It's Mathematically Impossible for Everybody to Retire Off of the Stock Market
How Much Does the Stock Market Have to Increase by for Us to Retire?
To be blunt, the entire US retirement system is a ponzi scheme. I'm not talking about social security or medicare (though, those are ponzi schemes as well), but the 401k's and IRA's that the government, the media, Hollywood, our employers, and our educators tell us we "just must" invest in. The reason why is very simple - we are relying on capital gains (ie - increasing prices) to fund our retirements and NOT increasing profits. This is why PE ratios are going up and dividend yields are going down because stock prices are increasing faster than the underlying profits corporations generate and the dividends they pay.
However, this got me thinking. Since the government more or less ordained the stock market as the primary vehicle by which we would retire, what kind of asset price increases would be required to adequately provide for the retirement of the Baby Boomer and Gen X generations? I know it's funny, and you're all laughing at me, but let's just say this crazy ponzi scheme works (or at least keeps working long enough for me to retire). How much would stocks have to go up by in order to provide enough money for each person in each generation to retire?
This mental and mathematical exercise of course requires some assumptions and simplifications, all of which will be proven wrong as time goes on. But just to see how feasible this whole "throw all your money into your 401k's" plan is, I just wanted to get some ballpark figures. Ergo, I assumed each generation retires separately and cycles over/sells their investment to the previous generation. I also assumed younger people accumulate mainly stocks and older people hold onto their bonds. I assumed every baby boomer is retiring today into today's market and that all Gen X'ers will retire 20 years from now. I assumed Americans can ONLY invest in US stocks/bonds. And I also assume a 2.5% annual rate of inflation. Again, none of these assumptions are true, but I'm just trying to do some back of napkin economics to get some ballpark figures.
mo
Captain Capitalism: How Much Does the Stock Market Have to Increase by for Us to Retire?
How Much Does the Stock Market Have to Increase by for Us to Retire?
To be blunt, the entire US retirement system is a ponzi scheme. I'm not talking about social security or medicare (though, those are ponzi schemes as well), but the 401k's and IRA's that the government, the media, Hollywood, our employers, and our educators tell us we "just must" invest in. The reason why is very simple - we are relying on capital gains (ie - increasing prices) to fund our retirements and NOT increasing profits. This is why PE ratios are going up and dividend yields are going down because stock prices are increasing faster than the underlying profits corporations generate and the dividends they pay.
However, this got me thinking. Since the government more or less ordained the stock market as the primary vehicle by which we would retire, what kind of asset price increases would be required to adequately provide for the retirement of the Baby Boomer and Gen X generations? I know it's funny, and you're all laughing at me, but let's just say this crazy ponzi scheme works (or at least keeps working long enough for me to retire). How much would stocks have to go up by in order to provide enough money for each person in each generation to retire?
This mental and mathematical exercise of course requires some assumptions and simplifications, all of which will be proven wrong as time goes on. But just to see how feasible this whole "throw all your money into your 401k's" plan is, I just wanted to get some ballpark figures. Ergo, I assumed each generation retires separately and cycles over/sells their investment to the previous generation. I also assumed younger people accumulate mainly stocks and older people hold onto their bonds. I assumed every baby boomer is retiring today into today's market and that all Gen X'ers will retire 20 years from now. I assumed Americans can ONLY invest in US stocks/bonds. And I also assume a 2.5% annual rate of inflation. Again, none of these assumptions are true, but I'm just trying to do some back of napkin economics to get some ballpark figures.
mo
Captain Capitalism: How Much Does the Stock Market Have to Increase by for Us to Retire?
