The coming inter-generational war

By Leith van Onselen

Stanley Druckenmiller, founder of Duquesne Capital, has given an excellent interview on Bloomberg Television’s “Market Makers” on the global economy, the demographic bubble and politics. The above video is an extract showcasing Druckenmiller’s views on the coming demographic challenge in the US, whereby the ageing of the population and transfer payments to the elderly (paid for by a declining tax base) threaten to permanently constrain the US economy and create an inter-generational war.

For added context, Doug Short provided the below charts over the weekend illustrating the ageing conundrum facing the US.

According to Short:

The year 2013 is an inflection point in the chart above, with the elderly cohort dramatically increasing in numbers. The ratio of the two, the blue line in the chart, peaked in 2007 and began its long rollover in 2008, coincident with the beginning of the last recession. We have many years to go before this ratio approximately levels out around 2030.

Even more disturbing is the elderly dependency ratio, the label given by demographers to the ratio of the 65 and older population to the productive workforce, which for developed economies is usually identified as ages 20-64. The next chart illustrates the elderly dependency ratio with Census Bureau forecasts to 2050. Note that in this chart I’ve followed the general practice in demographic research of multiplying the percent by 100 (e.g., the mid-year 2013 elderly dependency ratio is 23.3% x 100 = 23.3).

As the chart painfully illustrates, the elderly dependency ratio is in the early stages of a relentless rise that doesn’t begin to level out until around 2036, over two decades from now.

According to the United Nations, Australia’s demographic profile is very similar to the US.

The below chart compares the dependency ratio – i.e. the ratio of the non-working population, both children (< 20 years old) and the elderly (> 65 years old), to the working aged population – in Australia versus the US. As you can see, the dependency ratios fell steadily in the decades to 2010. However, in the decades ahead, both countries’ dependency ratios are projected by the United Nations to rise steadily as the baby boomers retire and their populations age:

It’s a similar story when the number of working-aged people (i.e. those aged between 20 and 65) is compared against the elderly (i.e. aged over 65). The ratio of working aged population to the elderly is projected by the United Nations to nearly halve by 2035 (see next chart).

Similar demographic constraints are coming to our shores as well.

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Unconventional Economist

Leith van Onselen is Chief Economist at the MB Fund and MB Super. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.

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Comments

  1. Bernard Salt normally spouts self-indulgent rubbish, but his column on Saturday about this was pretty good. Politicians will pander to the boomer mob and tax the rest of the population without mercy, but the boomers will still not have the retirement they expected.

    • No. Bernard is a long-time spruiker for Big Australia. Its just another way for him to promote population growth, which is the ultimate Ponzi.

  2. There’s no ‘coming’ about it, that huge demographic bulge has been wending its way though society for decades, wreaking havoc in the most recent decades in the housing sector, inflating anything and everything in its path. And now we’re being primed to pay up some more, are we?
    My folks, aka the ‘Greatest Generation’ never damned quit, still determined to pay their way even in their late 70’s.

    Grrr…its too early in the morning to be reading this stuff without some caffeine in the system.

  3. If they’re in their 70s then they’re not boomers. Pre-boomers do not seem to have the same sense of entitlement. These Pre-boomers are the parents of GenX.

  4. The Boomers I feel nervous for, those just hitting 50, now. They will be at the tail end of the sell-down by the mob now turning 65. By the time the later boomers want to ‘cash in’, 10 years of similar will have preceded them, likely destroying much of the ‘wealth’ they think they have today. As Druckenmiller observes, 2011 was the watershed year….

    • GunnamattaMEMBER

      That would also apply to the lead generation X types currently into their late 40s as well.

    • bskerr2MEMBER

      Just let the bubbles pop now, and let the 65’s fade out, I don’t have any love for this group of people who were reckless with their savings and now use constrained property and other investments that create bubbles and pressure on the next gen to pay for their ways.

      I rented a dog box when i was in Sydney, cost me $650 a week from this retired woman, If there was not a law I would have knocked her head off. To me she was just a leach, taking advantage of a small group with a lot of power that created a constrained housing market, and allowed foreign investment.

      Anyhow, it’s going to get worse, and old people are always the first to die out when things get hard in most countries. Lets just hope it will happen a little quicker here.

      • Boo Hoo!! You’ll be old one day too. Don’t be too quick to blame. A lot of your generation are not blameless either.

  5. GunnamattaMEMBER

    The Druckenmiller interview was a classic. He also had a lot of good clear insightful stuff to say beyond generational warfare (which was at the start).

    I actually think this thread should also be considered in the context of the one about foreign ownership of Australian real estate.

    The most obvious (currently) form of generational divide is access to affordable real estate, and foreigners are being used to help keep prices higher.

