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It's not related to the liquidation of financial assets by Boomers.

Like I said, the peak in the payroll tax surplus is a marker for a rapid increase in the number of people who stop accumulating and start liquidating, and I'm assuming here that no one retires before 65, which isn't true at all.

As I said before, the large bulge of Boomers are currently aged 44 to 54. The early Boomers do, as you point out, dwarf the pre-Boomer adults who were born from 1930 to 1945. But that group is only 2 percent larger than the group which followed the Baby Boomers:

Average Annual U.S. Births

I'm not sure what these numbers are supposed to show, but you're ignoring half the story. The number of births per year flattens out, because the birth rate falls. If the birth rate hadn't fallen, the number of births per year would have risen. But that's only half the story. The other half is mortality and life expectancy. Mortality at every age also fell in the twentieth century. The people born in the early in the century didn't live as long as the people born later. Put another way, more people at every age survived each year. More infants survived their first year. More one year olds survived to become two years old and so on.

http://www.ac.wwu.edu/~stephan/Animation/pyramid.html

Hold your cursor over the 65-69 age group and watch what happens in 2010.

And look here:

http://www.census.gov/population/www/projections/natsum-T3.html

Estimated U.S. population between 65 and 69

2000…..9,436
2001…..9,411
2002…..9,487
2003…..9,685
2004…..9,928
2005…10,086
2006…10,350
2007…10,721
2008…11,328
2009…11,758
2010…12,159
2011…12,411
2012…13,503
2013…14,040
2014…14,705
2015…15,410
2016…16,208
2017…16,287
2018…16,650
2019…17,106
2020…17,598

The rapid increase is starting now.

Although a few adults begin saving for retirement earlier, most wait until their mid 30's and 40's. Savings amounts and rates increase as workers increase earnings in their 50's, at the same time most stop supporting children.

That's right. Boomers are between 43 and 63. They're all in the peak saving years already. Their demand for assets has peaked. Now, they start selling. They don't wait until they die. They start selling when they start retiring.

As the early Boomers retire over the next ten years, their gradual liquidation of assets will be easily matched by the higher accumulation rates of two aging groups:

The way the accumulation of early boomers easily matched the gradual liquidty of assets by their predecessors?

It didn't match. That's what's changing. You want me to believe that nothing changes in this period, but I look at these population figures, and I see a number increase much more rapidly over a decade than it increases in the previous decade. The ratio of buyers to sellers rises.

- the much larger late Boomer population; and

- the equally large (compared to early Boomers) population that immediately followed the Boomers.

Right. Buyers and sellers are much more nearly balanced compared with the past. That's what's changing. Of course, every asset sold by a boomer will find a buyer. Markets always clear, but the market is changing.

It is not until 11 to 22 years from now – as I said before – that liquidation of financial assets could become a noticeable phenomenon. That's when the real Boomer bulge starts retiring in large numbers.

11 years from now, many boomers will already have joined the increasing number of people who stop buying and simultaneously start selling. 22 years from now, all of the boomers are sellers. They still find buyers, but the line at the checkout is shorter. You're telling me that the change only happens then?

Average Annual U.S. Births

1945-1953…..3.73 million
1954-1964…..4.18 million
1965-1971…..3.61 million
1972-1978…..3.22 million
1979-1988…..3.64 million
1989-1995…..3.98 million

So the 1965-1971 population is 3 percent lower than the early Boomer population of 1945-1953, which is still hardly significant.

Payroll taxes and government retirement spending are completely different topics than what we were discussing. It's not related to the liquidation of financial assets by Boomers. I was replying to your suggestion that net household wealth is peaking right now. I'd really rather not discuss a second issue this afternoon.

I'm sorry, but I completely disagree. The number of "Boomers" who will retire in the next five years is very small compared to the number of Boomers who will be increasing their incomes and increasing their savings over that period.

As I said before, the large bulge of Boomers are currently aged 44 to 54. The early Boomers do, as you point out, dwarf the pre-Boomer adults who were born from 1930 to 1945. But that group is only 2 percent larger than the group which followed the Baby Boomers:

Average Annual U.S. Births

1945-1953…..3.73 million
1954-1964…..4.18 million
1965-1971…..3.66 million
1972-1978…..3.26 million
1979-1988…..3.60 million
1989-1995…..3.95 million

Boomer Stats provides the meaningful birth data.

Although a few adults begin saving for retirement earlier, most wait until their mid 30's and 40's. Savings amounts and rates increase as workers increase earnings in their 50's, at the same time most stop supporting children.

