In the 21st century, older Americans are expected to comprise a larger share of the population, live longer, and spend more years in retirement than previous generations. The share of the U.S. population age 65 and older is projected to increase from 12.4 percent in 2000 to 19.6 percent in 2030 and continue to grow through 2050. At the same time, life expectancy is increasing. By 2020, men and women reaching age 65 are expected to live another 17 or 20 years, respectively. Finally, falling fertility rates are contributing to the increasing share of the elderly population. In the 1960s, the fertility rate was an average of three children per woman. Since the 1970s, the fertility rate has hovered around two children per woman, meaning relatively fewer future workers are being born to replace retirees. The combination of these trends is expected to significantly increase the elderly dependency ratio—the number of people age 65 and over in relation to the number of people age 15 to 64. In 1950, there was 1 person age 65 or over for every 8 people age 15 to 64. By 2000, the elderly dependency ratio had risen to 1 person age 65 for every 5 people of traditional working age, and by 2050 this ratio is projected to rise further to about 1 elderly to every 3 working age people (see fig. 1). Consequently, relatively fewer workers will be supporting those receiving Social Security and Medicare benefits, which play an important role in helping older Americans meet their retirement needs. By causing a large shift in the U.S. population’s age structure, some have suggested that the baby boom generation may affect stock and other asset markets when this cohort retires. This concern stems from hypothetical spending and saving patterns over people’s lifetimes, which economists describe in the “life cycle” model. The model hypothesizes that people attempt to smooth their consumption over their lifetime. As individuals’ earnings typically grow over their working life, this suggests that younger workers, with relatively low earnings, may save relatively little or borrow to finance current consumption (or to buy a house); older workers may save significantly more in preparation for retirement; and retirees may spend down their savings. The model therefore predicts that the saving rate is hump-shaped over an individual’s lifetime. Over the course of their lives, individuals make decisions about not only how much to save but also how to distribute their savings among a mix of assets, such as stocks, bonds, real estate, and bank accounts. For example, older workers are expected to shift their portfolios toward less volatile assets, such as bonds or cash accounts, because they will tend to prefer assets with a more predictable flow of income since they will have less time to weather potential price declines in riskier assets such as stocks. In addition to their saving and consumption patterns, baby boomers also may affect stock returns in particular through broader macroeconomic channels. Stocks represent claims on the profits earned by firms, and in the long run the returns on these assets should reflect the productivity of the firms’ capital. Generally, economic theory states that capital becomes more productive with more and better quality labor to use that capital. Because the baby boom retirement is expected to reduce the growth rate of the U.S. labor supply, it may reduce returns to capital, which could reduce the returns to stocks. More generally, investors may price stocks in relation to the underlying value of the firm, taking into account the value of firm’s current assets and stream of future profits. Our analysis of national survey data indicates that the baby boom generation is not likely to precipitate a sharp and sudden decline in financial asset prices as they retire. Our analysis of the 2004 SCF shows that just 10 percent of boomers own more than two-thirds of this generation’s financial assets, excluding assets held indirectly in DB pensions. These wealthiest boomers may be able to support themselves on the income from these investments without spending them down significantly. About one-third of all boomers do not own any stocks, bonds, mutual funds, or retirement accounts. As with the prior generation, baby boomers may continue to accumulate financial assets in retirement and liquidate their assets only gradually with the hope of leaving bequests. The gradual entry of the boomers over a 19-year period into retirement should further reduce the likelihood of a sudden decline in asset prices. Further, boomers have indicated that they plan to retire later than generations that retired in the recent past, with almost half not planning to leave full-time employment until age 65 or later. Many may also continue to work throughout retirement, reducing or delaying their need to sell financial assets. Housing represents a greater share of total wealth for most baby boomers than do financial assets, and therefore the housing markets present more financial risk to most boomers than the financial markets. The potential for the baby boom generation to precipitate a market meltdown in retirement may be substantially reduced by the fact that a small minority of this population holds