Larry

Larry's concern is based on a basic rule of economics. If there are more sellers than buyers, prices go down. And, it is a fact that baby boomers will begin to take cash out of their retirement plans. But does that doom the stock market?

Let's begin with some numbers. There were 77 million baby boomers born between 1947 and 1964. Or an average of 4.3 million per year. From 1965 to 1999 there were 140 million babies born. An average of 4 million per year. Not that big a drop.

Next, remember that everyone won't sell at once. There's an 18 year span between the first and last boomers. The first ones will be starting retirement while the last ones are still in their peak earning (and investing) years.

Baby boomers will live longer than their parents. Many don't plan on retiring at 65 and playing golf for 20 years. Some recent studies show that over half of boomers expect to work some during retirement. So they won't rely entirely on selling stocks to pay the bills.

The tax laws also discourage stock sales. Many retirement accounts trigger taxes only when money is withdrawn. So boomers will delay selling as long as possible.

The bottom line is that boomers will reduce their retirement savings at a slower rate that past generations. So the effect that concerns Larry will be diluted and happen over a long time. In fact, some retirement accounts will go to the boomers' heirs without ever being sold.

Next, let's look at boomers retirement savings. They haven't invested everything in stocks. They have a mix that includes stocks, bonds, CD's, annuities and even their homes.

That balance will gradually shift as they get older. If they're like previous generations, they'll slowly begin to sell stocks and their family size homes and put more of their savings in bonds and CD's for the income and safety. The shift will begin gradually before the first boomers even get to retirement. Some of the older boomers have already begun the process.

The same free market that is the cause of Larry's concern also provides a solution. If stock prices fall fewer companies will offer new stock. So the supply of stock will shrink relative to the number of people. In fact, if stock prices fall below a certain level companies will begin to buy back their own shares. That will cause share prices to rise.

Remember, too, that the U.S. stock markets are actually worldwide markets. And boomers aren't the only ones that tend to move as a group. Foreign investors are often either big buyers or sellers for a year or two. So far they haven't caused a market collapse.

The long term trend of the stock market is much more closely tied to the health and size of the entire economy. The U.S. Census Bureau expects the domestic population to grow from 275 to 400 million in the next 50 years. So it's not unreasonable to expect the economy to keep growing.

What should Larry do if he's a boomer thinking of retirement? His best strategy is to own a variety of assets. No retirement plan should be limited to stocks or any single investment type. Larry will be much safer if he owns a mix of stocks, bonds, real estate and CD's. The unforeseen events that will cause one type to go down will at the same time cause another type to go up.

I would caution Larry not to count on Social Security to cover all his monthly expenses. Today there are 3 workers for every retiree. That will drop to 2 to 1 during the boomer retirement years. Current benefits cannot be maintained unless changes are made. Those changes are limited to benefit reductions for boomers, major tax increases for younger workers or a partial privatization of the plan. This is a hot political issue, but boomers will need to supplement Social Security if they want a comfortable retirement.

A much bigger question for boomers will be did they accumulate enough savings before retirement. Using almost any measure a large number of them aren't saving nearly enough to support their current lifestyles. Hopefully Larry won't be among them.

� Gary Foreman. All rights reserved.

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