Baby boomers unprepared for retirement

By Leith van Onselen

Yesterday, the Financial Standard Online published an interesting article warning that the baby boomer generation in Australia is unprepared financially for retirement, with many seeking to draw-down on their property holdings:

A whopping 86% of Australia’s 5.5 million baby boomers are, in varying degrees, financially under-prepared for retirement, according to research release by industry super heavyweight REST Industry Super today.

Dubbed The Journey Begins, the REST-commissioned white paper – based on the attitudes of 1,200 Australians approaching retirement – reveals a massive disconnect between what baby boomers expect their retirement to be like, and what reality has in store…

The survey also reveals a growing reliance on the family home to help close the retirement savings gap, with almost half planning to move house once retired, and more than a quarter expecting to downsize.

Equally surprising, Hill told the Financial Standard is the proportion of unretired over 50s – over a third – identified in the survey as now having (intergenerational) financial dependents.

“So they’re not only funding their own retirement, they’re also entering retirement with debt and/or funding dependents later in life, be it adult kids or elderly parents, ” said Hill…

The white paper reveals that only 14 percent of baby boomers feel financially prepared for retirement, 51 percent say they are somewhat prepared financially, while a further 35 percent described themselves’ as completely unprepared…

As noted previously (for example, here, here, here and here), the retirement of the baby boomer generation – defined by the Australian Bureau of Statistics (ABS) as those born between 1946 and 1965 and comprising around 25% of Australia’s population – is expected to have a significant bearing on the performance of the Australian economy and asset markets, particularly housing, over the coming decades.

Over the past 40 years, Australia enjoyed a demographic dividend from the large baby boomer cohort entering the workforce. This process generated a population structure optimal for economic growth, whereby the largest segments of Australia’s population were neither young nor old, but in the middle (i.e. working age).

This demographic dividend is illustrated in the next chart, which plots the ratio of the working age population- defined as those aged between 20 and 65 years old – to the non-working age population – defined as those aged under 20 years old and over 65 years old.

Between 1965 and 2010, the proportion of the population in working age grew steadily as the baby boomers entered the workforce. This process drove-up the ratio of workers per dependent (both children and the elderly), which hit a peak of 1.55 in 2010, up from only 1.12 in 1965.

However, in 2011, the oldest members of the baby boomer generation turned 65 years of age, marking the traditional end of their working years. According to projections from the United Nations Population Division, the ratio of workers per dependent is forecast to fall sharply over the next 50 years as the baby boomers enter retirement and Australia’s population continues to age.

The gradual retirement of the baby boomer generation is also likely to reduce the proportion of the population in paid employment, which should, other things equal, crimp income growth, the demand for assets, and the ability of the economy to maintain current high levels of debt. Already, the total employment-to-population ratio has been trending down since 2007, partly in response to population ageing (see next chart).

Arguably, one of the major areas that could be affected by the retirement of the baby boomers is the housing market, given the baby boomers own roughly half of the nation’s housing stock, according to the ABS (see next chart). As alluded to in the above survey, many baby boomers are likely to seek to fund their retirements by selling-down their housing assets, such as by downsizing or liquidating their investment property portfolios.

As noted previously, the contention that the baby boomers’ retirement will create headwinds for the housing market is supported by a detailed working paper released in 2010 by the Bank for International Settlements (BIS), which found that the baby boomers increased real house prices in Australia by around 30% over the 40 years to 2010, compared with what would have occurred had Australia’s age structure remained neutral. However, the BIS also estimated that the baby boomer’s retirement would reduce Australia’s real house price growth by around 30% over the 40 years to 2050, compared with neutral demographics, as they liquidate their property holdings (see next chart).

Like the frog that gets boiled slowly, demographic shifts are inherently slow moving, so their impacts are gradual and tend to go unnoticed for extended periods of time. Nevertheless, these longer-term dynamics are significant and are likely to significantly alter the growth trajectory of asset valuations and economies in the decades to come.

The full REST survey is available here.

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125 Responses to “ “Baby boomers unprepared for retirement”

  1. Revert2Mean says:

    Well written piece, thanks. This demographic issue is going to burn any hopeful new entrants onto the “property ladder to financial success”.

    “The dominant factor for business in the next two decades – absent war, pestilence, or collision with a comet – is not going to be economics or technology. It will be demographics.” – Peter Drucker, Harvard Business Review, 1997.

    • 3d1k says:

      Oh goodie, only five years to go!

    • emess says:

      Of course with boomers wanting to downsize to cash in on their property value, it will put upward pressure on the two (and then one) bedroom unit market. So someone starting with a unit in as nice an area as they can afford, may find that there is good capital appreciation in that unit as BBs retire…and suburban houses get a bit more affordable. Might be a winning strategy for a young couple.

      • GSM says:

        I think you are right on the money emess.

      • Failed Baby Boomer says:

        Yup emess, that’s the way I see it. I sold early to downsize and frontrun the boomer wave. My own experience and that of my friends is that the “intergenerational dependancy” factor is huge. So many boomers are helping children, grandchildren and parents, even though they can ill afford it.

      • Maz says:

        I hope so. My in-laws are empty-nesting in a 4br house while we’re in a 2br place with one child and another on the way. I don’t think they’ll ever move. It’s their right of course, they should be able to stay put. But it can be annoying when you think about the waste of space that’s going on in retirees’ houses while gen X have to cram the family into a 2br place…

        OTOH I am aware of some empty nesters who’ve already done the downsize, they get sick of cleaning a big place and storing half the kids stuff lol…

      • Greconomics says:

        They’ll move… eventually everyone moves, either to a retirement home, hospital or cemetery. It’s a certainty.

      • Maz says:

        Ok I didn’t mean to be so serious about the word “never”, but I can easily see them living there for another 20 years before retirement homes or cemeteries are on the cards.

