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Boomer Retirement Could Slow US Recovery: Fed Study

Published: Monday, 22 Aug 2011 | 1:39 PM ET

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By: Reuters

The aging of the U.S. baby boom generation may slow an already weak recovery as boomers sell stocks to pay for retirement, according to research released Monday from the San Francisco Federal Reserve Bank.

Many baby boomers have already sold some assets in preparation for retirement, research adviser Zheng Liu and Mark Spiegel, vice president of economic research, said in the latest San Francisco Fed Economic Letter.

"Still, it is disconcerting that the retirement of the baby boom generation, which has long been expected to place downward pressure on U.S. equity values, is beginning in earnest just as the stock market is recovering from the recent financial crisis, potentially slowing down the pace of that recovery," the two wrote.

Demand for U.S. stocks from overseas, especially China and other fast-growing countries, could alleviate the pressure from the expected baby boomer equity sell-off.

But the tight historic correlation between demographic trends and the stock market "portends poorly for equity values," the researchers said.

Real stock prices will likely decline until 2021, to about 13 percent below the 2010 levels and will not return to their 2010 levels until 2027, according to the researchers' model, based on historical patterns.

From there, they said, stocks should rise to about 20 percent higher than 2010 levels by 2030.