A 1998 report by the Organization for Economic Cooperation and Development said that most developed countries will have greater economic, social and political problems meeting the needs of their aging populations than the United States is likely to face. It seems bizarre that the apparent danger to stock-based plans isn't being discussed. In 10 years, as waves of boomers start collecting their pensions, giant retirement plans such as those at General Motors and IBM, and large state plans such as those of California and New York, will have to begin selling increasing amounts of their stock holdings to pay those retirees. With the owners of about half of the country's stock shifting from a buying into a slow selling mode, it won't be just a question of stocks not gaining value. That money was phantom wealth.
Phantom wealth is created or destroyed in two steps.
The first step is a trade that sets the most recent price for a stock. The second step is the practice of treating all shares of that stock as being worth the most recent price. To understand this, assume that a company has 100 million shares of stock outstanding, and a day's trading leaves the price one dollar higher. Few people have any conception of how rapidly phantom wealth can disappear as the result of a few trades at lower prices, but it is the primary asset in most pension plans and retirement accounts. There is a serious risk that the planned selling to pay for boomers' retirement consumption can depress stock prices for years, destroy trillions of dollars of phantom wealth.