      • Bubbley says:

        Good idea Emess.

        Make that either a ground floor unit or one with a lift for maximum boomer interest.

        Old knees don’t like stairs.

  2. PhilBest says:

    The whole effect of the demographic bulge on housing markets has been made more volatile by the problem with housing supply constraint. The boomers have done a lot more equity withdrawal spending than otherwise, and also relied more heavily on house value inflation than on saving, than they would have otherwise.

    The process in reverse may be more volatile too.

  3. Gunnamatta says:

    Good piece! Right on the money, and the Boomers need following generations to take out mega mortgages to get their payoff.

    Anyone taking out such a mortgage will find the value of the investment will ‘face headwinds’

    Dont buy now

    • Peter Fraser says:

      Oh it’s not just the Boomers, every generation since the first fleet has fallen short and Gens X and Y will be no different.

      • Gunnamatta says:

        So people should get out and take on that mega mortgage Peter?

        C’mon, you can say it…

      • Peter Fraser says:

        gunna are you on drugs.

      • bskerr2 says:

        Gunna is right, the property market for Melbourne is sick, as recession bites into Australia other states will slow down hitting their property markets. Baby boomers may start to jump ship at faster rates and sell down both in size and investment if they see housing prices slide faster.

        So as Gunna said, there is no point buying now, or put another way, way buy now, it’s safe enough to wait, there is no dramatic pick up in the economy here or over seas. So waiting is the best thing.

      • mlsc1974 says:

        PF

        Current older pensioners (non-BBs) seem to have made the transition well enough. I see my grandparents and their peers have transitioned well enough. The reason is they knew how to save and had more modest lifestyles. Unlike their kids (BBs) who are obsessed with living like ageing rockstars with Botox and Spa Treatments.

        So in my view current older pensioners are living lives they can afford with modest expectations – clearly this is a generalisation. Whereas BBs are going to go down this path, growing old gracefully is not on their agenda.

        So the BBs have set themselves up for a massive shortfall between expectations and outcomes.

      • Peter Fraser says:

        misc 1974 – I’m pleased to hear that your grandparents have saved well, but unfortunately they are not indicative of the norm. Try going into the small rural towns and downbeat suburbs and look at the retired couples who exist on just the pension.
        It’s a living, they can stay alive, but they can’t afford good medical cover, and they do need it in their latter years.

        Have you ever been into some of the downbeat nursing homes that are fully state subsidized?

        I have and it’s not pretty. People tend to think of retirees as active 65 year olds traversing the countryside in a grey nomad caravan, but that’s only for the initial years of retirement.

      • mlsc1974 says:

        A lot depends on the health of hte person in question. Another area where BBs seem to have under-invested. Fat alcoholics is my first impression when thinking of BBs.

      • disco stu says:

        A generation of locusts is what I think of them.

      • Peter Fraser says:

        Fat alcoholics? Locusts?

        What evidence do you have of that?

        I honestly don’t believe either of those outlandish claims.

        Why don’t you guys leave your personal bitter bias at the front door in future. Just because they own a house and you don’t isn’t grounds for distasteful envy.

      • disco stu says:

        Free healthcare – going.
        Job security – going.
        Free education – gone.

        They’ve happily lived off the sacrifices of their parents investment in infrastructure for 40 years. When was the last time there has been a major national infrastructure project undertaken in this country?

        Hell they haven’t been able to build a second international airport in Sydney despite jawboning about if for the past 30 years.

        Their solution? Lets sell off the existing airport to private enterprise, and give a green light for them and a bunch of political cronies to set up a ridiculous price gouging monopoly, sit back on their laurels and say “Hey, it must be all right because if it isn’t in Public ownership market forces must be at play and consequently everyone will benefit. Right?”.

        When it comes to re-investing in our future what is their solution? More user pay toll roads, underinvestment in public transport, selling off any few remaining public assets. Well I certainly feel richer for it – not!

        Oh and just when the rest of the generational spectrum can finally start to look forward to gaining the reins what do they do?

        Realising that their spend thrift ways have left them a little short of dosh for retirement, they set themselves up with golden parachutes that an Enron Executive would be proud of, by way of an overly generous superannuation system that will suck out just that little bit more $ from the system and help ensure their status as the biggest generation of complete none achiving free loaders that the world has seen in the past two hundred years.

        What are the baby boomers? Nothing more than a generation of procrastinating Bob Carrs.

      • Gunnamatta says:

        Fellas

        In case you are wondering what Peter means when he says ‘personal bitter bias’ (no he isn’t referring to Angostura)

        He is talking about anyone asking questions about why younger people (in particular) should think about taking mega mortgages to buy the properties off the boomer set.

        And dont forget he is talking book too…

        http://www.macrobusiness.com.au/2013/01/first-home-buyer-price-expectations-collapse/#comment-207936

  4. Peter Fraser says:

    Only 86% seems optimistic to me. It’s normal for retirees to be unprepared for retirement. Generations have had no plan other than to have their home paid off with a few dollars in the bank account and the aged pension – that was the plan.

    A friend asked me to estimate wht he needed to retire on a few years back and I told him – a fully paid off house, a new car and at least $700K in the bank – he had that so he retired when he reached 62.

    The problem is though he keeps all of his money in cash, and over time it will be stolen from him by inflation. He needs to mix his investments so that he earns better than bank interest with the possibility of some capital gains.

    But he at least made a great effort. It’s not easy to save $700K.

    • 21 years retirement (based on life expectancy from 62) on $700k would imply annual expenses of $50k p.a….equivalent to roughly $60k p.a. pre-tax.

      $700k sounds a big money till you try to spread it out over a few decades of retirement….

