Baby boomers begin to drain cash in the US

The WSJ has a piece out on the demographic effects of the baby boomers retiring:

The largest generation in U.S. history has to start pulling its retirement money this year, kicking off a mandatory movement of cash that could total hundreds of billions in the coming decades.

U.S. law requires anyone age 70 ½ or older to begin annual withdrawals from their tax-sheltered retirement accounts and pay taxes on those distributions. The oldest of the nation’s 75 million baby boomers cross that threshold for the first time this month, according to a U.S. Census Bureau estimate of when that demographic group began.

The obligatory outflows from 401(k)s and IRAs are expected to ripple through the U.S. economy, the stock market and a money-management industry that relies heavily on fees from boomers’ tax-sheltered savings plans and assets.

This is one of our six mega trends, the change in dependency ratios globally:
2-15

Not really much here to add from the investment side, but I’m sure MBers will understand the pain that the baby boomers feel when they are asked to actually pay tax on investment earnings. I especially love the obligatory quote from a retiree:

Jack Weaver, a retired biopharmaceutical product developer, turned 70 in late 2015 and had to pay taxes on his first required payout of $31,000 last year. “It’s unwanted income,” he said. He reinvested the money, and says his wife plans to do the same when she takes her first distribution this year.

Based on the size of his required payout, he looks to have over a million Aussie dollars in his own name. I’m also guessing he has been making contributions for his wife or she has been working and so she might have a similar amount in her name. Plus the family home. Plus any other assets that they have outside of retirement savings.

This sounds awfully like a “first world problem”…

Damien Klassen is Chief Investment Officer at the MB Fund launching in April 2017. Register your interest now (if you haven’t already):

Fill out this online form.

Follow me

Comments

  1. Mandatory withdrawals? The middle men are loving this one, no doubt they lobbied for it years ago. Then there are the HFT bots that’ll be front-running this lumbering dinosaur all the way.

  2. What a wank article – Damien Klassen – Chief Investment Officer at the MB Fund sounds like a total clown. Keep away!

    • Is that tone absolutely necessary? It is a short article pointing out the start of an important demographic and financial trend. It didn’t up more time than it required.

    • Have to disagree with your well articulated criticism. Keep the them coming. Maybe only criticism is add a little more from the investment side if possible.

    • SchadenfreudeKing

      Coming from Mr Oz ROOLZ, an insult is a backhanded compliment, so kudos to the author. Mr ROOLZ! is one of those characters who is basically wrong about everything. He has a mental disorder called ‘blind patriotism’ and thinks Australia’s geriatric kleptocrats are just lovely, and all problems are caused by foreigners, especially the working variety.

  3. The real issue is that ZIRP has destroyed the investment stream for ALL 401(k)’s and many cities who are legally bound to pay them out are starting to raise taxes in order to pay these entitlements. I think I read that the bill is somewhere in the vicinity of 2.5T.

    • SchadenfreudeKing

      401k is defined contribution, not defined benefit. I suspect you’re thinking of defined benefit pensions, which as you point out, are in deep doo doo as reality continues to defy past economic models.

  4. Much like an older coworker (late 40s) who complained recently she’d have to sell her spare Sydney property because she’d lived out of it for 5 or 6 years and otherwise she’d have to pay more capital gains. Cry me a river…you’ll have to pay some tax on what I would consider a life changing amount and allow me to actually get into the property market?

    • SchadenfreudeKing

      You see, the older generation just don’t care that the young generation (I.e. anyone under 40) are locked out of housing. They think young people have it easy and waste all their money on iPhones and travel. The vast majority of these dolts think it’s just as easy to buy a first home now, even though house prices to income ratios have tripled since they did it.

      Watch them howl when ‘forced’ to live with more disposable income than the majority of young families have or will likely ever have. Watch them squeal when forced to pay meagre amounts of tax on withdrawals when they full well knew the deal was that they paid zero tax on contributions, and they willingly took that deal.

