NCPA - National Center for Policy Analysis


June 1, 2007

Will stocks suffer a multidecade bear market as the baby-boom generation sells its shares to support its retirement?  Some have predicted such an outcome, but a new study -- which projects huge growth in 401(k) assets in future decades -- paints a far more sanguine picture.

According to a new study by the National Bureau of Economic Research (NBER):

  • Despite the baby boomers' liquidation of retirement assets in coming decades, the total size of 401(k) plans will nevertheless grow markedly.
  • That forecast may come as a surprise to some people, because 401(k)'s now represent only a modest fraction of a typical retiree's total wealth.
  • But 401(k) plans have existed only since the early 1980s; by the time that today's younger workers retire, they will have had many more years to contribute to their 401(k)'s than current retirees have had.

The relative youth of 401(k)'s has worked in several ways to keep their total assets relatively small.  Only in recent years have 401(k)'s become available to a majority of American workers, says the NBER:

  • In 1984, for example, less than one in five families in the United States had any members who were eligible to participate in a 401(k).
  • By 2003, however, that proportion had grown to more than half.

The percentage of eligible workers who actually invest in 401(k)'s has also grown over the years:

  • In 1984, for example, just 56 percent of eligible workers ages 30 to 34 who could invest in a 401(k) actually did so.
  • By 2003, the rate had jumped to 81 percent.

Source: Mark Hulbert, "Baby Boomers Are Cashing In. So What?" New York Times, May 27, 2007; based upon: James Poterba, Steven Venti and David A. Wise, "New Estimates of the Future Path of 401(k) Assets," National Bureau of Economic Research, Working Paper Number 13083, May 2007.

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