The Comming Retirement Crisis.

• Author: PARKER, THORNTON

Industry and government budget specialist Thornton Parker argues that coverging trends could jeopardize the retirement of countless baby boomers - especially those with piles of stocks in their retirement plans.

three major trends are on a collision course -- poised to crash when American baby boomers try to retire. And, as pension plans and other retirement portfolios switch from buying stocks to selling them, stock prices will decline for years, trillions of dollars of phantom wealth will vanish, and a depression could result.

The three trends are:

* Aging Populations: Populations of industrialized countries are aging, and more people expect to retire in relation to the number of workers who must support them.

* Phantom Wealth: The economies of these countries are increasingly being driven by phantom wealth that is based on unrealistic stock prices.

* Percentage of Stocks for Retirement: In the U.S., half of all stocks are held to pay for retirements, and the percentage is increasing.

The reasons are simple. Since most stocks pay small dividends (if any at all), retirement portfolios buy them for gains. On retirement, retirees need cash, so stocks have to be sold to convert any gains to cash. Nobody has yet shown how there can be enough buying power to produce gains.

Currently, about two-thirds (or 66 percent) of the national income goes to workers as compensation, giving workers control of most of the domestic stock buying power. Recent Census Bureau projections show that about 27 percent of the country's adults -- including all the boomers -- will be age 65 or over by 2030. If they all retire, there will be only about 2.7 people of working age to support each of the retirees. In practice, many older people will continue to work and many younger people will be in school, starting families, or not working for other reasons.

The Social Security problem: although eligibility for full benefits is being increased to age 67 by 2030, there are expected to be only 2.1 workers to support each beneficiary.

Stocks-For-Retirement Problems

The stocks-for-retirement problem is nearly twice as bad. The Committee on the Investment of Employee Benefit Assets (CIEBA) sponsored the 1999 report Implications of Investing Social Security Funds in Financial Markets. The section written by the investment management firm Invesco Inc., says that people who buy stocks typically buy most of them during their peak earning years, ages 40 through 59. The Census Bureau...