Last week, Doug Henwood perfunctorily "debunked" my hypothesis that the
demographic bulge of the baby boom generation created an anomoulous bubble
in retirement savings during the 1990s. Doug claimed the "only problem" with
my argument was the low U.S. savings rate. I replied that the savings rate
wasn't at all comparable to "retirement savings". You could very well have a
zero savings rate and still have a large inflow of cash into retirement savings.
Below are some figures showing the growth of retirement funds in mutual
funds between 1992 and 1997. I want to call attention to two remarkable
features of the table. First, between 1992 and 1994, retirement savings
increased sharply from 25% to 36% as a share of total mutual fund holdings.
But second, and this is a weird one, the total amount of money in mutual
funds only increased about $86 billion from 1993 to 1994, while the
retirement component of mutual funds increased by $170 billion. That would
suggest to me either a withdrawal of around $84 billion of non-retirement
money from mutual funds or a very large conversion of mutual fund accounts
to retirement mutual funds. Is either of these true?
Most of the increases in assets shown in these tables resulted from the gain
in asset prices but between 1995 and 1997 there were also annual net inflows
of new retirement money into mutual funds of between 85 and 107 billion
dollars. The source didn't give a comparable figure for net inflow to the
total retirement account. But I would argue that the partial data shown here
are intriguing enough to warrant digging for a more complete breakdown.
My question is: how much of the reported $2.7 trillion increase in asset
values of total retirement savings (line 5) between 1995 and 1997 came from
increases in asset prices and how much from net new money inflows?
Figures from the "Investment Company Institute"
In billions of $ 1997 1996 1995 1994 1993 1992
1 Total Mutual Funds 4507 3518 2820 2161 2075 1646
2 Retirement funds in MF 1600 1242 1007 767 597 412
3 Retirement as % of MF 36% 35% 36% 36% 29% 25%
4 net new retirement money 107 85 100
(in mutual funds)
5 Total retirement 9400 7900 6711
6 Line 2 as a % of line 5 17% 16% 15%
Regards,
Tom Walker
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