Attention boomers: Why demographics threatens your retirement

An entire generation might start selling soon…


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One of the more worrying aspects of population aging is its effect on the prices of assets that many people are counting on to support them in retirement. For example, many Canadians may be planning to sell their house when they retire, buy a less-expensive condo and deposit the difference. The problem is that if a large wave of people retire and execute this strategy at the same time, the flood of new supply on the housing market will depress prices, thus reducing the value of the housing assets that were supposed to finance their retirements.

The run-up in housing prices over the past decade has attracted a lot of attention in this regard and led to worries that Canadian households’ balance sheets might be over-weighted on housing. But it turns out that much of the surge in the 2000s can be seen as a recovery from what was a very dismal market in the 1990s (see also this WCI post). Housing’s share of household assets did increase sharply during the 2000s, but this ratio still hasn’t recovered pre-1990 levels and remains below what it was in the 1970s. (Data are taken from Cansim Table 378-0051.)

The same holds for another type of asset: shares. Shares were 10 per cent of household assets for 20 years and doubled to 20 per cent during the mid-1990s, an increase that appears to be driven by higher stock prices, not by an increase in the number of shares held by households.

The next graph traces the evolution of the TSX and the S&P 500 stock indices, corrected for CPI inflation. The data are then scaled by their averages over 1960-1990, and are expressed in natural logarithms (logs). (The reason for taking the log transformation is that it makes the relative size of the changes more readily comparable across time: going from 10 to 20 generates the same movement in the graph as going from 100 to 200. For small changes, 100 times the difference in logs is approximately the same as a per cent change.)

In the 40 years before the mid-1990s, (real) stock prices fluctuated in what in retrospect looks like a fairly narrow band and without any discernible trend. But something happened twenty years ago that more than doubled share values in real terms. What?

There are many models and theories about the determinants of asset prices, but I can’t think of any whose fundamentals would explain increases of these magnitudes. There was the tech bubble during which fundamentals were abandoned, but the broader indices stayed high and continued to climb after the bubble popped.

The story that makes the most sense to me is demographics. In the mid-1990s, the baby boom cohort started entering its late thirties and forties—prime earning years—around this time, and they began to save for their retirements. This meant buying up assets, either directly (by means of individual plans such as RRSPs) or indirectly (by managers of pension plans). Demand outpaced supply, so prices increased.

But what will happen when the boomers start to retire? Will the process reverse itself, with a wave of selling forcing down prices and wiping out a generation’s retirement savings?



Attention boomers: Why demographics threatens your retirement

  1. Yes, it sucks to be a boomer…but, try coming after them. Those currently in their 30’s and 40’s – “prime earning years” – can expect to buy high and sell low as a result. All told, the plague of boomers continues to hurt the next generation.

    • If Boomers bought high and sold low, your generation would get cheap houses…. so stop complaining.

      The youngest Boomers are currently 47

      • And those of us at the tail end will be left with squat once the ones at the front of the line cash out. I realized this years ago; it’s not exactly news (though definitely depressing to realize).

        • So sell earlier….but either way, you gotta live somewhere. What you want is to make a killing…..and then buy a cheap condo. This doesn’t happen for anybody.

          The only difference this time is that so many boomers will be selling at once, that we’ll probably have a glut of houses and the price will fall.

          High house prices have been complained about for years.

          • It’s not the house prices; I have a modest place. But it is already nearly impossible to even earn the inflation rate on investments; I lose purchasing power with every dollar I “invest”. (It’s no wonder RRSP savings are so low.)

            As the boomers ahead cash out their RRSPs, market stocks will drop and my “savings” will rapidly disappear.

          • Most boomers don’t have RRSPs, even have mortgages and other debts….have their kids moved back in with them, or are devoting much of their money to helping out their kids.

            It must have been those Freedom 55 ads on TV….hokum even then….about how all boomers could retire rich…..simply not true. For many of them it’s more likely to be Freedom 85.

          • Freedom 85? If I’m lucky…

        • I also believe public sentiment will turn against the boomers as the younger generations have their social programs stripped, and come to realize that the boomers ran up the debt, then cashed out on everything they could, leaving the cupboard bare.
          And just wait until the bill for ignoring the environment comes due….