  6. The boomer cohort in the US and Australia are slightly different by a few years as the US boom started earlier. ABS stats will bear this out but the last year of the boomer period in Australia was 1963. The peak period is around the mid 1950s.

    All of this so-called war is going to happen but not as war, more as cuts. Less entitlement, longer working periods, change in tax etc.

  7. Financial Repression will be the financial death of Baby Boomers. The current policy designed to support the indebted at the expense of savers, erodes the asset base of those who ‘have it’…and that’s the BBers. Many say “Boomers don’t need to sell”. My answer is, “Yes they will!”. Before the GFC, maybe Boomers could have ridden their assets, and their passive income, to the grave… and passed a few remaining ones on. Now? They will need them to live, as their cash resources are being spent, today, thansk to Ben Bernanke/Glen Stevens et al. What’s left for retirees in the 30 years after the cash has gone? Whatever asset they have to sell…and that’s pretty much….ONE class !

  8. DouglasMEMBER

    One of the first salvos in the intergenerational disequity war has been the floated new taxes on superannuation balances greater than $800K or is it $1M? Of course Nicola Roxon’s imputed balance is about $6M but this does not count as she has solidarity with the “workers”.

    However in all this one has to ask how can the Generation X and Y pay
    -saddled with HECS debt
    -saddled with high real estate prices (and rents) held higher by negative gearing and foreign buyers
    -saddled with the big four banks reaping from high margins
    -saddled with really quite high marginal tax rates eg about 40% at the top dollar of average wages.

    How does this play out?

    • drsmithyMEMBER

      saddled with really quite high marginal tax rates eg about 40% at the top dollar of average wages.

      Average wage is about $70k, which falls into the 30% bracket. On $70k you pay about $12,500 tax.

      Median wage is about $55k, which also falls into the 30% bracket. On $55k you pay about $8,000 tax.

      The 45c bracket kicks in at $180k, or the top ~1.5% of income earners. On $180k you pay about $50,000.

      Australia is not a high-taxing country.

  9. In times past a man would own his farm and grow food for his wife, his 10 kids and perhaps granny and pop.
    Now 1 man and a tractor grows food for 100 people. We now have 40 govt pen pushers writing laws, 30 private sector pen pushers ensuring the laws are followed and a couple of kids, grans and pops.
    God help us if the number of grans and pops should double. We might have to redeploy one of the pen pushers as a food grower. Disaster.

  10. year for year Gen X and Gen Y are about the same size as the BB generation. Whatever difficulties the BB generation face in retirement, will also be faced by following generations.

    • GunnamattaMEMBER

      ‘Whatever difficulties the BB generation face in retirement, will also be faced by following generations.’

      I think the issue is that the X and Y types will have considerably larger difficulties.

      But before they get to retirement X and Y will have

      More debt
      Higher real estate costs
      Longer working lives
      A superannuation geared against them and to babyboomers

      And an economy looking increasingly likely to have a major structural issue sometime fairly soon.

      • That’s right. I think the BBs will just be the first to really feel tha pain of our reshaped world. Everyone else will share the pain of course, theres less to go round for everyone. And for following generations, it will only get more difficult.

        I used to think that people who retired 5-10 years ago were the last lucky ones (my parents in UK in this category). But actually they’re feeling the pain also via QE etc, which is hammering their future expectations. But all in all, most of them are doing OK. Future retirees will not be.

    • Mmmmm. Boomers introduced compulsory Super 20 years to late and now the average BB super is only approx $60k. GenX/Y will not have this problem as all their working lives they have been paying Super.

      We do not have a population pryamid, we have a vase and are in far worse shape than the US, which has had quite large immigration.
      1. GST to 20% would tax those over 65 more (taxfree threshold to approx $40k for wage earners)
      2. Death tax on any amount over 1 million at 25%
      3. No more lump sum payments of Super to pay out the mortgages and then go on the full pension.
      4. Reverse mortgages provided exclusively from our govt.
      We have to work out a way to tax the over 65 mores and not rely on the workers simply paying more tax into an unfair system. A couple can live in a $2million home, with little other assets and get the full pension. Mad as batshit!

  11. The problem with this is the arbitrary “over 65 is dependent” assumption.

    There was a time when that was reasonable. Hell, it wasn’t that long ago that a retirement age of 55 was widely assumed. However, these days many people hit 65 in fairly good health, and a lot of them actually value their work enough to want to stick with it; besides which, it’s not like they’re all doing manual tasks that are impossible to do past a certain age. There are also people (and I know more than one!) who had kids late, and can’t stop work at 65 because they have dependents.

    Consequently I can see these trends mitigating an increase in the dependency ratio, especially considering the fact that retirements are going to push unemployment down, and open up opportunities for older workers to keep working.

    However, having said all that, it’s also possible that these changes will only delay a change in the dependency ratio, and that in turn could result in a sharper increase, when it eventually arrives. It would be interesting to see some models that take these assumptions into account.

