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Why Baby Boomers Will Have a Troubled Retirement
Topic Started: 14 May 2012, 10:02 AM (717 Views)
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Why Baby Boomers Will Have a Troubled Retirement

Amongst people under the age of 35 in America, a predominant view that I see emerging is how the Baby Boom generation in the US (born 1946-64) is consuming the future of the younger generation in an attempt to finance an opulent retirement. While this may indeed be the political goal of at least some Boomers and the core mission of many retiree organizations, the fiscal situation in the US is far worse for the Boomers than they realize, no matter how much they attempt to extract from younger people.

Boomers and Entitlements : While the first Baby Boomer turned 65 in 2011, the median Boomer (born in 1955) turns 65 in 2020, and the last ones turn 65 in 2029, which indicates that their big harvesting of Social Security and Medicare from the government has not even begun yet. Given rising life expectancies, the peak years of Boomer harvesting will be 2015-2035 or so, which means that a huge level of withdrawals are anticipated for this 20-year window.

But alas, someone got to the goodies first. This chart from Carpe Diem shows how US Federal Debt went from 65% of GDP in 2008 to almost 100% today. That 35-point rise was supposed to be consumed by Boomers seeking to finance their retirement, but now, with debt already so high well before Boomers can get their, the future payouts to Boomers have been crowded out. There is certainly no room for another 35-point rise in Federal Debt as a percentage of GDP (credit downgrades and a capital exodus would happen long before debt could ever reach 135% of GDP), and given that the big debt spike began in 2009, it appears that President Obama and the Democrat Senate have already expended the funds that were supposed to sustain the Boomers.

As debt thresholds that were not meant to be reached until many Boomers were well into their retirement have been pierced ahead of schedule, the squeeze will cause some very ugly intra-Boomer conflicts as each group seeks to secure a portion of the diminished pie, which we will examine later in the article.

Q3FlowPercentEquityBoomers and Home Equity : But it gets worse for the Boomers, even for those who have resources that makes them less dependent on Social Security. The housing market has been in a slump (which I predicted at the very height of the boom in April 2006), and this will, at best, tread water for the next several years. Ultra-low mortgage rates have merely arrested a further decline, and even that deep well has been fully consumed (chart from Calculated Risk, click to enlarge).

While some Baby Boomers believe they still may have enough time to recoup substantial home equity with which they may seek to finance a portion of their retirement, in order to retain their equity, they need a steady flow of first-time buyers to enter the housing market,in numbers greater than the rate at which retiring Boomers want to sell.

Who are these new first-time buyers? Why, the endless supply of young people starting their careers and forming families, of course. But alas; the many members of this generation, born after 1990, will not be in any position to buy the houses that Boomers are seeking to sell.

Crazy student loans 2011-q2To cultivate a new generation of home buyers who can take on a mortgage, it is imperative that they do not already have a mortgage-sized debt before that. But the higher education industry got to this generation before the mortgage industry could, and many members of this generation have already signed away the first several years of their earnings to servicing their student loans in a rapidly inflating bubble (chart from The Atlantic, click to enlarge), amounting to some $867 Billion in indebtedness that is yet to abate. It may be unfortunate that this upcoming generation was unavoidably destined to take on debt, and that it was only a question of whether the student loan industry or the mortgage industry yoked them in first. But it appears that student loans won the race to reach their prey, which is bad news for Boomers seeking to sell their homes in 2015-20.

On top of the student loan burden postponing their home purchases, there are more sinister cultural forces that are moving this upcoming generation towards apartments and condos, and away from the single-family homes that Boomers will seek to sell. The US legal system severely disincentivizes young men from family formation by subjecting them to preposterously unfair laws if they enter a modern marital contract, and while those who profit from this status quo have done their best to conceal the risks of marriage and family from young men, the anti-misandry sphere continues to expose the truth, particularly to these younger generations of men. Fewer young men are willing to take on the risk of entering such a lopsided contract.

In desperation, Boomers will turn to the last remaining source of new blood - skilled immigration. Skilled immigrants not only do not have student debt to the degree that American youths do, but are usually from countries that have not been ravaged by misandry. I am strongly in favor of increasing skilled, legal immigration and will go so far as to say America cannot prosper without it, but even here, Boomers are behind the curve, as by the time this bright idea gets favored, a new generation of skilled foreigners will be far less interested in coming to America than their predecessors in the 1990s and 2000s. The opportunities in India and China are much more than they were in the 1990s when America could attract the very best and brightest in the world. But by 2015, the immigrants America can attract will be diminished in quality and number. So financing their retirements on the backs of skilled immigrants as a substitute for a generation of Americans disincentivized from family formation is a scheme the Boomers will find to be too little, too late.