          • LOL whiney-ass kids these days.

        • You sound like me 40 yrs ago. I was always whining that there would be no pension for me when I retired. Well lo and behold there is pension there for me now.. Just as there will be for you as well when your time comes Keith. Don’t worry.

      • No, he said that the ones who come after are the ones who are stuck buying high and selling low. The boomers are the ones who will be driving the prices both up and down.

        And it’s not really feasible to say, “Well just move quicker” because things like marriage, kids, etc ain’t happening when they’re 12. They can’t retire early because they haven’t had the time to build the resources, and the time they *have* had has already been dealing with the higher prices for everything that the boomers have put in place.

        The other option is to hold off and buy everything later.. also not really feasible because they can’t just disappear to another dimension for a decade or two — they still have to live. If anything, this rash of kids moving back in with their parents is really the after-boomer’s attempts to do just that — hold off until they can afford it. And those who do this we regularly scorn.

        • It doesn’t matter when you’re born…..if you sell your house at the top of the market…..you’ll be buying [or renting] at the top of the market. Unless you want to live on the street till prices drop!

          Boomers also complained and whined….there were tons of us, and few jobs. The older generation still had em! There weren’t enough schools. Houses were also scarce and pricey. Boomers couldn’t move back in with their parents, so they joined communes and such.

          Boomers were hippies into their 30s….people thought they’d never grow up…but once boomers got an education and some smarts they started to kick in …and became yuppies!

          Every generation thinks they have it tough….maybe because they figure it’ll be an easy ride, and then Life happens.

          Of course I’m sure being born so you hit the right age for two world wars and the Depression wasn’t much fun either.

          Trick is, to stop whining and get on with it.

          • You’re completely missing the point. Yeah, if you have a house, then when you sell, you’ll be no further behind or ahead.

            But when you first move out, if it’s the top of the market, well.. that’s when you buy. If the market drops, well.. you’ve still got the debt from the top end to deal with, and no decent way to get rid of it. So even if the other houses are cheaper, you’re still screwed.

            But hey, maybe mom and dad will pass on and you’ll get a house through inheritance. Except now it’s the bottom of the market and even selling that house can’t make up for the premium you paid because you happened to be born at the wrong time.

            As for the job situation, yeah, the older generation had the management jobs, but as you say, there were a ton of you guys, that’s a huge amount of demand, for which that older generation needed workers to fulfill.. so you had the chance to get experience and move up the ladder.

            As that generation continues to age, we find the same thing, older workers are still in the jobs, yeah, but now demand is starting to shrink, so even though there’s going to be a wave of retirements, it’s going to come along with the companies needing less people over all because demand will be dropping too.

            Sure, every generation has its challenges. The post boomer generation though, is one of the few where their standard of living will be worse than the boomers themselves, and especially in their elder years, where they’re likely to catch the flack of the generation that came after THEM being pissed at how the old people took everything.

          • Well hippies didn’t demand much, not clothes….not even haircuts.

            The older generation had ALL the jobs, not just management

            Yup, demand goes up and down, so does population, so do jobs….MY point is that this isn’t much of a problem….a rich country problem in fact, compared to what goes on in the rest of the world. Lots of countries didn’t have a baby boom.

            Boomers here though screamed and whined as well….yet we made it all the same. So will Gens X,Y, Z and beyond.

          • Hippies didn’t demand much? They demanded drugs, sex without condoms, and non-stop partying. Then after they cut their hair they had a middle class job waiting for them despite smoking weed every day during college.

            Hippies had it better than anyone else before them in history, and anyone that has come after them. Hippies had it MADE. Most spoiled people in history.

            After they sobered up they created the drug war to ensure no one would ever have that much fun again. Typical boomer move–pulling up the ladder behind them.

            Life won’t actually go on, either, Emily. Have you heard of climate change? The most conservative projections anticipate apocalyptic levels of destruction of our planet, to the point where the survival of the species is threatened by boomer inaction.

            Life doesn’t go on when you destroy the planet, Emily.

