Study: 401k Distributions To Exceed Contributions

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Cerulli Associates [is forecasting](http://news.investors.com/investing/060214-702945-401k-withdrawals-will-soon-exceed-contributions.htm) that in 2016, 401k rollovers and distributions will exceed contributions. When you think about the size of the baby boomer population, it’s obvious that this would happen at one point or another. I hadn’t really given the specific timing of the event much thought and so I found their forecast very interesting.

The question is: what does this mean for investors? Some have incorrectly jumped to the conclusion that retiring boomers will all sell their stocks. Their thesis is that the sheer number of boomers versus the rest of the working population will cause a drop in demand for equities, driving stock prices lower. I think they’re very wrong.

The reality is that new retirees already have altered their investment allocations, in many cases years ahead of time. The assets leaving 401k plans are most likely rollovers into IRAs. Rolling over the 401k is done for a variety of reasons including getting access to investments or asset managers that aren’t available inside their employer’s 401k plan.

The issue boomers are facing is the fact that the lifespan here in the US continues to rise as improvements in health education and medicine develop. For a baby boomer retiring at 60 and living 30 or 40 years, the cost of living for even the basics could double in cost due to inflation. *Because of this, it’s critical that retirees own investments that offer the potential for rising income*. This includes shares of stock and ownership of businesses.

The other thing to consider is how quickly places like China and India are growing. These countries are growing by doing business with the US. And as their businesses grow, their quality of life improves and their demand for good investments grows with it. (If you’re interested in reading on this subject, check out Jeremy Siegel’s book [“The Future for Investors”](http://www.amazon.com/Future-Investors-Tried-True-Triumphs-ebook/dp/B000FCK1T8/ref=sr_1_2?s=books&ie=UTF8&qid=1403282832&sr=1-2&keywords=jeremy+siegel).)

So it is because of the global economy and the impact of inflation on the cost of living that I believe that global *and domestic* demand for equities will remain at current levels in the coming decades.