      Strangely enough those best prepared for retirement tend to be blue-collar middle and low income earners: many are used to frugal living, having slowing paid down their mortgage over 25 years of sweat….and when they retire mortgage free, and a bit of super and Age Pension starts trickling through, many are better off than when they were working

      • Maz says:

        That amount should be plenty if you have a paid-off house (no rent/mortgage) and the kids are out supporting themselves, and you start out with a new car (maybe only one more to buy in your life). In those circumstances I could get by on $20-$30k per year – though admittedly I live a pretty simple life. Bear in mind that most of the interest he’d earn on $700k would be tax free, so at rates of 4% he could live off the interest in the first few years.

        Not saying he’d live like a king but it’s enough to get by on.

      • Rusty Penny says:

        Where does this figure of $60k come from?

        People in the prime of their life often have that amount, with the added obligations of a mortgage and raising kids?

        Retirees shouldn’t be incurring either of these expenses?

        After they have ouright ownership of a house and the kids vacate the nest… how much does food, utilities and petrol cost?

        Someone is peddling an ultimately irresponsible figure of $60k p.a.

      • Neznam says:

        Vested interests are everywhere. Who benefits by suggesting you need to put more into your super ?

      • StevieRay says:

        …those best prepared for retirement tend to be blue-collar middle and low income earners: many are used to frugal living…

        Yes, I think you’ve nailed it there. The idea that you need $50k+ pa to retire on seems strange to me, if you are the typical retiree with your own home.

        Like most people I have aged relatives living comfortably on the pension. I haven’t heard any complaints, but they all own their own place. And none of them were profligates during there working years.

      • StevieRay says:

        Edit: their working years.

      • Peter Fraser says:

        Hi insight wealth – well that was for a couple, I should have stated that.

        It really depends on inflation rates as to how long your money lasts. You do get a better return with high inflation, but the purchasing power of the principal is ravaged in a decade at high inflation rates, and in the latter years the principal will be all they have left.

        It’s always difficult to put a figure on it, because you can’t know what will happen over the next two or three decades, but it’s always better to have a few too many acorns rather than a few too little.

        From your moniker, I would assume that you have exoerience in this field. Have you seen many wealthy people die poor because they didn’t allocate correctly?

      • drsmithy says:

        21 years retirement (based on life expectancy from 62) on $700k would imply annual expenses of $50k p.a….equivalent to roughly $60k p.a. pre-tax.

        Worth noting in this context is that the median income is just under $50k.

      • forty-niner says:

        those best prepared for retirement tend to be blue-collar middle and low income earners; many are used to frugal living

        That’s the point made in the book, ‘The Millionaire Next Door’. Often the rich people in a neighbourhood are not those driving BMWs, dining out regularly, wearing designer label clothes, kids at private school etc. …. The rich drive an average-joe car that is adequate for their needs, they collect savings coupons and look for specials at the supermarket, wear clothes from Target et al, spend holidays in a caravan park or camp grounds, entertain at home, kids do primary and all or part of high school in the public system ….

        http://www.nytimes.com/books/first/s/stanley-millionaire.html
        Note, book published 1996, so incomes etc. referred to in the article are dated.

  5. Sean G says:

    You can’t have an expectation in retirement of the same level of income as you did when you were working. What’s the definition of ‘comfortable’ anyway?

    The superannuation system in the last 20 years or so has instilled this mistaken belief that you can live just like you did when you were working – it’s a falsehood. You can’t have a Winnebago, overseas holidays every six months and sixty thousand a year – unless you were wealthy to begin with.

  6. Good article.

    Credit also has to be handed to REST for their report. These are problems that are clear and evident, however difficult to quantify without surveys like this.

  7. Explorer says:

    Immigration of young adults to attain population growth sufficient that there are ever more houses needed will work against what would otherwise be the demographic headwinds described.

    Do you really expect that government will do nothing in the face of the potential demographics headwinds?

    What do you think foreign students and their efforts to stay in Australia is about?

    • And delay the demographic shift for the next generation?

    • Explorer, even under the ABS’ high immigration/pop’n growth scenario, the number of oldies is projected to explode relative to the rest of the population (see chart here). This will create headwinds for growth and asset values.

      • Explorer says:

        Yes but the absolute numbers increase fast enough that more of everything is required so there is not less of everything required problem of a declining population.

        Sure there might be some dependency ratio headwinds, but there is huge hidden potential employment in the over 55′s to 65′s and even to the 70′s (but at a reduced rate). The dependency rate is overemphasised because of failure to allow for substantial increases in participation at times of otherwise full employment.

        Yes, it will defer the problem and leave it for another generation, as did our parents who left us with polluted rivers and sediments and air and ocean beachs which we have been cleaning up since the 70′s. They left us infrastructure capacity as well and, in your view it seems, the problem of increasing dependency ratios which they might have faced without the huge post war immigration.

    • Greconomics says:

      A “Big Australia” policy is political suicide…. also, why would anyone (except for older wealthy Chinese), want to move to Australia?

      1. High taxes
      2. Unnaffordable property
      3. High cost of living

      The US or Canada are much better desitinations for immigrants, particularly younger generations who have to work for a living.

      • Deo says:

        The US or Canada are much better desitinations for immigrants, particularly younger generations who have to work for a living.

        I wished you told me this 8-9 years ago.

        However, for the aspiring, young professionals in Asian countries the migration option is their only option to escape bad/corrupt government and racial/religious discrimination/persecution in their home countries. I guess I should be more selective back then :-(

      • Mining Bogan says:

        Scratch Canadia. Those poor sods are in worse shape than us.

      • manfin says:

        “A “Big Australia” policy is political suicide”

        Only if you’re as silly as Rudd and bring it to light. Howard did pretty well quietly opening the floodgates, while using refugees to make it look like he wasn’t in favour of immigration.

