The United States is facing a bizarre dilemma that might lead to serious economic problems. Many older Americans are saving too much and spending too little.

A vast amount of money has effectively been taken out of the U.S. economy and locked away in retirement accounts where it is merely parked, an analysis of University of Michigan data by US Income determined. The Investment Company Institute estimated that there is now around $25.3 trillion (€22.64 trillion) in US retirement assets.

Those savings might be placing a drag on the U.S. economy because older people are too scared to spend, Bloomberg reported. The economy is hurt because the money is not circulating.

The wealthiest fifth of US retirees are spending 53% less than they safely can, a study in The Journal of Financial Planning indicated. Instead of buying new cars; or boats, retired Americans are placing their extra cash in bank and investment accounts.

That hurts the working class because there is less production at factories and fewer purchases at stores. An unintended side effect of the stinginess fewer jobs in retail and manufacturing.

Are Retirement Savings Responsible for America’s Economic Stagnation?

That might explain the low level of growth in the American Gross Domestic Product (GDP). The US Bureau of Labor Statistics estimated that the nation’s GDP grew at a rate of .7% during first quarter 2017, Trading Economics reported. The economy might be growing because money is simply not circulating.

Instead it is being invested which partially explains the growth in US stock values. A great deal of that money is placed in Individual Retirement Accounts (IRAs) and invested in the stock market via mutual funds and exchange traded funds (ETFs).

U.S. investors placed $823 billion (€736.63 billion) in index investments operated by one company alone; Vanguard, between 2014 and 2017, The New York Times reported. Most of that money is saved for retirement and it gives Vanguard an incredible amount of leverage. The company now controls around $4.2 trillion (€3.76 trillion) in capital, around $3 trillion (€2.69 trillion) of which is in passive index products.

Such investment has driven the S&P 500 to new highs, 1,371.08 on May 24, 2017. Yet it may not be doing average Americans any good, and might actually be harming the economy in Middle America.

Is Retirement Savings Undermining Middle America?

An aging population that is afraid to spend might be one of the forces driving the retail apocalypse; the mass closing of stores across the United States. Forbes estimated that 3,591 stores were slated for closure in March 2017.

Some of the retailers most affected by the apocalypse are brands that market to older shoppers. This includes the department store operator JC Penney (NYSE: JCP); which targets its’ marketing to a hypothetical female customer in her early 60s. JC Penney is planning to close around 138 stores this year because of declining sales and revenues.

Other brands that cater to older customers are also closing stores. They include Sears (NASDAQ: SHLD); which is planning to close 54 department stores and 136 Kmart discount stores, and department store operator Macy’s (NYSE: M) which is planning to close around 100 of its locations and lay off 10,000 people.

Shutting down completely is the electronics seller Radio Shack which is closing all 552 of its locations. Radio Shack marketed consumer electronics to mostly older people that did not use the internet.

The cause of this might be an aging population, the average American over age 60 cuts his or her spending by 2.5% a year, United Income estimated. It is no coincidence that the retail apocalypse is occurring as tens of millions of Baby Boomers (persons born between 1945 and 1964) enter their 60s.

The Situation is about to Get Worse

The situation is about to get worse because there are around 74.9 million Baby Boomers in America. The Boomers are the generation born between 1945 and 1965 in the aftermath of World War II.

The oldest boomers are now around 72 years of age and the youngest are around 51. Tens of millions of these people are retiring or about to retire and cut spending which will lead to a serious drop in economic activity. The .7% GDP growth rate in first quarter 2017 might be the beginning of that fall off.

It is the aging of the Boomers that is partially driving the bull market in U.S. stocks. Scared but affluent Boomers are dumping as much money as they can get into retirement investments. That benefits Wall Street but not Main Street and makes income inequality, already a major problem in the US worse.

This situation will accelerate in the years ahead as more and more Boomers retire or prepare for retirement. Many of them are frightened by headlines about Social Security (the U.S. basic income program for seniors) and pension funds running out of money so they will save more and spend less.

How Aging America will affect Investors

The most noticeable effect of the frenzy of retirement savings will be to extend the bull market in U.S. stocks for several years.

Expect the S&P 500 to remain fairly high for the next several years as the Baby Boomers approach retirement. The boom will be driven by the fact that 33% of Americans have an IRA and most of them have insufficient retirement savings. They’re going to need to invest in assets; mostly stocks, with a high return to boost their savings.

The big fall in US stock prices will come sometime in the early to mid-2020s when Baby Boomers; or their heirs, start selling off all that stock they’ve accumulated. The situation will be made worse by the fact that tens of millions of boomers will no longer be contributing to IRAs and buying stock. So the demand for stock will shrink as more shares are dumped on the market.

There will also be some political consequences to all the retirement savings in the USA. Tens of millions of younger Americans are not saving; the country has an average savings rate of around 5.9% according to Trading Economics, and one out of three Americans has no retirement savings at all.

That means there will be calls for confiscatory taxes on retirement savings in order to fund Social Security and other benefits for the people who did save. Since working people; who are less likely to save, presumably greatly outnumber the affluent savers it is easy to see whom politicians will cater to.

The United States is going to have to figure out how to get older people to reduce savings and increase spending if it wants to avoid an economic crisis. If not America might soon face a drop off in economic activity rivaling that which occurred during the Great Depression.