          • LOL sonny, you’re way too young to know anything about hippies….and it shows.

          • You argue like a boomer. All narcissism and condescension, no facts and no arguments. Boomers are hypocrits first and foremost–they are anti-authority, until THEY get into authority. Then they claim the power for themselves.

            The legacy of the boomers has already been written by historians. It’s called the destruction of the planet through greed and climate change. It’s called crashing the economy while giving all the money to billionaires.

            Is “young” and insult to you, Emily? Aren’t you a Boomer, one of the old people obsessed with perpetual youth? The generation that invented plastic surgery and spends all their money on private consumption instead of creating a future for the human species?

            Yep that’s you.

          • LOL sorry, I was never a hippy. I joined the military, got married, had kids.

            Hippies were green ….back-to-nature and all that. Make love, not war….nuts and berries….lived in communes, hated the Establishment…..not my kind of people.

          • I didn’t say you were a hippy. The insult that I directed at you was “boomer”

          • It’s not an insult…..just everyone born around the world between 1946 and 1965,

            The youngest ones are currently 48….millions of them.

  2. To answer your question, my guess is “yes”. But personally I thought it would have happened by now. In fact I think it did start to happen, but governments in Europe and the US have re-inflated the stock market with debt to delay the inevitable even longer.

    I don’t think that young people are earning enough in Europe and the US, or there are enough young people to make up the difference (ponzi-style), to sustain the asset prices that has/had been built up in the 90s with stocks and the 2000s with housing.

    What started as a run-up in prices cause by demand ended up morphing into a further run-up in prices sustained by debt in both stocks and housing. Eventually both the debt and the demand will dry up. However, it’s hard to say just how much and when.

  3. We have boomers at my job. They make $10 more an hour the their pension. They complain the job market is hard for there children and they are eligable for retirement. I understand the market will rise and fall with the flood of retirees. But its uncontrollable and its the next generation thats suffers. Its sucks people and times are hard now. Get old men out of office and a caring structured young men in. The mayor where i am is turning my city into a retirement city. Once we figure that. It will reverse. Most definately.

    • “Get old men out of office and a caring structured young men in.”

      What kind of a statement is this? Logic, spelling and grammar all seem to be absent from this comment. I hope it is not reflective of your generation as it may limit your ability to advance.

  4. blah blah blah
    Twenty years ago we were told that due to the lower birthrate, the demand for houses would fall off a cliff. What happened? Well, fewer people live in each home now instead. Take these predictions with many grains of salt.

  5. As we mature we need to learn to restrict our demands, particularly our wants. There is no need to be concerned about what the “financial soothsayers” predict. How many times have they been correct? Lets hope our political leaders learn to manage and balance and develop some vision. Their moral strength can bring about peace and that’s what we all need the most. Life is good for all if our attitude is good.

    • “moral strength” and “political leaders” in the same thought is frightening if not contradictory.

  6. I believe that reverse mortgages are going to become a vital part of every person’s retirement plan. Health care costs are rising quickly and people aren’t saving enough for retirement. Something will have to give. To learn about a reverse mortgage check out this free resource I’ve put together: http://www.ReverseFAQS.com.

  7. I think most of this article is good, but they missed the boat on who ran up the housing market in the last 10 years, it wasn’t the boomers, it was the boom echo (their kids). In the 90’s you had 5 family members in 1 house (2 boomers, 3 boom echoers), now those kids have all moved out and many of them bought a house via bidding wars which drove up the price of homes. Same 5 people now spread across 4 different homes. What really compounded the run up was low interest rates which gave the same monthly mortgage payment in the 90’s 40% more buying power in the 2000’s which allowed the crazy bidding wars to proceed in the first place. Don’t get me started on Harper’s brilliant plan to extent the mortgage amortization period which tossed more fire on the flames.

  8. Not one word about how foreign RE speculation is affecting RE prices. It’s the elephant in the room.

    • 100% agree. Why are huge numbers of non-canadians allowed to buy our condos and houses when someone like me, a 35yr old, with a degree and employed FT still has to rent a crummy place b/c I’ve been outpriced in the market! WTF?

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