As the early Boomers retire over the next ten years, their gradual liquidation of assets will be easily matched by the higher accumulation rates of two aging groups:

- the much larger late Boomer population; and

- the equally large (compared to early Boomers) population that immediately followed the Boomers.

It is not until 11 to 22 years from now – as I said before – that liquidation of financial assets could become a noticeable phenomenon. That's when the real Boomer bulge starts retiring in large numbers.

http://www.willwilkinson.net/flybottle/2005/05/13/the-2009-shortfall/

I hope I understand what you mean. As Boomers reach peak-income, pre-retirement years, they should save more and build wealth. Then during retirement they will liquidate assets. That would be consistent with Milton Friedman's permanent income hypothesis, wouldn't it?

I haven't seen Friedman state it, but I do expect people to save more as they age, and I expect most people to stop saving and dis-save when they're old.

Annual U.S. births didn't reach 4 million until 1954 and remained above that number through 1964.

Demographers typically start the "boom" around 1945. Look at the population chart at the bottom of this page:

http://www.knology.net/~marbrock/psupp.htm

You can see that in 1995 the leading edge of the bulge is around 50 years old. 1945 is an arbitrary choice to some extent, but ten years later is much too late. 2010 as the first "baby retirement year" makes a lot of sense for many reasons. For example, the payroll tax surplus peaks around this year. The last projection I saw was 2008.

I started thinking in these terms in the eighties when Phil Gramm said that the number of new Social Security beneficiaries starts to rise rapidly in 2010. My analysis is completely standard.

http://en.wikipedia.org/wiki/Post-World_War_II_baby_boom

Wikipedia gives 1946 to 1964. I use '45 to '65, because '65 was the year of Connecticut v. Griswold (the Supreme Court decision legalizing contraception across the U.S.), and '45 is a nice, round number giving a 20 year long "boom". The trend toward widespread contraception was already under way, but marking the end with Griswold makes symbolic sense, if nothing else.

The bulge of Boomers are now aged 43 to 54.

More like 43 to 63. You can see it in the age distribution. It stands out like a sore thumb. Population was relatively low immediately after the war, but the birth rate shot up almost immediately, and birth rate isn't the only factor to consider. Lower mortality is also a factor.

Unless the U.S. implements universal health care, these Boomers should remain employed until age 65. That's because medical insurance for early retirees is being eliminated by more employers every year.

For the first ones, that's two years from now. The payroll tax surplus peaks first. That's happening now. This event is significant, because it begins the pressure on Congress to find other general revenue to replace the surplus. The next significant event for Social Security is around 2018 when the surplus disappears entirely, i.e. the benefits exceed payroll tax revenue. Then the "trust fund" kicks in, i.e. Congress starts paying Social Security benefits from the income tax (I assume). Then around 2045, the "trust fund" is exhausted. In that year, Congress either continues funding benefits with the same income taxes it used the year before, or everyone in Congress loses his job. That's the plan. It was the plan all along. You hear this 2045 date all the time, but it's the least significant. Whatever transition will occur has already occurred by then.

The bulge of Boomers have 11 to 22 more years in the workplace. We should see at least a dozen and perhaps even more years of wealth accumulation.

Some have 20 more years, and some have already retired early, but that's not the point. As the boomers start retiring, they don't just stop buying assets. They start selling them. An increasing number of people stop buying and start selling. All boomers are buying now, so their demand has already peaked.

The number of buyers rose rapidly in recent decades. Now, that number stops rising rapidly, and the number sellers starts rising rapidly. This transition occurs now, not after half of the boomers have retired. That they've been incredibly successful rent seekers is another factor. The pressure of their rents suppresses demand of the people behind them.

In the eighties, when the Reagan market boom was in full swing, everyone agreed that it was happening. I heard this demographic analysis of the boom all the time. Now, the silence is deafening.

Further, retiree assets will be only gradually liquidated.

They were gradually acquired too, but balance of supply and demand favored sellers then. Lots of things happen as boomers age. For example, they downsize their houses, because their kids move out and they want to cash in the equity. It doesn't all happen suddenly in some magic year, but we have reliable markers like the payroll tax surplus that signal these events.

So I don't expect to see a big sell off of U.S. equities for at least a couple of decades. I don't think U.S. household wealth is close to peaking.

The payroll tax surplus is peaking. This surplus is the difference between taxes paid into a "saving for retirement" model and benefits taken out. The surplus peak has been analyzed to death. There's not much doubt about it. Google it. According to the reports I've seen, the surplus peaks this year. And who's talking about it?

For me, it's the value of my portfolio. But I'm hardly the average voter.

