Boomers facing retirement blues

In a nutshell: Too many retirees wanting to sell their investment portfolios will deflate prices and provide less money than they had been expecting. And too much demand among those boomers for products and services will keep prices high. Robert Arnott, who is based in Newport Beach and manages two mutual funds for PIMCO, has been looking at the numbers. From a WSJ Q&A:

WSJ: When you talk about a changing relationship between the numbers of retirees and workers in the U.S., how dramatic a shift from past decades are we looking at?

Mr. Arnott: This very year, for the first time in U.S. history, the population of senior citizens rises faster than the working-age population. Less than 10 years ago, when the baby boomers' kids were coming into the labor force and the very skimpy roster of Depression babies was retiring, we had 10 new additions to the working-age cadre for each one new senior citizen. It goes to 10-to-1 in the opposite direction in 10 years. There will be 10 new senior citizens for each new working-age citizen. If that's not a political, economic and capital-markets game changer, I don't know what is.

WSJ: Your prognosis for U.S. investors sounds in some ways too simple. And definitely too scary. In retirement, can't I sell my securities to workers in other countries? And won't other countries supply goods and services to boomers, taking some pressure off prices?

Mr. Arnott: Absolutely. But it is dangerous to overrely on that. What I'm painting isn't a doom-and-gloom scenario. What I'm painting is a scenario that is challenging, that's difficult. Compared with the '80s and '90s, it is awful. But the '80s and '90s were an extraordinary period. You still have a lot of people expecting 8% or 10% a year from stocks or even from balanced portfolios. That's naive.

WSJ: How about a final encouraging word for beleaguered baby boomers?

Mr. Arnott: It's really simple: Save more aggressively; invest in economies that aren't afflicted by the 3-D hurricane of deficit, debt and demography; and diversify into markets that can serve us well in a reflationary world.