  12. It’s interesting to note that Stanley Druckenmiller comes from the George Soros “stable”. Soros, in a series of lectures to the European University (Capitalism vs Open Society, 2009) framed the influences of lobbyists and the vested interest groups as a reason he can so successfully judge the markets movements, partly due to the policy the government will deliver on their behalf. He advocates the disempowerment of the sphere of influence from these bodies.

    As a Gen X’er, I wouldn’t like to demonise a particular demographic but feel justified to demonise a political system that with regards to policy, as Druckenmiller puts it “has a 4 year lifecycle, while the rest of us have a duty to look further than that ahead”.

    It seems to me that the system is broken when policy is written on behalf of the vested interests and in effect, aides to keep a political party in power, not tackle social, environmental and taxation inequalities.

  13. One tiny question:

    The third chart (Dependency Ratios) shows that by 1965 the dependency ratio in Australia was about 90%. I was only a kid then, but I don’t remember those people were having a particularly hard time.

    Currently, it is well under 70% and if the demographic projections are correct, by 2045 (within 33 years!) it will still be under 90%.

    So, what’s the problem, again?

    • That was my immediate reaction to the chart as well. I was 13 in 1965. While my family was not particularly well off, I do not remember it as being a time of extreme hardship.

      However, by comparison today’s Gen X and Y people have been brought up in the lap of luxury. They think not being able to afford a mortgage and simultaneously have all the latest toys, new cars etc is extreme deprivation.

    • The difference was the age group of the dependants. Here is a graph that probably explains the situation a little better, this shows the dependancy ratio in the USA for “aged dependants”.
      http://www.macrofugue.com/welcome-to-peak-capitalism/dependency-ratio/

      In 1965 only about 18% of the dependants were aged, but we are at the start of a genuine upswing in that dependancy ratio now. Medical costs, palliative care, and a drain on the economy of a greater life expectation will be with the USA and us for a long time. This projection extends to 2100 and it is still rising, hence Gen X and Gen Y and following generations won’t be spared any pain.

      People keep blaming the Boomers, but they are simply the first in a line of generations with exactly the same issues.

      Japan is currently suffering this problem. Perhaps their 200% plus of GDP public debt will be par for the course. As I understand it, life in Japan is still quite good although that graph does look daunting.

      A good related article here – http://www.macrofugue.com/welcome-to-peak-capitalism/

    • Children are financially dependants of their parents. Over 65’s are dependent on the state.

      • disco stuMEMBER

        “Medical costs, palliative care, and a drain on the economy of a greater life expectation will be with the USA and us for a long time. This projection extends to 2100 and it is still rising, hence Gen X and Gen Y and following generations won’t be spared any pain.”

        Simple solution – involuntary euthanasia if your above 75 and can’t afford your medical bills. Guess Gen X & Y will ultimately get the last laugh.

      • I see. The thing is to use taxpayers’ money wisely.

        And there’s no better use for taxpayers’ hard-earned than putting 30bn in dams in the middle of nowhere, plus tax concessions for Hancock Prospecting, sorry, the Northern Territory:

        http://www.smh.com.au/environment/water-issues/coalition-readies-30b-plan-for-100-dams-report-20130214-2edtv.html

        And that without mentioning the purchase of 100 F35 JSF Lighting II: “Back then the JSFs were estimated to cost $40 million each. Now the price is estimated at nearer $130 million”.

        Not counting another $200 million apiece for maintenance, for a plane called Lighting II that cannot fly inside an electric storm.

        http://www.abc.net.au/news/2013-02-18/pentagons-doubts-on-joint-strike-fighter/4524962

        Good economic management!

  14. Leith, I suspect this to be just the beginning in terms of widespread change to issues surrounding generational dependency and payment transfers. The young now and into the future will likely baulk at some point at a range of State supported dependencies and excessive growth of public sector wages across the board, particularly in health and education.

    • I don’t believe the problem is insurmountable – greater efficiency has been a constant theme in production since the start of the industrial revolution. It is unlikely that drive for greater production efficiency won’t continue.
      Whether we can achieve greater use of robotics in aged health care is probably the issue, but why wouldn’t we? Assuming a pandemic isn’t going to wipe out the older generations, we have no choice but to cope.
      Necessity breeds invention, and the rewards will be high. It’s not as though the aged care won’t be required equally for Gen X and Gen Y – in fact more so judging by the graph I posted above.

      • Correct, the problems are not insurmountable, however strong political will, is required to make sure that generational inequity does not cause social unrest. We must find a way to extract revenues from the boomers who can afford it, mainly due to the vast increases they have experienced in their PPOR’s, as just taxing the workers more is a recipe for disaster.
        5.7 million boomers now Peter, with 4.1 million born here and the rest because of immigration and an estimated 80% will require full or part pensions. Did we just kick the can down the road?
        You are also correct that generations after the boomers will require aged care etc, however the infrastructure will already be built to cater for the boomers and they(Gen X and Y)will have paid Super all of their working life.

