Enduring Effects of Demography on Retirement Planning

Almost a century and half of evidence suggests that only individuals who start saving for retirement in the later stages of population busts and the early stages of population booms spend most of their retirement planning phase in bull stock markets with tame inflation, thus benefiting greatly from investing in stocks. Demography, particularly the proportional size of aggregate savers as measured by the Geanakoplos, Magill, and Quinzii (2004) MY ratio — the ratio of middle-age to young population — is the most pertinent determinant of intergenerational variations in retirement planning results. Unlucky generations, those who start saving during high MY ratio periods, are well advised to overweight corporate bonds in their portfolios. Moreover, when the retirement planning horizon is short, all generations should use caution in weighting stocks in their portfolios