      A rotten wilfully blind generation of Trump and Abbott voting fools. The first generation to leave their kids worse off than themselves for centuries (outside of wartime).

      And Australia is worse than the US. Much worse. A geriatric kleptocracy. At least in the US it’s just oldies whining and wallowing in their self granted land tax discounts. In Australia you have multi millionaires getting a part pension, paid for today by the taxes of workers who will never see that much money in their lives. The US has its problems, but Australia is a despicable nation of thieving old farts who utterly despise the young. A sad declining country populated in aggregate by self-righteous lazy mooching self-entitled destroyers of opportunity.

      When Australia’s coming depression smashes workers, you can bet the free money spigot of oldtitlements won’t be slowed one bit. They’ll wreck the entire country and destroy every productive sector before they give up even 1 penny of housing capital, pension, or investment earnings.

      At that point, the Chinese will control Australia – they’ll absolutely own you.

  5. They’d better get their population ponzi cranked while there’s still time to counterbalance the flows.

    • C.M.BurnsMEMBER

      they are shit out of luck when it comes to a pop ponzi, they have left it way too late and now the racism genie is back out of the bottle. Europeans won’t come anywhere near a US run by Trump, meanwhile he’s busy picking a fight with china and targeting of other minorities and ethnicities was a hallmark of his entire campaign

      soo.,.. not sure exactly which people they could attract, even if they wanted to.

      • Well, I was thinking that Trump aside, immigration from Mexico was on the way down, and there’s only about 20 years until Mexico’s workforce peaks, so they needed to get in while they could, but what you said too.

      • There are plenty of IT / programming / developer / system engineer type roles around the Bay Area, Austin, NYC, Virginia etc.

      • There are record number of French nationals emmigrating to Quebec.

        It may be ideal fo rmany French, German’s to flee Merkel’s mess, Swedes to flee Malmo, Europeans to flee rape generally….

        that Trump’s presidency appeals to them, rather than inhibits them.

        Putin’s successor can conquer a Euro-caliphate in a generation.

    • SchadenfreudeKing

      It’s the big story everywhere that has defined benefit pensions. Which means Australia too, as you have a honking big government run scheme, which has all the same problems as the private and municipal schemes in the US.

      Australia already has the highest GDP to household debt ratio on Earth. And the oldtitlements are blowing out your public deficit and will continue to do so, as no government will meaningfully reduce them.

      Within another decade, the Chinese will absolutely own you because of these trends.

  6. proofreadersMEMBER

    What the Yank retirees need is a speaking tour by ScoMo and reusa to talk up the virtues of residential property investment done the Strayan way?

  7. This thing (the Baby Boomer retirement) will be bigger than the GFC by order of magnitudes, from what an academic economist has told me.

    Great input.

  8. I’d be interested to know how many US state/city public sector pension funds are un/under funded? For that matter it would be interesting to know the same thing in Australia & each of the States. I suspect there might be bit of a shortfall or woops moment coming here as well!

    • SchadenfreudeKing

      It’s pretty obvious that oldtitlements will blow the Australian Federal budget deficit up massively. It’s already happening… hence the increase in government attacks on youth and working families.

      Remember, young workers, when the government taxes you and gives the money to geriatric millionaires, when the government sends debt collectors for a debt that doesn’t even exist, when the government forces you through a bureaucracy specifically designed to humiliate you if you become unemployed, remember that your fellow Australians in aggregate voted for this. And the trends are clear… the oldies voted for this in spades. Their goal is to strip everything from Australia, use it up, then drop dead leaving you with the burned out husk of a country with little productive industry, few opportunities, and massive debts to your new Chinese overlords.

  9. When will the youngies wake up to the shafting they are getting and form a new party that represents their interests?
    I would love to see some divisive generational debate.
    If I was 20 years younger I don’t think I would be too happy to pay the excessive prices for housing compared to what the boomers paid and then be expected to pay their pensions for life without a chance to get your own pension when you retire at 70.
    Time to spice up politics with a youth party.