      • Peter, greater efficiency will do SFA. The boomers have piled all their wealth into the two great tax havens: real estate (esp. the family home) and super. The problem is insurmountable if those two piles of money are left untouched.

        • “if those two piles of money are left untouched.”

          See my comment below. Your generation will inherit them, if they are not taxed away or spent. If they are spent, it keeps the economy going and pays for your jobs. And baby boomer super saves the government in pension outlays.

          However, I do think there is a case for less generous treatment of other income for over 60s.

  15. One factor that most Gen X and Y commenters usually forget is that as the BBers die off there will be a massive wealth transfer to their descendants. It would not be in the least surprising to see them follow in the BBers footsteps of buying up “investment” property. I bet some of them are doing it right now.

    • Quite right Alex. I also think that a good deal of the vociferous Gen X and Y envy is in large part due to their entrenched sense of entitlement – bred into them from an early age by their BB parents. Talk about chickens coming home to roost.

      • GunnamattaMEMBER

        Maybe true

        But may equally be true that what peeves them the post is the hard certain fact that they are:-

        -paying for things, or paying more for things, the boomers didnt.

        -paying more for things to cover the debts chalked up by the boomers to buy the assets they need to use. Or as with Superannuation have the whole scheme rigged against their interests.

        -have a boomer focussed press and politics telling them to simply suck it up every time they want an issue raised

        • Fair enough, Gunna, but the sensible reaction is to focus on the specific issues rather than railing about the evil BBers.

          Everybody agrees we do not live in a perfect world (except Dr Pangloss), but that is not the fault of boomers per se. Much of the last 50 years we have been led by pre-boomers. Hawke, Keating and Howard are all pre-boomers.

          • Yep. Too much time spent railing at the Boomers. Each generation faces a different challenge.

          • GunnamattaMEMBER

            Nothing personal Alex, but the Boomer dynamic is the one with the power in its hands.

            Politics represents their interests, mainstream media covers what they want covered the way they want it covered.

            Overturning that will involve overturning Babyboomer interests.

            I am fully aware that not all Boomers are net recipients or that all of subsequent generations have a number of issues

            But the biggest issue for the mostest part of the Society we live in at the moment (be that jobs – High AUD, Real Estate prices – debt, debt – retail spending, economic industry policy – laissez faire etc) has a divide of BabyBoomer interests on one side and the rest on the other.

            And the issue is not, as 3d1k glibly asserts one of ‘too much time railing at the boomers’ but one of not enough time spent railing at the ludicrous economic status quo which has this nation effectively in an economic cul-de-sac, which has boomer interests holding much of the rest to ransom.

          • Alex Heyworth

            Sorry, Gunna, you haven’t convinced me. Focus on the issues. You will get many boomers on side with sensible reforms if you tackle the issues correctly. Labelling them as greedy money grabbers is not a good strategy.

          • GunnamattaMEMBER

            Sorry Alex, you arent convincing me either. This doesnt surprise me as I tend to the view the point for getting Boomers onside has probably passed.

            I suspect many BBers dont want to focus on the ‘issues’ as the subsequent generations see them.

            But I also suspect that what BBers see as the ‘issues’ are not what the subsequent generations see as the ‘issues’

            Hence the depth of emotion seen on threads like these (of which there arent many).

          • Alex Heyworth

            Most of the boomers who you have difficulty with don’t know the truth about the economy because it has been withheld from them by politicians, economists and the press.

            In fact, most of the politicians, economists and the press don’t know the truth about the economy either, which is why they have been feeding falsehoods to the populace.

            You are on of the privileged few who are privy to the pearls of wisdom available here on MB. Don’t be too hard on those who don’t have that knowledge.

    • 47% of boomers do not want to leave any inheritance and the reality is that they underestimated how much they would need to retire as they did not plan on living so long. I think the boomers will need all of their money/equity just to survive and the ‘inheritance’ will not be as big as you think. A good reason for a death tax, as the ‘sperm lottery’ is hardly a fair and equitable system for people to advance as a ‘whole of society’ approach.

    • When you say ‘transfer’ what exactly do you mean? The wealth ‘left’ or passed down to earlier generations will depend on the boomers level of consumption in retirement. If history is any guide, the boomers consumption in retirement will be off the charts and hardly any wealth will be left behind.

      • Alex Heyworth

        If history is any guide, the boomers will spend less and less as they get older, less mobile and less interested in material things. Many will be completely unable to spend the income stream from their allocated pensions, unless they end up in aged care, let alone eat into the principal.

