The looming generation shift may cut annual investment returns by an average of about 0.5 percentage points in coming decades.

Researchers at the U.S. Government Accountability Office make that prediction in a report on the possible effects of the retirement of the baby boomers on investment returns.

Some market forecasters have speculated that the boomers, who were born from 1946 to 1964, might cause a severe market slump once the boomers start shifting assets into more conservative investments and converting assets into income.

But GAO researchers analyzed 13 academic simulations of what might happen when the boomers retire, and “none of the simulation-based studies concluded that the U.S. baby boom retirement will precipitate a sudden and sharp decline in asset prices,” Barbara Bovbjerg and George Scott, GAO officials, write in a report summarizing the results of the analysis.

One study suggested annual returns might be about 0.87 percentage points lower than they would be without the boomer retirement effect, and another suggested the gap might be about 1 percentage point, the GAO officials write.

The officials list several factors that might buffer the investment market against the boomer retirement effect:

- Boomers plan to work longer and start drawing on retirement income later.

- Boomers are expecting to live longer and may try to keep more assets in their nest eggs.

- The few boomers who have significant investments can pay their living expenses by selling just a small portion of their investments.

The GAO officials predict that U.S. workers’ low savings rate and the financial weakness of Medicare and Social Security will pose a more serious threat to retired boomers than any stock market slump caused by the boomers’ own retirement.

A copy of the GAO report is on the Web at Document Link