    • Mr Squiggle says:

      “Immigration of young adults” will not work against the headwinds.

      That claim is pure gibberish.

      Young immigrants have a head start in the aging process. They take a shorter number of years to reach retirement than domestically borne Australians.

      If Australia wants to limit its cohort of 65 year olds in 2045, the last thing we should have done is bring in lots of 30 year olds in 2010

      • SubZero says:

        Mr Squiggle: your argument is one-sided and ognores the enormous benefit in attracting skilled professionals as migrants (as Australia generally does – note I’m referring to the migration program, not the humanitarian program). All these migrants from say Sth Africa, India, China, etc are qualified, hard working and here to contribute. The benefit here is that Australian tax payers have not had to invest 1 cent in their skills base, and attract them purely because Australia is such a great place to stay. Hence, even if these migrants have a head start in the ageing process they still bring benefits in that Aus hasn’t had to invest in them. Which one is greater – the benefits or the costs of ageing? I don’t know. I suspect that kind of info isn’t easily avaialble.

    • PopulationParty says:

      Are the foreign students deported before turning 65? That is the only way they will not contribute to the terrible Australian disease of living longer lives…

  8. manfin says:

    I guess this is why I’m sitting in an office with belligerent old bastards who want to palm their responsibilities off at every opportunity.

    Picking fruit looks more appealing by the day.

  9. Neznam says:

    The sharemarket will also be impacted as the weight of money from super funds entering the sharemarket will slow and potentially turn negative.
    If 70% of respondents are drawing down on their super balances to fund their retirement then this is unlikely to be offset by new contributions.

  10. mark_naber says:

    Is it coincidence then that the “Workers per dependent” graph peaked at exactly the same time as Australia’s Real House Price Index? I think not and would even go so far as to say the one will correlate the other strongly.

  11. russellsmith55 says:

    (begin inter-generational rant)
    No problem at all, just get them all to buy property and build wealth ‘the old fashioned way’.
    But they don’t have the cash / working years to pay it off? So give them huge loans with little/no deposit and offer it at interest only.
    But gen X/Y stopped buying it off them at inflated prices – throw out some stimulus and lower interest rates until they do.
    They’re still not buying? Then we’d better bombard the media with predictions of ‘get in now or miss out forever’ and make it a social embarrassment to not own a home. Just don’t let the price of land fall until they give in.

    Or, crazy thought, perhaps they shouldn’t have given up the frugal lifestyles of their parents; instead of trying to live the debt-fuelled dream and pay for it with their children’s living standards. Gen Y’s like me are going to be paying much more in tax than they ever did to support their pensions AND have to retire later – buying property off them at inflated prices is just double taxation.
    (end inter-generational rant)

    • Deo says:

      Gen Y’s like me are going to be paying much more in tax than they ever did to support their pensions AND have to retire later – buying property off them at inflated prices is just double taxation.

      +1

      Don’t be so discouraged though, it is not only problem for Gen Y. Most likely some of the generation before (Gen X) after that (what Gen Z ?) will face similar problem due to BBs long lives and related pension/health cost needs. Plus the more recent young migrants hoping to get better life but instead facing tougher life will surely combine their voices in the future parliaments to demand some “remedy” from the BBs.

      If not, then Australia will lose the best and brightest of the younger generation when they choose to go finding better life overseas.

  12. buttwrx says:

    i turn 55 this year, have worked damn hard in 4 different professions (including a business in my 20s), and have just sold our mortgage free family home as I couldn’t see that the several hundred thousand $$$ we had tied up in it still represented a reasonable investment. Not in SE Qld anyway. By the time we paid over $4k in rates, plus insurance and maintenance costs it just didn’t add up. Yes, our generation enjoyed outstanding property value growth over the years BUT we had to come up with huge deposits before we could start. According to the abovementioned figures we could have long since retired but both my wife and I still work in professions we enjoy. As for our children and their need for mega mortgages….I’ve told them to sit on the fence before investing in property at present.

    • Deo says:

      Wise old man, you are.

    • Rusty Penny says:

      have worked damn hard

      Every generation works hard. No single generation has greater virtue in their work ethic.

      If you want to add more substance to the argument however, the 40 hour week was introduced in the late 1940′s by Ben Chifley.

      So it is safe to say that every generation prior the baby boomer and their parents, that everyone worked longer hours…. if you want to equate that with working hard.

      The norm in Australia now is most young feel compelled to work unpaid overtime, just to get noticed, or to add greater profit margins.

      So much so that Australians now work the second longest hours in the developed world. Saturday shifts are becoming increasingly common.

      So in other words, every generation after the baby boomers are working longer hours.

      Now as far as ‘requiring huge deposits’.. well yes, you were also limited to 3.5 times your wages in the size of the loan yes?

      With all this told, you had to save in the order off one years gross wages yeah?

      Do you understand how much more difficult it is for a youth of today to save one years wages, and then what sort of quality of purchase it entails compared to when you were purchasing?

      Please do not make this mistake, the youth of today are enduring hardship magnitudes higher than your generation did when acquiring shelter of their own.

      • buttwrx says:

        Maybe you should stop taking for granted what you read and actually talk to some living, breathing, BBs. You might find that most of us just want the same things, the best for our families and generations to come….
        I started work at 10 years old, working 10 hours a day on weekends pumping petrol for 15c per hour. At 17 I thought I had it made driving tractors on grain farms for $1.50 per hour, this was on old tractors no AC and a beach umbrella for shade if you were lucky. In my 20s I worked 70 hour weeks so we could ‘get ahead’. By the time I was 35 I was so physically worn out I decided to go to uni so I could get a less physically demanding job. I paid HECS like younger generations….
        Now, I could retire but I think I still make a positive difference for younger generations in my current job as a high school teacher….
        I think later generations are in for some ‘hard yards’ my grand daughter even more so than her parents…..
        When will our political leaders see the light, and formulate some REAL policy rather than selling off the farm and relying on Australia’s resources?