        • SweeperMEMBER

          You are not describing the boomers. Boomers have shown that they have a completely different attitude to saving. In their mind, inadequate saving shouldn’t stand in the way of an extravagant lifestyle – the taxpayer should pick up the tab.

          My elderly relatives are a poor guide to the boomers behaviour in retirement – since none of them are boomers.

          • Alex Heyworth

            I expect your elderly relatives enjoyed consumption just as much as the next person when they were younger. Age inevitably changes what a person is capable of enjoying, what they can do and their focus on life.

            The same will happen to the boomers as they age, although modern medicine may mean that it happens at older ages than previous generations.

      • Alex Heyworth

        PS, I presume you aren’t close to any elderly relatives, otherwise you would know that this is the inevitable progression.

  16. So … the answer is?

    Population growth and mass immigration, or draconian measures to cut benefits to the elderly as suggested by willynilly above.

    The former (endless population growth) is the ultimate Ponzi, and the latter is politically impossible.

    • FWIW, I am a mid-40s Gen Xer. I’ve always lived with the assumption that there will be no pension for my generation. Have others my age assumed otherwise?

      • There will always be a large number of people who don’t have superannuation, so your assumption is unlikely to be valid.

        It’s possible that the pension might be curtailed for people with superannuation, but that hasn’t happened yet, and given the political influence of older voters, it’s unlikely to happen in the forseeable future.

        • I mean, I have lived my life with the assumption that I can’t rely on the pension being available (or enough to keep me in dog food) by the time I hit retirement age.

          • Lorax,

            I’m a BB and all my working life I have assumed the pension will never be available to me. Nor did I ever want it to be so.

          • I hope I am, because I’m damn sure most people my age have nowhere near enough saved.

          • Don’t worry. You’ll work longer than you expect, and after you retire you’ll need less money than you think.

      • Diogenes the CynicMEMBER

        I am in the same age category and have assumed the same. There will be no pension for us, unless it is so small as to be unworthy of consideration. Younger types (Gen Y) seem even more sure that there will be nothing for them in later life.

        As a result my SMSF grew very quickly in the early to mid 2000s but I have stopped that from 2007 as I could see that taxes on super are only going to go northwards.

    • Lorax, or death rates double over the next 3 decades as the boomers leave the home planet and our natural growth(deaths minus births) may drop to zero or even negative. Will our NOM double or treble to compensate? No way, as the largest voting bloc will be the aged as they will foster anti-immigration, as it is now.
      The solution lays in creating a new economy, growing the pie and going into debt until the pig is shat out of the snake. It is very likely that our population will peak and then start to decline around 2035, as 40 countries are doing now, mainly due to less than replacement fertility.
      We can take advantage of an ageing home planet in many ways. For example I think that it will not be too long for the aged world to want quality, english speaking, call centres and our NBN will lay the foundation for us to take advantage of that. I even saw an ad last night from choosi, promoting the fact they have an Oze call centre. We are a creative, intelligent society and we can create real GDP by providing services to the ageing nations.

      it will not be politically impossible to reform aged welfare at all. It will carrots and sticks and an example will be the removal of negative gearing as the boomers will now longer require it as they retire and can no longer use the tax advantages. Removal of the ineffective baby bonus (as it did not really increase our fertility at all) will be another example. So the BB’s will see ways to support their pensions, through removal of various other programs that should have been removed anyway. The trick will be in the balance of policy that is designed to extract tax from the over 65’s who can afford it and not disadvantage the following generations….

    • Lorax…
      carrots and sticks…
      The removal of NG, as the boomers will not require it and the removal of the ineffectual baby bonus are examples, while a slow and steady rise in the GST.

    • Same here Lorax (not as old though) – i.e as a Gen X I assume I wont ever see an Age Pension, nor will I have access to “my” super until I’m probably 70 or so…and/or it will be taxed twice as much between now and then.

      I also assume I’ll be buying houses for my kids, because I know they wont be able to buy them on their own, if we stay here in Australia.

      • I have friends in their mid-50s who are already the transition-to-super thing and will have full access to their super when they are 60. Unfortunately for me, I won’t get access until I’m 65 (as the law stands) and as you say, they’ll probably tax the bejesus out of it by then.

        That Roger Montgomery piece a few weeks ago was an eye-opener:
        http://rogermontgomery.com/dear-under-50-investor/

        • GunnamattaMEMBER

          ‘Superannuation will be no good for you if you are under 50 today, so invest the absolute minimum amount into super.’

          Believe it or not I was told this by an actuary at the then Colonial Mutual in Melbourne in the early 1990s (when I was an under 30)

          • Gunna you must be about my vintage (born in 64). RBL’s were a big contributor to that belief re contributing a minimum amount.
            Just another thought, I also remember John Hewson actually going to make the system sustainable for the longer term by imposing the RBL on lower lump sums, Paul Keating did him slowly over that one, relying on self interest to get him over the line

          • Always back it, at least you know its trying 🙂

            In hindsight, I think we might be better off today if PJK had lost in 1993. I didn’t think that at the time though!

