Friday, June 4, 2010

A Home Work Assignment for Any Cappy Cap Reader That Wants It

Driving around the Lake Minnetonka area today because, well, what else do you do on a 78 degree day when there is no work to do and while listening to the news I slowly saw the Dow drop 100, 200 and then 300 points and then had an interesting thought.

"Based on the number of retirees, pensioners, present and future, and considering the amount of money being invested in the stock market, and based on average life expectancies and cost of living requirements, how much will the stock market have to go up by in order for traditional retirement plans to succeed?"

In all of my studies and research there was always that 8-9% annualized price appreciation in the stock market that was assumed to go on into perpetuity. With the collapse in long term economic growth, what if the entirety of Americans relying upon their 401k's and IRA's, just plain don't get 8-9%? What if it's going to be something more like 5-6%, or maybe like Japan, 0 to -2% for the next 20 years?

Regardless, I am curious what the "Dow would have to be" in order for everybody's retirement plan to work out the way it's supposed to. If somebody wants to take a crack at it (on account that I am lazy) I would certainly be interested in seeing the numbers as well as the methodology.

And then I will laugh heartily when we see how egregiously and impossibly high that number is compared to the reality of American economic productive capacity.

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