      • Rusty Penny says:

        Maybe you should stop taking for granted what you read and actually talk to some living, breathing, BBs.

        As opposed to having BB relatives, my parents friends, etc?

        You might find that most of us just want the same things, the best for our families and generations to come….

        Well they’ve done the worst job in history at it.

        No generation has incflicted as much harm to their youth than the baby boomers of the western world.

        Fiscal, environmental, social regression by destroying the middle class.

        I started work at 10 years old, working 10 hours a day on weekends pumping petrol for 15c per hour. At 17 I thought I had it made driving tractors on grain farms for $1.50 per hour, this was on old tractors no AC and a beach umbrella for shade if you were lucky.

        As what is the purpose of regaling us with ‘doin’ in tough’?

        I had my first job at 10 as a paper boy in Granville. The reason I earned greater than 15c per hour has more to do with currency debasement, and less to do with me getting more.

        In my 20s I worked 70 hour weeks so we could ‘get ahead’. By the time I was 35 I was so physically worn out I decided to go to uni so I could get a less physically demanding job.

        I’ve worked many long hours in my youth, but i would fathom it’d be less affordable for me to take a break at 35 that it was with you?

        Mortgage close to being paid of by 35 by any chance?

        I paid HECS like younger generations….
        Now, I could retire but I think I still make a positive difference for younger generations in my current job as a high school teacher….

        yes, you can retire, because resources have been channelled towards you.

        Resources are being channelled away from todays youth, that is the sources of much of your resources.

        it will also inhibit the likliehood of these youth retiring at your age.

        See how that ‘looking after generations to come’ seems a bit weak now?

        I think later generations are in for some ‘hard yards’ my grand daughter even more so than her parents…..

        I have no doubt about that.

        When will our political leaders see the light, and formulate some REAL policy rather than selling off the farm and relying on Australia’s resources?

        When baby boomers come to realise they have got more than the deserve.

      • Failed Baby Boomer says:

        Rusty, You have some good points on how BB have left behind a worse economy than they took over.
        I find that our biggest failure was not to live up to the ideals we had when we were young. We were angry and we were going to change the world into a better place. Kennedy and Whitlam (and other leaders) were our heros. I want to cry when I see what us BB have become, and how we have failed.

      • Deo says:

        the youth of today are enduring hardship magnitudes higher than your generation did when acquiring shelter of their own.

        I have long suspected that the demographic trend in developed countries where young generation has less children and therefore, creates problem of taxpayer shortage in the future is just another way of telling the BBs : F*** You. You want taxpayer support for your pension/health support, I’ll give you none ;-)

  13. raveswei says:

    The biggest problem BBs have is not lack of savings but lack of self-esteem and addictions to spending.
    Anyone who paid off house and got a new car recently can comfortably live with very little saving. 30k a year is more than enough.

    This trend of people “needing” 100k a year in retirement is a big sociological and psychological issue created by media, mostly during 60s and 70s.
    Significant number of people from that generation has been “poisoned” by media with the false idea that it’s much more important “to have” than “to be”. Many people identify their “value” with the value of thing they posses. They spend more, not (only) because then need to spend, but because they think they look “bigger and better” among their peers if they do. Shopping is not only a process of acquiring life necessities, not even enjoyment, but a way of feeding self-esteem.

    Large spending cuts in retirement will directly diminish these peoples’ own “value” and lead to lowering of self-esteem. This can lead to depression and other psychological problems.

    Very few of these people will downgrade without “lifestyle change” spin into it. Most of them will downgrade only if they move to “significantly” different area that offers “different lifestyle” so that they can claim that money is not the reason for downgrade.

    So “normal” city units will never be on the BBs’ wishlists.

    • Rusty Penny says:

      This trend of people “needing” 100k a year in retirement is a big sociological and psychological issue created by media, mostly during 60s and 70s.

      I would suggest the BB’s have this mentality because they are the boggest recipients of welfare payments in history.

      In fact, welfare has shifted, and been redefined to match them.

      The child endowment was introduced by Menzies as they were born.

      When they became of age to commence tertiary education, it become free (only for charges to be re-introduced once they finished).

      When they had kids, child care become virtually free (now at a rate approximateing 30% of the average after-tax income per child).

      When they needed housing, policies were put in place to ensure they were cheap.

      When they needed to boost their super, massive tax cuts were given.

      When this didn’t suffice, and they needed leverage to acquire lump sums, a land bubble was forced upon their kids.

      The only obligation that is required of this, is that when they are at their peak earning powers… 49-55, and when their kids start to leave the nest, in other words be a class of people that put money in, instead of taking out… they reneged with the huge level of tax cuts Howard gave.. to the point of strucutural deficit.

      Viewing this, the boomers have never given into the system, continuous CAD’s show this, they have never offered up a surplus.

      They have always taken out, someone elses money.

      This is welfare dependency, and they don’t know any better.

      They think their profligacy is normal.

      It can’t be challenged, it can’t be reasoned with, and no appeal can be made for fairness.