            Imagine a Liberal Party led by Prime Minister Hewson, handing over to Malcolm Turnbull at the end of three terms. Compare that to the Howard – Abbott succession.

        • Lorax, there is a condition of release for someone that changes a work place arrangement after turning 60 that achieves a full condition of release. Possibly rules may change but that one has been in since 1993 and the last change to preservation was in 99.

          • Sorry, I got the ages wrong. My friends in their 50s can get their super at 55. I have to wait until I’m 60.

            Preservation age table

            Date of birth Preservation age
            Before 1 July 1960 55
            1 July 1960 to 30 June 1961 56
            1 July 1961 to 30 June 1962 57
            1 July 1962 to 30 June 1963 58
            1 July 1963 to 30 June 1964 59
            1 July 1964 and onwards 60

      • I’d agree with the first part, but I think the second is over pessimistic… because, if the first happens our economy will likely be screwed and that will seriously depress asset prices.

        I cant see a scenario where all this cost gets passed to our generation and yet the unsustainable asset prices remain. God I hope not.

        IMO, across most countries like ours we will enter a period of much lower growth and depressed asset prices. The state will have to grow to support the greying population, but the price will be lower assets.

  17. Here come the baby boomer/ locust defenders. Really, what planet are you guys living on?

    And, you know it wouldn’t be so bad if boomers just had the balls to come out and say..’yeah, we’ve been incredibly lucky…young people today are getting totally screwed”.

    But no, they give definition to the quote:

    “Some people are born on third base and go through life thinking they hit a triple”.

      • No Alex, Gen X and Y already know they will not. They can not buy their first home at 1 or 2 times a single wage. Did you?

        • Alex Heyworth

          No. Probably about 3 times or a bit more. Plus interest rates were 17 per cent. Also the home was smaller (121 square metres) than most new homes now, albeit on a larger block.

          Like most people at that time, however, I did not have a home computer. I did not have a mobile phone. I did not even have a TV. DVD or BluRay players had not been invented, there were no MP3 players or microwaves, I had never bought a car less than 5 years old etc etc.

          Perhaps you are also forgetting that income tax rates were much higher when the boomers entered the workforce.

          • Alex
            17% on what $50K? I was there as well as rates were not 17% for very long at all.
            The devices you mention were mostly not even invented, but I am sure you had a big record collection?
            So, 3 times a single wage and now it is 7 times dual wages?
            So where has your wealth come from? My guess is in your PPOR and you think you ‘worked’ for that. What a joke…

          • Alex Heyworth

            Wrong on a number of counts. The house cost $123k. We borrowed $80k.

            Most of my wealth is in my allocated pension.

            The house had a $45k extension in 1995 and is now “worth” approx $500k. I don’t regard it as part of my wealth because I can’t sell it if I want somewhere to live.

          • The way block sizes are going they’ll be the size of that first home of yours.

            Tried to find a block of land greater than 600sqm in any new development recently? They don’t exist. Average block size is around 450sqm these days compared to the 1/4 acre block size for boomers.

            Disclosure: I was born in 1975.

          • Alex, so for a short period of time you paid 17% on $80k, or $13,600 in interest. Mmmmm and an average loan today is approx $300k at 5%, or $15,000 pa in interest. Seems like you had it pretty good indeed.

            Do you still think the average home is 4.3 times a single average wage? Are you from the home planet?

          • Alex, allocated pension, what the? Your annuity is not a pension.
            You also state, ‘we borrowed’…did the bank count your wife’s income?
            Of course you could sell up for $350k and move into a very nice 2 bed unit somewhere on the coast. Why not sell up for $150k less than it is worth to give a young family a chance if you feel it is not your real wealth?

          • Alex Heyworth

            Still got one of the kids at home. The other has recently left, but who knows if it will be permanent. No chance of escaping to the coast just yet. Besides, my wife is still working.

            I don’t think homes are 4.3 times average single incomes now. On the other hand, they are definitely not 7 times double incomes either. About 7 to 8 times single incomes seems about right.

            You don’t seem to know much about how retirement products are structured. An annuity pays you a fixed income for life, sometimes indexed. You purchase it and give up your capital in the process.

            I have an allocated pension, which is my superannuation rolled over into another product. You draw down an income from the investments (minimum annual withdrawals apply, starting at 4% and gradually rising as the retiree gets older) and the investments are subject to the vagaries of the market.

          • Alex Heyworth

            PS, $13,600 in 1989 is worth about double that now. You have to do the sums in real $ for them to have any validity.

      • arescarti42MEMBER

        Yeah right, how stupid do you think we are.