If selling their homes at a price that retains some of their home equity was important Baby Boomers, they should have pre-emptively blocked laws that would greatly inhibit family formation and the resultant purchases of single-family homes, among the next generation of Americans. Boomers let this tragedy happen right in front of them, and will pay for it with their home equity.

All Boomers Are Not Equal : Lest you think I am being harsh to Baby Boomers, there is another level of scrutiny here that cannot be exposed often enough. As I have established elsewhere, 70-80% of all government spending is a transfer from men to women, a default state almost every democracy will revert to over time, and this is especially true of entitlement programs. Since women live 5-7 years longer than men, their average post-65 lifespan is thus about twice as long as a man's. Add to this the fact that women use more healthcare per year than men anyway, and we get the heavily unidirectional transfer from men to women that is Medicare.

As it has become apparent that SS and Medicare are not sufficiently funded to meet the needs of Boomers, many women (in the NYT, no less) are openly rooting for men to die early so that they don't consume the funds that would otherwise be collected by women (nevermind that the taxes paid into the system were mostly from men). Expect this demand that men die when it is financially optimal for women to become increasingly frequent and shameless. If women are wondering why more and more men don't see the need to 'respect women', they should contemplate their own contribution to how it has become atypical for men to be treated as human beings, rather than as disposable commodities.

This is, of course, an opportunity for Boomer men to finally fight back. When it is considered acceptable for the mainstream media to say the lives of men are a burden when they have outlived their earning years, and Obamacare, with the power to ration healthcare along political lines, is already prepared to fund women's health at the expense of men's, don't think for a minute that the legislative bias will stop there. An additional surtax on men only, greater defunding of male health procedures, etc. are all being discussed. Perhaps this will finally be enough to provoke a reaction from men.

Conclusion : Overall, the fiscal cliff and non-cooperation of younger Americans and immigrants will bring great calamity to any Baby Boomers with a net worth under $2 Million. Only the Boomers wealthy enough to not be dependent on either entitlement programs or home equity will go unscathed, and, unless Boomer men start fighting for their rights, they will find that an entire apparatus has been built to minimize their access Social Security and Medicare that they have paid into. At the same time, despite an organized attempt to disenfranchise men, Boomer women will just not be able to extract more than they are already getting, since even the deepest wells of funding will be exhausted given the unprecedented number of women seeking to live off of the state. While the excess spending has been the work of Democrats, do not think for one minute that Republicans will cut spending even if they win every election they stand in.

Perhaps this event will be necessary in the process of dismantling many archaic and unjust structures.


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What baby boomers' retirement will mean for the Sydney property market: BIS Shrapnel's Martin Bregozzo

By Martin Bregozzo
Monday, 14 May 2012

What is passing through the mind of the Sydneysider approaching retirement age right now? Standing on the precipice of oblivion, or beginning to quaff the blissful serenity of freedom? ... unless, of course, the kids have moved back in with grandkids in tow.

The baby boomers – those born between 1946 and 1964 – constitute some 25% of Sydney’s population, and for the leading edge of this group – the “imminent retirees” – thoughts of retirement and downsizing are likely to be at the forefront of their minds. And they are beginning to make their plans. Around 80% of the baby boomers own their property outright and – significantly – many also hold investment properties.

With reduced super balances – read sweat and toil of the last 20 years – and no indication of any future success soon, for many, retirement may not be an option in the short to medium term. Indeed, a study by Merrill Lynch (2005) suggests that retirement will be “neither a life of full-time leisure or full-time work”. Similarly, a University of Tasmania study (2007) found that the most likely outcome will be “a phased withdrawal from the labour market over an abrupt cessation from work”. Instead of disappearing, the 65+ers will simply fade away.

The financial model adopted by retirement funds assumes that a retiree will survive on regular series of payments, in a special – almost magical world – where costs (such as electricity and petrol) remain orderly, until the invested capital, and coincidently the retiree, expire around the age of 85 ... but there is an awful lot of living to do in the intervening 20 years. And this is not a generation renowned for its thrift like its predecessors – a good news story for the retail and hospitality sectors. Not so good for any prospective 86-year-olds, or those banking on an inheritance, or those hoping to rise the corporate ladder by filling the retirees’ old positions.

Consequently, some baby boomers may opt to augment their retirement finances by selling the family home and downsize to a more affordable dwelling, while others may sell and move to enjoy the fruits of their next life stage.

