Eighteen years ago I wrote a breathless little book about Boomers and how the showdown moments would come in 2015. Because I’m so easy and enjoyable to ignore, everyone blanked out my warning, despite the book selling vast numbers.
My thesis was simple. By two years from now our built-in demographic time bomb would cause real estate values to crumble and financial markets to rise. So far, I’m right on track. Some things, like hormones and senators, are so easy to predict.
This year, as I’ve recently mentioned, two big deals happen. 2013 marks the first time half a million people will turn 60 – an event which will be repeated for seven more years. And it’s a milestone because the number of wrinklies (>55) exceeds the number of kids (<24). So, after 2013, expect nothing to stay the same.
Hell, it’s already happening. The latest numbers are shocking.
A big poll (3,000 people aged 30 to 65) has just found the number of Canadians thinking they can retire at 66 is 27%. Five years ago it was 51%. Almost 75% of people now say they’ll have to work full or part-time until they drop, and 15% aren’t sure. “That’s really something to reflect on. You have three-quarters of the population thinking about the very real possibility of working past what we’ve always through was the traditional retirement age,” says the president of the company doing the asking (Sun Life).
And while these guys have a vested interest in scaring the poop out of folks, then managing their money, facts are facts. Most people in the Boomer cohort are as screwed in 2013 as I thought they’d be back in 1995. Over the years net worth has been concentrated in residential real estate, augmenting risk.
Ironically these people thought they were avoiding risk, after being blown up by Nortel, the dot-coms, the 2008 GFC, followed by the collapse in interest rates. They dramatically reduced RRSP contributions, squandered their TFSAs in savings accounts or bonds, fled equity markets, and systematically lost money by sticking billions in the orange guy’s shorts. Many just kept clawing up the property ladder to the point where a third will retire with both a mortgage and protective underwear.
This is all unprecedented. Old people with jobs, home loans, scant savings, rare pensions and money troubles. It’s almost like we’re vaulting back in time to the 1940s, but with iPhones and Viagra. Weren’t all these Boomers born into an era of unbridled economic expansion, prosperity, growth, inflation and opportunity? Sixty years later, how can so many be so unprepared? Did they believe that forever young stuff?
Obviously. And this brings us to what happens next.
Unlike what many house-pumpers on this site believe, millions of these wrinklies will have no choice but to sell their homes, downsize, cash out, rent or move in with their kids. The deceleration in the housing market will be palpable – the opposite effect to that which Boomers had on real estate in the Seventies and Eighties. This should be self-evident to everyone, and now’s the time to prepare. Near-retirees who refuse to cash out in the next year or two will pay a heavy price, as will the thirtysomethings who buy too early, or have made the identical error – putting all their net worth in one uncertain asset.
Conversely, those people who understand that financial assets will likely thrive, and embrace balance, diversity and liquidity, stand to profit. This includes everything I’ve suggested – a balance between growth and safe securities, the right mix based on geography or sector, no individual stocks, no mutual funds, and lots of tax avoidance.
By the way, the Sun Life survey found a third of people now understand they’ll outlive their money (actually, it will end up being about two-thirds), and think having $385,000 in retirement savings is the goal (multiply that by three). The average retirement lasts 18 years. The average nestegg runs out after 11 years. Half of all people in their fifties have saved less than $100,000, and the average RRSP contribution is just $2,800. But 70% of people own houses.
I could go on, but I’d rather not. If you don’t see the problem, you’re in it.
This week, just before the RRSP deadline, I’ll review a few moves you should know about. Don’t tell your realtor.