        Your generation has left us a planet in decline. We’ll be working harder and longer for considerably less than you had (at our expense).

  18. “The elderly will say that they paid into Social Security and Medicare throughout their careers and therefore they are entitled to the entitlement benefits. But a closer look at the numbers shows that that statement is not true. The elderly are getting more from Social Security and Medicare – even adjusted for interest – than they paid it. They are getting the proverbial ‘free lunch’.
    http://www.groundreport.com/Politics/Recover-Excess-Lifetime-Entitlements-Through-A-Fed/2951496

  19. Sorry, I find this thread very distasteful. This inter-generational thing smacks of envy , whining and smugness. All very nasty selfish qualities growing in our country. As a BB I know exactly where whatever I have left at the end will go – to my family. And as much as I can husband for them. Because I believe that is where my wealth such as it is, belongs – with them – not Govt and certainly not others.

    • Alex Heyworth

      I am sure 90% of BBers are with you on that score, GSM. Certainly all the ones I know.

      The myth of greedy boomers is just that.

      • No, 47% of Boomers do not want to leave anything.
        http://abcnews.go.com/business/t/blogEntry?id=16592993

        Who invented the term SKIN, certainly not the younger generations?

        Generational theory is not the study of any individual, so you individual beliefs do not really matter that much, but good on you for wanting to leave something financial behind.

        I think self interest, whinging and smugness is more a quality of the BB than any younger generation.

        • Alex Heyworth

          1. Your statistic is from the US(American ABC, not ours). No source is mentioned.

          2. The remaining boomers in the US probably have little wealth to leave to their kids.

          3. The figures might be similar here, although I suspect compulsory super has made some difference. That is not the point. The boomers cannot take it with them. They must either spend it (keeping the wheels of the economy greased) or pass it on to their children.

          4. The amount of wealth the boomers have is irrelevant to the real issue, which is the dependency ratio. The people currently employed have to produce everything they and society’s dependents consume. That’s always been the case. As pointed out earlier in the thread, the dependency ratio was higher in 1965 than it’s expected to be in 2045.

          5. What this argument seems to have developed into is a slanging match over the standard of living boomers should get in their retirement.

          6. It would be very surprising if today’s working population do not have a better standard of living in retirement than today’s retirees. This is an inevitable consequence of productivity improvements. Productivity improvements may have slowed, but they are still occurring. It’s amazing how much one or two per cent a year add up to over a generation or two.

          • Well it appears you do not understand well the dependency ratio. Chrilden are supported by the parents and the aged by the state. Best to look at the DR for the aged and children seperately. We now, since last year, have more people over 65 than under 14.

            I was wrong, 72% do not want to leave anything according to an Australian source…

            http://www.apia.com.au/aussie-baby-boomers-kill-inheritance

            “72% of Australians aged over 50 say they would rather spend their money in order to enjoy their retirement than leave it for their kids, according to new research commissioned by Apia, the leading Australian insurer for over 50s”

          • Alex Heyworth

            “Kids are supported by their parents” – including education and medical costs? I don’t think so. Similarly, the elderly are only partly supported by the state. Unless you think the state owns all their investments and only lets them have the income as a privilege.

          • Alex Heyworth

            PS, the issue is not about whether boomers want to leave their assets to their children or not. They cannot take it with them when they die, so they have either spent it (in the process providing employment) or will pass it on. Probably both in most cases.

          • SweeperMEMBER

            Spending their assets or passing them on, are two completely different things. Lets say there are 3 generations. Pre boomers, boomers and post boomers. When the pre boomers were of working age, the boomers were able to consume part of the income the pre boomers produced.. When the boomers were of working age they consumed some of the income they produced – but not all of it, because they also saved or accumulated assets. Now we get to the post boomers. Let’s say when the post boomers are working age the boomers get to consume part of the income produced by post boomers to the point where the boomers spend all their savings ( sell all their assets to post boomers). If this is the case, the boomers will have taken out more than they put in, at the expense of the post boomers. Also how exactly would boomers spending all their savings provide employment for pre-boomers – what are your assumptions?

      • GunnamattaMEMBER

        Alex if 90% of BBers think this thread is distasteful then I would observe 90% of BBers dont want to be questioned about a set of circumstances where

        They own most of the assets
        They have gone into debt significantly to get those assets
        They need those assets to deliver the greatest possible return
        The administrative political and public information regime currently in place serves their interest first and foremost

        The 90% of BBers may not want to consider this I understand. But ultimately it needs to be discussed.

          • GunnamattaMEMBER

            Alex, you arent reading it the way it is intended

            The concern is that they may hand over debts
            and that the economic distortion implied in not addressing some of these issues will leave a deformed economy that younger types are going to have to work in.

