Aging of the Population thematic impact on financial services and the market
Boomers hold roughly $10 trillion in tax-deferred savings accounts, according to an estimate by Edward Shane, a managing director at Bank of New York Mellon Corp. Over the next two decades, the number of people age 70 or older is expected to nearly double to 60 million—roughly the population of Italy.
Firms that manage 401(k) plans are trying to persuade clients to reinvest their withdrawals in other products rather than spending or donating the cash to charity. It’s another pain point for many traditional money managers already struggling to keep some clients from shifting into lower-cost index-tracking mutual funds.
Many hope to offset the required distributions with inflows from millennials, people in their 20s and 30s—who recently became the largest living generation, even though boomers, at their peak, were more populous.
Source: Pulling Retirement Cash, but Not by Choice – WSJ
As the Baby Boomers being to move well into their “Golden Years”, the obvious thematic viewpoint is on healthcare — pharmaceuticals, healthcare staffing, hospitals, over the counter medications, etc. All good places to hunt for investment opportunities with although the winds can swiftly shift as we’ve seen with the Affordable Care Act
But pulling the lens back a little wider and a new category comes into view — financial services. The Baby Boomers and the wealthiest generation in history. They are the children of the Great Depression era with life expectancies far beyond their parents and grandparents. And so, they have been big-time savers, with the various types of IRA’s and the 401(k) being a large part of that strategy to the tune of $10 trillion.
Well at the age of 70.5, holders are required to start withdrawing that money — good news for financial services companies on one end as it stimulates trading behavior; but on the other hand, if that money starts flowing out of the brokerages and not rolling over to individual brokerage accounts it quickly becomes a headwind.
Which firms handle this transition best will be a telling story over the next few years as to which firms are able to retain the largest number of assets.
Oh, and the biggest winner of all on this transition? The IRS as the withdrawals are taxable.