      • buttwrx says:

        rust Penny,unfortunately you seem to paint all BBs with the same brush…. A lot of us didn’t go to uni, we left school and began paying taxes in our teens. As for child care in my family one of us stayed home (rostered work hours around caring for a young family) we did without the ‘necessities’ of younger generations. At the age of 22 I owed the banks $60k in home and business loans when a nice home cost $35k. As for interest on these loans, do you have any idea what it is like to pay 15% on your mortgage? I still have a loan calculator ( yes sliding cardboard ) that doesn’t do calculation below 12%.
        As for policies to ensure housing was cheap what are you smoking?? Mortgage insurance didn’t exist, you had to have a proven SAVINGS record with that bank and needed at least one third deposit.
        Yeah and boost my super with massive tax cuts….as far as I’m concerned I have payed tax for the last 38 years at the going rate and most of that was as a middle of the road income earner.
        Handouts form the Govt…..nil bar a pitiful child allowance that was means tested and would have run to a total of a few hundred dollars.
        Welfare dependent? Never given into the system?
        Always taken out someone else’s money?
        DREAM ON !!

      • Rusty Penny says:

        rust Penny,unfortunately you seem to paint all BBs with the same brush….

        No I don’t, it is quite clear I am talking about the general goings on through a chronology.

        That by default makes it a generalisation.

        A lot of us didn’t go to uni, we left school and began paying taxes in our teens.

        Sounds a lot like people today who don’t go to uni, and get jobs in their teens.

        As for child care in my family one of us stayed home (rostered work hours around caring for a young family) we did without the ‘necessities’ of younger generations.

        Now this is the funny thing, you baby boomers must seem to think our memeories don’t exist prior to 2005 or something.

        From my experiences, and those of my peers…. I was there.

        I recall who had parents that had to work irregular hours, who had stay at home mums.

        The frequency of what may be described as some as a preferred family formation was much more acheivable back then.

        So while it may not be your case, it was the norm.

        As far as your mention of ‘necessities’, much of that is a hedonic factor.

        There may be more and bigger tvs, and mobile phones today… but a TV cost 3 weeks wages back then.

        The outlay on the toys that populated BB’s living rooms back then was a greater multiple than today.

        As for interest on these loans, do you have any idea what it is like to pay 15% on your mortgage

        Yes, in fact I would fathom I have a much greater understand of it that you do.

        15% on a mortgage that is twice my income is much less than 8% on a mortgage that is five times my income.

        I understand the mathematics here much more than you do, other than 13 months at the end of the 1980′s, you had it much easier.

        You also had the high inflation that goes along with the high interest rates amortise your loan.. which in other words is a free way of paying stuff back… other peoples money.. or welfare.

        As for policies to ensure housing was cheap what are you smoking??

        Well I’m smoking a big fat toke wrapped up in pages from a 1984 housing & planning policy outline.

        As I smoke it, I see what government was doing to ensure stable housing supply.

        Shit this toke is good!

        But no, policies when you purchased a house prevented any price run up to occur, therefore meaning you would escape debt peonage a lot of young suffer.

        It has been specifically put in place for younger generations so baby boomers could capture unearned gain in their major asset.

        Yeah and boost my super with massive tax cuts….as far as I’m concerned I have payed tax for the last 38 years at the going rate and most of that was as a middle of the road income earner.

        And this here is the rub of the green.

        Your generation ran budget deficits for most of that time and CAD’s for all of that time.

        All the money you put in taxes, has been spent.

        The roads your generation drove on, the military that existsed, the police that maintained order, etc, etc.

        All that money taken by government, has been spent, there is NONE left… that includes none for your pension.

        Welfare dependent? Never given into the system?

        yes, the baby boomers have always been a net beneficiary of fiscal policy.

        They have never been a group that said ‘we will take out less than we put in’

        Always taken out someone else’s money?

        Do you know how debt works?

        There has never been a current account surplus in your life time. Other people’s money, even if from overseas, has propped up BB’s level of spending their entire life.

        Now as made clear at the top it is a generalisation from observing the aggregate, you may not have been that person and if you weren’t I see no reason for the sensitivity.

      • Rusty Penny makes a genuine contribution, identifying how economic biases were constantly shifted to advantage the BB generation for 50 years. This isn’t cohort resentment, despite PF’s attempts to diminish the argument by seeing it as such.

        RPenny’s resentment is about the continual rule changes that advantaged BB’s, all through their lives. The WW2 Stoics and Gen X should hate this group because of these endless subsidies.

        That Santa beard you see on a Harley at the mall, he thinks he is Peter Fonda, age 23.

      • Bobby Fischer says:

        Best comment of January thus far.

        Well done. A clinical dissection.

      • Peter Fraser says:

        Rusty doesn’t understand anything except the politics of pain – and he is.

        Rusty the boomers didn’t commence their working careers under Chifley – you are simply making it up as you go to suit your narrative.

        You knw that Gen X were working during the Howard years – how much of this stuff do you assume?

        Never let the truth get in the way of the blame game and pretence at victimisation.

      • Rusty Penny says:

        Gunna: 1 – PF: 0

      • Peter Fraser says:

        LOL – that will be the day.

      • Geoff Burns says:

        “As for policies to ensure housing was cheap what are you smoking?? Mortgage insurance didn’t exist, you had to have a proven SAVINGS record with that bank and needed at least one third deposit.”

        Aren’t they policies that ensure cheap housing?

        Just cause it’s easier to get a loan now it doesn’t mean housing is cheaper or that life is somehow easier. It just looks that way if you’ve grown up thinking ‘the more you can get the earlier is better’, disregarding questions of how much and who it costs.

      • PhilBest says:

        As I keep saying: back when house prices were low and interest rates high, inflation was also high, so the loan principal was “inflated away” as wages rose along with the general price index.

        Then inflation was beaten, interest rates dropped, and the lucky generation refinanced their by-now-piddly loan at LOW interest rates as well.

        No such luck is going to come the way of the recent-buyer mortgage slaves.

      • Peter Fraser says:

        Geoff – houses were far harder to buy back then, although cheaper.

        Some people were disadvantaged then, and some advantaged – just as it is now but in a different way.

      • raveswei says:

        What buyers are advantaged today?

