses for the senior citizens to make it easier for them to transit to a new occupation. Our government is also encouraging SMEs and MNCs in Singapore to also recruit the senior citizens and to make the working environment more elderly friendly.
This will actually open up new options for the baby boomer in Singapore and make retirement less painful.