Marketing to the baby boomer generation has focussed on larger apartments, with space and storage, good quality design, and offering security and lifestyle. Conversely, a 2001 study by BIS Shrapnel on Sydney’s empty-nesters found that preferences lay in single-level villas, acknowledging that stairs would become an issue in the future. Ideally, dwellings would have ample space, but small, low maintenance gardens – a place for barbecues and grandkids – or better still large balconies as an extension of the leisure-orientated living area with common area rooftop gardens.

A further common theme is that location is paramount – they will not be herded off to Sydney’s Never Never. While some may move away to be close to their children, to find a more affordable dwelling, or move to leisure/lifestyle areas, most prefer where they live and wish to remain there. Developments to accommodate this group need to be strategically placed (walking distance) from their local haunts. The majority will not, so it seems, relocate to the Gold Coast. These people want to live – and live it up – not simply exist.

However, the supply of land for new development in Sydney is tight. After taking into account the cost of land in the established areas and all of the changeover costs, downsizing to a new home doesn’t provide much change after selling your established home – even if the land isn’t as big as their current home. If new dwelling prices stymie the trade down activity of the baby boomer generation, what will be the impact on the market?

The underlying demand for the baby boomers’ family nest egg will come mainly from the Gen X demographic, with some 26% of Sydney’s population; aspiring to provide their children (Gen Y and Z) with something resembling a house with a backyard, sort of like the one they grew up in. But, if family homes are not freed up by the downsizing baby boomers, where will Gen X find their large family home? Chances are the answer lies to the new housing estates on the city fringes, where the land is available. This is likely to continue to diminish housing affordability in established suburbs, where limited houses will be put on the market, and Gen X demand will be pushed to Sydney’s outskirts. But will the Gen X-ers go there or will they opt to reside in apartments closer in?

Conversely, if the baby boomer generation does downsize en masse, then what impact does this have? House price pressures should ease as established housing stock becomes attainable for the Gen X buyers. However, unless NIMBY-ism attitudes and the planning rules were to change, how do you accommodate both the downsizers and the Gen X-ers in their current suburbs where land supply is tight? In addition to approving larger infill apartment projects, up-zoning to medium (or high) density would squeeze more housing out of the land, especially if neighbours co-operated, on-selling their properties as a single site to developers. Simon and Garfunkel cautioned against being “a rock ... an island”, by co-operating, many more should stand to benefit. Moral of the story: if the neighbours are around the same age, get to know them and encourage them to join the local IMBY chapter. Perhaps greed is good after all?

Sydney’s problem is one of undersupply, which has driven price growth. Specifically, an under-supply in the established communities people desire to remain in. Of course, poor planning, decisions of expediency, easy credit and dual income families have also played their part in driving price growth. Something needs to happen within “the system” so that all these people – baby boomers, Gen X, Y, and Z – can be housed; a greater intensity of land use, especially close to commercial and employment centres; a drive to consolidate the larger land parcels in the suburbs to facilitate medium to high density housing would be a (good?) start.

For other retirees, this will be all too hard; another report (Sweeney, 2006) pointed to “aging in place” for reasons centred around emotional attachment and the notion of the “nest egg” for Gen Y children. Most retirees still remain active, and a “seniors’ needs” refurb of the family home is likely to be a distant expense, some 20 years down the track. Perhaps, in the instance where the land is sufficiently large enough, a granny flat extending the family nest to accommodate the kids (and grandkids) on a permanent basis – maybe they’ll even pay for it! – would be cheaper than the commute to the Sydney’s fringes, just as long as it leaves enough room for the Winnebago.

It looks as though we’ve highlighted the issues facing the medium term outlook for the baby boomers – or have we? The truth of the matter is that this is the demographic that has changed the rules to suit their changing needs, why should retirement be any different? There is no one simple answer; this is an issue of lifestyle choice and locality and some of these choices require change – both subtle and dramatic. BIS Shrapnel is looking to commence a study examining how the landscape will change, the effects on Sydney’s future housing market, supply and demand patterns, and any sub-regional socio-economic variations. It will flag the policy obstacles and highlight the desired dwelling types and locations.

All of this should be to the forefront of a manager’s mind; anyone involved in property – planning, development, investment, design, government policy, tourism … because the field is changing. New game, different rules. Are you prepared?

Read more: http://www.propertyobserver.com.au/residential/what-baby-boomers-retirement-will-mean-for-the-sydney-property-market-bis-shrapnel-s-martin-bregozzo/2012051354458#.T7BYQVdmcf8.twitter
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