      • Peter Fraser says:

        The market is a lot easier to get into raves. Having a good deposit and a good job wasn’t enough years ago.

        Each period has both blessings and curses.

      • Mav says:

        The market is a lot easier to get into raves. Having a good deposit and a good job wasn’t enough years ago.

        In other words, people then had to save a sizable deposit before they jumped in to buy a home. Saving for a deposit also eliminated most of the leveraged speculators from the market.

        Your idea of a “good deposit” is probably a pathetic 5%.
        No wonder the market is a lot “easie”r to get in. Why, even NINJAs got a home in the US. But the point is that such a market is not sustainable, it is a deck of cards.

        Each period has both blessings and curses.

        Yep, it’s been a golden period for the merchants of debt and leveraged speculators. and no, they are certainly not a blessing (as GFC showed)

      • Peter Fraser says:

        mav if I believed for a moment that you could discuss this intelligently and without irrational emotional outbursts I would happily debate, but sadly history tells me that it cannot be so –

        bye…..

      • Gunnamatta says:

        Hey Mav, Peter doesnt discuss issues like debt and its contribution to the real estate malaise in Australia.

        he is a literary critic

        And dont forget he is talking book too…

        http://www.macrobusiness.com.au/2013/01/first-home-buyer-price-expectations-collapse/#comment-207936

      • Mav says:

        PF, history has taught me that you have a tendency to run away from from a debate, citing the other person is either:
        a. irrational/emotional or
        b. straw manning (e.g. with Gunna yesterday). or
        c. citing anecdotal information that is not true (even as you do the same)

        So skip your usual excuses and reach for the wine bottle, for I am not interested in a debate with you – just interested in exposing your vested interest in pushing a particular narrative about taking on more and more unsustainable debt.

      • drsmithy says:

        What buyers are advantaged today?

        The same ones that were advantaged then. :)

      • raveswei says:

        @ peter

        “Having a good deposit and a good job wasn’t enough years ago.”

        Having good genuine deposit and a good job was enough because that was the only criteria back then. Now the market is a lot easier to get even without good deposit and job.

        So the only buyers that are advantaged today are over-leveraged speculators and NINJA’s

      • raveswei says:

        I just want to comment on “do you have any idea what it is like to pay 15% on your mortgage?”

        Paying off loan equal to 6 times annual income with 5% interest rate is four times more expensive (in real terms – wage terms) than paying off mortgage loan equal to 3 times annual income with 15% IR.

        Repayment on loan with 15% interest with repayment equal to 50% of wage income at the start, drops to 25% of wage income in just 5 years.

        Loan with 5% interest with repayment equal to 50% of wage income at the start, stays above 40% of income for more than 10 years. Even the last repayment after 25 years is still above 25% of the income.

        BTW. high deposit requirement makes homes cheaper.

      • PhilBest says:

        Absolutely, you make the same point as me in a different way. Are you taking the rate of inflation into account too, in saying that the payment drops relative to income?

      • Peter Fraser says:

        except Phil and raves you may not have bought when rates were that high, and you didn’t expect them to double, so meeting the repayments that had doubled didn’t make it any easier.

        Think through the whole equation, not the superficial aspects only.

      • raveswei says:

        @ peter

        Rates were above 10% more than 15 years before they hit 15%. So if somebody bought at the lowest rate before (10% rate in late 70s) principal was reduced to almost zero by the time rate hit 15%.

        Your argument that rates may double and make life even harder just supports the theory that is significantly harder to buy now (rates may only go up in future) that what it was for boomers.

        Either way you look, boomers were advantaged over their children.

      • Alex Heyworth says:

        Either way you look, boomers were advantaged over their children.

        In house prices, yes. However, the price of just about everything else has halved in real terms since the last boomers reached working age. Not to mention that many of the boomers have spent a good deal of the money they saved on cheaper housing by providing far more for their children than they were ever given themselves. Most of the stuff I have bought for my kids didn’t even exist when I was growing up. If it had, my parents certainly couldn’t have afforded it. My mum had to wash clothes in the bath for two years when the washing machine broke and they couldn’t afford to replace it.

      • raveswei says:

        @ Alex Heyworth

        For the other stuff you mentioned, new generations should be thankful to engineers and scientists not the parents.

      • Alex Heyworth says:

        raveswei

        Sure, but by the same token they shouldn’t be crying poor and beating up on their parents who never had all that stuff.

      • Peter Fraser says:

        It’s the blame game Alex – politics of hate.

        No one is allowed to fail, and if they do it must be someone elses fault.

    • steve99 says:

      ”Significant number of people from that generation has been “poisoned” ”

      Rubbish! most of us read or hear this shit on TV/radio and think a: What a load of crap, or b: which planet do these people come from.
      We could say with the same validity that every gen Y fully expects to become a ‘celebrity’ and will be devistated if not.
      Me and Wifey live on less than $25kpa, squirling away every penny for retirement. Have litte expecation of inherritance or other windfall and bugger all expectation from superanuation. (and no speculative property holdings, no no any BBer friends that do either unlike our genX siblings)

      • raveswei says:

        That’s why you are not part of that “Significant number of people from that generation”.

        The fact that you or some other people are not “poisoned” doesn’t changes the fact that large number is.

      • Mav says:

        Ok, how many baby boomers do you know who do not own an “investment property” ?

        Most of those I know have at least 2 IPs. Hence the generalisation.

  14. StevieRay says:

    The ABS has quite a neat little visualisation of the population pyramid at http://www.abs.gov.au/websitedbs/d3310114.nsf/home/Population%20Pyramid%20-%20Australia.

    Interesting to see that the largest cohort at the moment (2013) is centered around age 27, 2nd largest around my age (40), and 3rd is the 65 year olds.