For my close relatives approaching retirement without a penny of savings, I suspect it's what the media is reporting about the future of social security.

For a few relatives it's probably just the price of beer and crawfish.

I hope I understand what you mean. As Boomers reach peak-income, pre-retirement years, they should save more and build wealth. Then during retirement they will liquidate assets. That would be consistent with Milton Friedman's permanent income hypothesis, wouldn't it?

Annual U.S. births didn't reach 4 million until 1954 and remained above that number through 1964. The bulge of Boomers are now aged 43 to 54. Unless the U.S. implements universal health care, these Boomers should remain employed until age 65. That's because medical insurance for early retirees is being eliminated by more employers every year.

The bulge of Boomers have 11 to 22 more years in the workplace. We should see at least a dozen and perhaps even more years of wealth accumulation. Further, retiree assets will be only gradually liquidated. So I don't expect to see a big sell off of U.S. equities for at least a couple of decades. I don't think U.S. household wealth is close to peaking.

>> Are you referring to only the housing values? My wealth in my small retail store and my wealth in equities of global corporations is not laying idle. <<

I was, and good point – in your case.

>> The elimination of financial stress has certainly done more for my current and long term happiness than any material good. <<

And in some abstract way that was my point. Sounds like you have dilligently attended to your well being for some time, and as a result have through your own work achieved a peace of mind – congrats to you on that.

My bottom line is that this entire conversation about wealth is all to do with who does or does not have the right to claim what about that "poor" struggling middle class that politicians are always talking about that. In that context, I was just trying to raise the question of what is it that gives the average voter a sense of whether they are better or worse off in between election cycles.

But according to Dr. Russell, people are only wealthier because of their ability to assume massive amounts of debt.

To be fair to the doctor, his measurement claims to show net household wealth, so it subtracts debt from equity. I'm not surprised that net household wealth rose in the nineties. I expect the rise to peak around now, and it does seem to be peaking. Why wouldn't an unprecedented number of retirees not have this effect? People approaching retirement seek rents. Retirees sell them.

I'm more skeptical of the median. The more interesting effects depend on the distribution.

Martin,

This is exactly my point. Real homeownership (equity) is currently at an all time low (sorry, don't have the statistics on hand) because the vast majority of Americans pulled equity out of their homes and spent it on "stuff". Added to that, many people who never pulled a dime out of their home have negative equity because of zero downpayments and declining home values. But according to Dr. Russell, people are only wealthier because of their ability to assume massive amounts of debt.

I'd agree but that doesn't seem to be the interpretation here. But I could swear everyday when I read the paper I see more write downs, foreclosures, city and state budgets falling and federal debt of massive proportions.

From the Brsbane Times;

"Edward Gramlich, a Federal Reserve governor who died in September, warned nearly seven years ago that a fast-growing new breed of lenders was luring many people into risky mortgages they could not afford. However, when Mr Gramlich privately urged Fed examiners to investigate mortgage lenders affiliated with national banks, he was rebuffed by Alan Greenspan, the then Fed chairman."

Bottom line this outcome is substandard, was predictable and we can and will do better then this.

We live in a world in which the political class creates welfare queens – c'est la vie. Even so, the advice doesn't change.

So, Martin, what do you tell your kids? Forget that Colin Powell said it and just focus on what he said. Is there any change in the environment that would make what he said not good advice?

What Powell said is a platitude that my kids figured out before they were twelve. I don't tell my kids how they'll make their living, because I don't know. If they want to follow in my footsteps, I'll help them as much as I can, but none of them show much interest in my work now. They'd probably rather have the cushy government research job I had years ago, or they'd rather have Colin Powell's job or at least get on the road to it. That's the problem, you know.

My government research job (in astrophysics) really was cushy and really was interesting, but it didn't produce anything you've ever consumed or anything that increased production of anything you've ever consumed or much of any use to you at all, because we had no reason to care what you consume. We just did what interested us and consumed what you produce by writ of our entitlement. We were science and engineering welfare queens. Honestly, I sometimes wish I still were. I can't justify this wish now, and I didn't try to justify it then. I just went with it.

Aren't the homes on the coasts that decreased in value by 30% the very same ones that increased in value 50% – 70% over the previous five years?

My home did neither. The question is: how much of the price increase is sustainable? Another question is: how much did you borrow against the increase? If you "withdrew" the last 30% rise in your equity by borrowing against it before the decline, a 30% gain earlier (from a lower base) still leaves you in negative equity. If you reinvested the 30% gain you borrowed in another inflated asset, you're in still worse shape. We don't yet know how much malinvestment will unwind.