Planning

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A dirty little secret is just how badly off most Baby Boomers are. The majority have no corporate pensions and more than half no organized retirement savings. Granted, Canadian Boomers are better off than their US counterparts, where two-thirds don’t have $25,000 tucked away. But the prognosis ain’t good. If you’re a Boomer’s kid waiting for a pot of cash, I have bad news.

Some weeks ago a BMO survey found 40% “are not confident” they’ll have enough money to retire. This sucks when you’re five or ten years from the end of your best-before date, and usually reflects a life in which most people spent what they earned, were financial illiterates, and put most of their money into houses.

About a third of Boomers will, according to another bank study, end up retiring with a mortgage. Needless to say, this has never happened before. Meanwhile BMO found that 41% are contemplating dumping their houses when they retire, since that’s about the only serious asset they own.

“They shouldn’t be relying on their homes because there are risks,” a banker cautions. One major problem is that as more people bail from real estate, prices fall and that generational nestegg starts to fade. The conclusion: “Boomers could be in serious financial trouble.”

By the way, there are about nine million people in this cohort, owning about three million houses. Figure it out.

There’s no force more powerful than demographics. It’s been responsible for long-term real estate trends for the past six decades. Boomers formed families in the Seventies and started on a housing binge only now ending. In many ways, it was a self-fulfilling romp. Demand caused inflated prices which created capital gains which turned real estate into a viable investment, which begat more buying and price bloat. Today we see the end game. Homes people can’t afford with huge amounts of net worth stuffed in them.

Now for the real problem. Too few kids.

Boomers turned out to be the first-ever bunch of self-absorbed, birth-controlled hedonists who never got around to replacing themselves. In 1961 moms had an average of four births each. Today it is 1.7 – a monumental 57% decline. And there are consequences.

As StatsCan points out, 2013 will mark the first time there are more wrinklies than kids. During this year the number of 15-to-24 year olds will be smaller than the 55-to-64 crowd. As I have previously pointed out, it’s also the first time we’ll see half a million people turning 60 in a single year, a trend that will last for the next seven, unless an asteroid hits (which is suddenly mainstream).

Among those consequences? Higher taxes to support a soon-to-be-overwhelmed health care system (some 80% of care is consumed in the final years of life). Immense pressure on pensions – one reason the feds are already pushing the age for the OAS out to 67. This is just the start. Public-sector, defined benefit plans are generally slipping into deficit positions already. Either more taxes will be needed to bail them out, or retired teachers and cops will have to start planning for reduced benefits.

Sadly, all these Boomers with their clumsy oxygen tanks and irritating walkers aren’t going to croak soon, either. Life expectancy is rocketing higher, ensuring lots of today’s 60-year-olds will still be staggering around in twenty-five years.

This means (simply put), a slow economy for decades to come, more demands on governments (and taxpayers), a constant battle against deflationary pressures, and a real estate mess. In fact, because Boomers were the original housing lusters, this is the one aspect of society where we should all expect the greatest impact. There are not enough kids to absorb (or afford) the housing stock, and immigration will never fill the gap. After all, nine million boomers hurtling towards their Viagra and Depends years are no match for 250,000 newcomers, three-quarters of whom can’t afford to buy houses until years after arriving.

Worse, a third or more of these people lack the finances to retire – without liquidating their homes. Sure, some will try reverse mortgages and ensure their kids’ inheritance is entirely sucked away by a bank. Others will hang on to their homes and learn to like Meow Mix. But for hundreds of thousands, perhaps millions over the next decade, there will be but one option. Sell.

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Any house-rich, pensionless Boomer who waits, is a denier.

Any houseless kid who doesn’t, a fool.

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avatarGarth Turner - The Greater Fool posted Tuesday, February 19th, 2013.

2 Comments for “Planning”

  1. Garth, great article. The truth is there to plainly see, IF you are looking! I’m a ‘first wave’ baby boomer, B. 1946. I feel sorry for the 2nd, 3rd, and 4th wave boomers. They will be the ones bearing the brunt of this cohorts demographics. Since myself and other first waver’s are out of it and well on the way to the bone yard and am damned glad for that! Our kids and grandkids will just have to ‘roll” with the punches. Welcome to the new paradigm, brought to you by the corporatocracy, in cahoots with big government and 1% elites who have royally screwed the economy for years to come.

  2. Yeah, right. As if all those unemployed kids now living with mom and dad could afford to buy a house with no income.

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