    Of course, population numbers doesn’t equate to housing ownership. But given some commentary you’d think that the 65 year olds were a much bigger cohort than they actually are.

    • forty-niner says:

      Good link.
      I’ve never thought about how many other “me” there are in Aus (same age, gender).
      Fewer than I would have guessed.

    • willynilly says:

      Mmmm. but the percentage older than 65 as you progress through the animation, should be your focus. Not any one particular age.

  15. ceteris paribus says:

    Old boomers never retire. They turn their spare bedrooms into communes houses and their yards into market gardens.

  16. Alex Heyworth says:

    Pity this thread turned into a boomer-bashing exercise. If you are the child of a boomer, much of the boomers’ so-called profligacy was spent on you.

    What I would really like to see is which boomers think they are unprepared for retirement. Is it those retiring now, or those retiring in 15-20 years time? Or is age not a factor?

    • Peter Fraser says:

      Yes Alex, that would be interesting. One would think that the more years had with compulsory super the better off they would be, but that might not be the case.

      It is regretful how these threads end up, I agree.

    • StevieRay says:

      The BB hating going on in this thread is ridiculous, seeming to imply that anyone of that generation were somehow responsible for policy of the day.

      By that logic, are all members of younger generations now responsible for today’s policies, like the debacle of housing affordability? No, these same commentators are suggesting that too is the BBs fault.

      The whole idea of classification of people into generations is just dumb and lazy. We can agree that policy settings need looking at without denigrating whole swathes of the population.

      Where’s the ignore button!

      • Peter Fraser says:

        Time for a coffee Stevie, and take 10 minutes out to smell the roses.

        The cargo cult version 2 is in town.

      • StevieRay says:

        But it’s so much fun getting irrationally irate about other people being irrationally irate… :)

      • Peter Fraser says:

        Oh – you’re here for the jousting contest then – it’s well underway.

        Best of luck…

      • StevieRay says:

        For what it’s worth, I am what others would call ‘gen-X’, though I prefer to think of myself as 1972 cohort.

        And I agree that policy settings in this country have dealt new property buyers a raw deal. I bought a house in 1993 for a lot less than I could now, but it is at the bottom of the Adelaide market and I feel blocked from upgrading as my family grows out of my basic 3×1. So I’m all in favour of market correction and policy changes to prevent asset price inflation.

        But what I dislike is this ‘boomer’ hating. How many people in this demographic had any say in the policies that have brought us here?

        It sounds like pure envy and resentment to me.

  17. PhilBest says:

    If the boomer generation is unprepared for retirement, what happens to the poor saps from the current generation who never afford their own home at all?

    Here is the NZ Retirement Commissioner talking sense about it:

    http://www.interest.co.nz/property/62437/housing-affordability-looming-retirement-income-crisis-retiring-retirement-commission

  18. Neznam says:

    Quite a lot of respondents were planning on having part-time work in the period leading up to retirement. They are going to be in for a shock. Based on the current situation there won’t be many part-time jobs available for them, particularly jobs in senior positions.

    They will be caught in a bind where they want to work part-time, to ease into retirement, but cannot due to their not being part-time jobs available. Also, they will not be in a position to risk leaving a perceived more secure full-time job for a part-time job.

  19. myne says:

    I can name three people who should be totally expecting this.

    Paul Keating: who originally planned for, and had union agreement for superannuation to reach 15% to “front load the boomer retirements”.

    John Howard & Peter Costello: who changed the law to stop superannuation from rising above 9%.

    Good work Johnny! You royally screwed over your base!

  20. PETER_W says:

    Financial represion is a wealth transfer mechanism.

    The mechanism in China/Japan/USA/UK is the deposit rate

    The mechanism in NZ & Australia is housing

    See it for what it is…

    179,500 HNWI total in Australia

    http://www.au.capgemini.com/resources/news/asiapacific-surpasses-all-regions-with-the-largest-high-net-worth-population/

  21. willynilly says:

    Generation Theory is hardly ageism.
    The full paper contains several interesting stats about inheritance.
    https://rest.com.au/Employee/Journey-Begins-White-paper

  22. willynilly says:

    When using outright ownership rates for residential property, the boomers have gone backwards.

  23. cyrusp says:

    Thank God for guys like Leith, Rusty Penny and Mav for sticking up for the younger generation.

    When are you guys going to start a political party?

    I’d vote for you in a heartbeat.

  24. VP says:

    +1 Rusty Penny.

    Have a read of the Economist article ‘Sponging Boomers’ which estimates the net tax burden of different generations:

    http://www.economist.com/node/21563725

    • Alex Heyworth says:

      Closing remark is telling: “sooner or later, (the boomer generation) cannot escape the maths.”

      What cannot happen will not happen.

  25. VP says:

    “The boomers are leaving a huge bill. Those aged 65 in 2010 may receive $333 billion more in benefits than they pay in taxes (see chart), an obligation 17 times larger than that likely to be left by those aged 25.”

    http://www.economist.com/node/21563725

    • Alex Heyworth says:

      In the US. The Australian figures would be very different. I wonder if anyone has done similar calculations for Australia?

  26. Alex Heyworth says:

    The solution to the “demographic demon” is in the hands, or should I say the wombs, of Gen X and Y women. Get the fertility rate up to 2.2 plus and the problem is at the least greatly diminished.

    • Gunnamatta says:

      Sure, but seeing as they are generally better educated, you can be fairly sure they will hold off on having kids until later (I did and I am Gen X) and for those who are looking at a 250-250K mortgage…….

      Would they want to add a kid to that commitment?

  27. Alex Heyworth says:

    A useful and timely riposte to the baby boomer bashing by Susan Ryan: http://www.abc.net.au/unleashed/4468486.html