          • Alex Heyworth

            I quite agree that there are a number of things wrong with the way our country is going. Don’t lay the blame for that exclusively at the feet of the boomers. As I pointed out earlier, Hawke, Keating and Howard were all pre-boomers. They pretty much set the path we are currently on.

            I think the characteristics most people here are attributing only to boomers are characteristic of most people, most of the time, in any generation. People think of themselves and their families first, then their friends and neighbours, then the rest of society. I am pretty sure it is built into our genes.

    • I agree, it all smacks of the entitlement/envy belief. Every generation has some advantages/disadvantages over each other. Certainly my parents generation had a WW2 and a great depression that formed their belief systems and their attidude to money.

  20. Why is it that the majority of BB find it so hard to critically look at what their generation has done in negative ways? The vast majority to me seem to want to blame the younger generations. Mad as…

    • Alex Heyworth

      Au contraire, the boomers are very happy and don’t want to blame anybody. It’s your lot who are feeling the angst and looking for scapegoats.

        • Then you don’t speak for me willy.

          What I do know is when the mirror is held up to X and particularly Y’s, all hell breaks loose. And it’s because they have such a hard time dealing with accountability- it’s always someone else.

          • GSM, generational theory is not about the individual.
            Did we, boomers, encourage kids to buy the biggest houses to make the biggest gains as ‘house always go up’?
            Are our kids staying at home longer for economic or emotional reasons?

            Every generation has traits that can be identified and studied. That is why we have sociologists.

            The Gen Y/Z have a single drive, equality, whereas the BB’s had many.

          • Last time I checked there is only one MP that’s Gen Y – you need to be in the positions of power first to be then held accountable!

        • Alex Heyworth

          You must have a very different peer group to mine. Mine are very focused on their children and grandchildren, on making sure they give them every opportunity possible.

          • +1 Alex. All my Boomer friends are managing their lives around the kids and grandkids, like me. Their intent is to help as much as they can now and in the future with something to pass on to them when they depart. in several cases, with quite a bit of accompanying stress.

            In fact, I don’t know any BB’s fitting willy’s stats. The selfish portrayal it implies is very offensive.

          • Well GSM, object to SKIN and what it represents and yes, you confirmed you main consideration is ‘your’ kids… What about all the kids?

          • willy,

            “Equality” is often code for Socialism in many isntances.”Equality” stifles individualism and freedoms.

            Looks like our education system has accomplished it’s mission.

          • willy,

            I expect adult parents to look after their kids. I’m a bit old fashioned like that.

            I’m reading you as believeing the state should be primarily providing for kids.

          • Alex Heyworth

            I have quite enough responsibility looking out for my kids and my elderly relatives. Other people should be able to look after their own kids.

            This is not to say that I did not receive support from the state along the way, nor do I begrudge paying taxes to continue that support for others. But my own kids are my main focus, as they should be.

  21. Wonderful to see the charts I referred to in my comments on the weekend in an article, but any chance that there is someone (maybe a guest author) who can do similar for Australia (and China)).

  22. yes – will be interesting to see what plays out, and potentially devastating from a financial perspective. Still, I think gen x, y and z are politically lazy or dont give a continental. Although the boomers will continue to have voting power, boomer politicians wont – arguably we will get some pollies in the future with more empathy for their own generation eg if i am a 40 year old politican who cant afford a home ….. or a 45 year old polly sick of paying tax to fund a pension which wont be avaiabel in 20 years …. politicians are self interested in the main and this may extend to sensible policies – Wayne, Kevin, John H, Peter C etc never knew what it was like to pay ridiculous money for a first home, I firmly believe that it is very difficult to empathise with a situation you dont understand.

  23. If any boomers take offence to this thread, they are part of the problem, not the solution.

    • willy,
      You have yet to establish that a BB “problem” exists, let alone appoint yourself as arbiter of who is/not at fault.

      • GSM
        Denial was required to blow up the property bubble, so let us hope that the same denial does not apply to the fiscal gap we are heading towards.
        Have you read the IGR’s?

  24. Look at how the US IDR turned up about 5 yrs before us. I have also downloaded the ABS data for our IDR and noted it turned in mid 2010.
    And what happened to property prices at those times in the US (’06) and Aust(’10)?
    There are many people writing on the link between IDRs and property but this link is from the BIS and is authored by the Deputy Gov of the Bank of Japan at the time. http://www.bis.org/review/r110112a.pdf

    • GunnamattaMEMBER

      Cheers mate, that is a very good read.

      Quite ominous for Australia, but a good read

  25. Retirement at 70-72 then. I vividly recall the smugness of some after GWB Jr uttered the comment regarding old Europe. Of course it never crossed sheeples minds that the demographic problems of Europe and Japan would eventually become everybody´sproblems. Of course try telling people that they have to work 3, 4, 5 or more years before being elligible to retire and I guarantee you will not be re-elected.