the majority of the generation’s financial assets. According to our analysis of the 2004 SCF, the wealthiest 10 percent of boomers owned over two-thirds of the approximately $7.6 trillion held by boomers in stocks, bonds, mutual funds, Individual Retirement Accounts (IRAs), and other account-type retirement savings plans in 2004. This wealthiest group held $1.2 million, on average, in these financial assets, plus over $2 million in other assets such as home equity and other investments. Figure 2 shows the concentration of financial assets among boomers. This concentration of wealth is very similar to that of current retirees and could mitigate a sharp and sudden impact on financial asset prices if wealthy boomers need not spend down their financial assets in retirement. Research on current retirees indicates that the wealthiest of these individuals tend to not sell their financial assets, contrary to what the life-cycle model would predict; instead, they choose to live from the income these assets generate. Our analysis of the 2004 SCF also found that of the wealthiest 10 percent of current retirees born before 1946, less than 16 percent spent money from their savings and investments over and above their income during the previous year. In this same group, over 65 percent responded that their income in 2003 exceeded their spending, indicating that they had accumulated more assets without having a net sale from their holdings. The possibility of an asset meltdown is further reduced by the fact that those households that would seem more likely to need to sell their financial assets in retirement do not collectively own a large portion of the total stocks and bonds in the market. Although the majority of baby boomers hold some financial assets in a variety of investment accounts, the total holdings for all boomer households, $7.6 trillion, account for roughly one-third of the value of all stocks and 11 percent of bonds outstanding in the U.S. markets, and the wealthiest boomers own most of these assets (see figs. 3 and 4). Those households that are most likely to spend down their assets in retirement—those not in the top 10 percent by wealth—collectively hold just 32 percent of all baby boomer financial assets. As a group, the influence of these households on the market is less substantial. One-third of this group does not own any stocks, bonds, mutual funds, or retirement accounts, and among those who do, their total holdings are relatively small, with their median holdings totaling $45,900. Our analysis of national data on the investment behavior of current retirees reveals an overall slow spending down of assets in retirement, with many retirees continuing to purchase stocks. To the extent that baby boomers behave like current retirees, a rapid and mass sell off of financial assets seems unlikely. In examining retiree holdings in stocks, using biennial data spanning 1994 to 2004 from HRS, we found that many people continue to buy stocks in retirement. More than half of retirees own stocks outside of an IRA, Keogh, or pension account and, among this group, approximately 57 percent purchased stocks at some point over the 10-year period in retirement. We found that from 2002 to 2004 the stock ownership for most of these retirees either increased or remained at the same level. Among those who owned stock, almost 31 percent reported buying stocks during this 2-year period, while just fewer than 26 percent reported selling. For the retirees who both bought and sold stocks, approximately 77 percent purchased at least as much value in stock as they sold. Additionally, although retirees might be expected to have a low tolerance for market risk and will therefore divest themselves of equities in favor of bonds, the SCF data does not suggest such a major reallocation. Comparing households’ holdings in stocks and bonds by age, we found only a small difference in aggregate stock and bond allocation across portfolios. Specifically, data from the 2004 SCF shows that of total wealth among households headed by people over age 70, more is invested in stocks than bonds. In 2004, households headed by those over age 70 had roughly 60 percent of their investments in stocks and 40 percent invested in bonds, while those households headed by someone aged 40 to 48 held 68 percent of their portfolios in stocks and 32 percent in bonds. Our finding that retirees slowly spend down assets is consistent with the results of several academic studies. One recent study that examined asset holdings of elderly households suggests there is a limited decline in financial assets as households age. Prior work also finds evidence that retirees spend down at rates that would leave a considerable portion of their wealth remaining at the end of average life expectancy and a significant number of retirees continue to accumulate wealth at old ages. For example, a 1990 study estimated that most single women would have approximately 44 percent of their initial wealth (at age 65) remaining if they died at the average age of life expectancy. Other studies have shown that over the last several decades the elderly have drawn down their lump- sum wealth at relatively conservative rates of 1 to 5 percent per year.