What the boomers are leaving their children

In the midst of all of the glowing news articles about the powerful aging boomer demographic and their control (just by the sheer numbers of them) over the economy, MacLeans magazine came out with a not-very-complimentary view of the boomer generation. Entitled "What the boomers are leaving their children. Fewer jobs. Lower pay. Higher taxes. Now the Screwed Generation is starting to push back." The MacLeans article describes the boomers as a "me-first" generation that is "outsized, over-entitled, and self-obsessed demographic" largely responsible for the mountains of debt in Canada, U.S. and Europe. 

Other points summarized [1] from the article:

• Recently, the C.D. Howe Institute estimated the rapidly aging boomers will cost $1.5 trillion and the cost will need to be paid for by Ottawa and the provinces in extra health and pension expenses over the next 50 years. It is interesting to note Canada's 65 plus population will double in the next 20 years. Clearly, there will be a shortage of long-term care facilities and RNs and we will need to prepare as our population ages. 
• As our birth rate falls and greater life expectancy (80.7 years) the numbers look even more challenging. Old Age Security, currently costs $33 billion a year, is already the No. 1 item in the federal budget. Ottawa and the provinces spent $183 billion on health care in 2009. We really do have some tough decisions to make.  Raise taxes or cut spending.
• Our Government is certainly concerned about Canadians and their spending spree of late. Household debt reached $1.41 trillion December 2009 and is now past $1.5 trillion. The personal debt to income ration reached a new record high of 144.4% at the end of 2009 and higher at the end of 2010.
• 43% of Canadians admitted being concerned about their retirement, yet 32% were committing nothing to savings or RRSPs.  For younger people given their debt from schooling and other purchases, the savings rate is even lower.
• Close to half of the respondents to a national survey by Bensimon Byrne said they had not calculated how much income they will receive when they stop working. 86% said they expected CPP and 83% Old Age Security to be crucial pieces of their financial puzzle.
• 40% of Canadians personal wealth is tied up in home ownership.
• 77% are counting on eventually selling their house / condo to finance their golden years. [What happens when the massive tsunami of boomer selling hits the housing markets?]
• 62% of Canadians between 50 - 64 expect to work past retirement age.

My "take-away" from this article, (I am a aging boomer myself), is that my generation put consumption over savings generating mountains of debt, believes that housing prices can only go up (never down) and that old age will never become part of their vocabulary. We will eventually get around to saving for retirement (but not just now) and saving for a tropical vacation in the dead-of-winter is far more fun than planning for retirement. Say, has anyone noticed that flat panel TV's have come way down in price? 

[1] summary provided by Renaissance Investments. Additional comments/additions from me are italicized.

OK boomers, listen up! - mutual funds do work

With millions of boomers happily ignoring their parents and grandparents advice to save (see above article), the temptation to spend rather than save may be the boomers undoing. 

Boomers will likely live a lot longer than previous generations and planning for a 30 year time horizon in retirement is standard fare these days.  Mutual funds can be an excellent retirement savings vehicle. Please note the following example is not a hypothetical client - it is a real person.  

This is an example of one of our clients who invested $48,500 in the TRIMARK FUND on October 18, 1985 and commenced an automatic withdrawal of $500 per month ($6,000 per year) starting on May 10, 1986.

 
Date of Purchase: October 18, 1985

Initial Amount Invested: $48,500

Withdrawal: $6,000 per year

All Dividends Reinvested 

Total Amount withdrawn since 1986: $168,500.00

Market Value $90,060.61 (amount remaining as of January 6, 2011)

Total Gain $210,060.61*

In other words, a client put in $48,500, withdrew $168,500.00 and still has $90,060.61 remaining in her account.

So, for those boomers that are eying the latest 3D flat screen TVs with Dolby 7.1 surround sound, you may want to think about saving a little money instead. Retirement may be closer than you think.

Want to get started?  Contact me at gszlagowski@assante.com. 

Video Highlight of the Month 

Here is a very nice video from National Bank describing their "best of breed" approach to investing. I thought it was nicely presented and worth the viewing.

See. http://meritageportfolios.com/multimediabrochure/

* The information provided is for illustrative purposes only.  Actual results may vary from your investment, savings, loan or other investments available to you.  Interest rates are hypothetical and are not meant to represent any specific investment.  Rates of return will vary over time, particularly for long-term investments.