I have nothing against old people. I adored my grandparents and I’ll be old some day and I may well be in the same position, but given the demographic shift America is facing and the economic realities we’re now dealing with, the elderly population in America is set to screw you three ways to Tuesday. Here’s how:
- They Take Your Jobs – Americans who are approaching what used to be the “normal retirement age” aren’t retiring. They’ve lost all the equity in their homes, their 401(k)s have taken a haircut and they can no longer keep doing cash out refinancings on their homes like an ATM to support their lifestyle (which incidentally, mortgage rates hit 60 years lows this week). Not only are they not retiring, but they’re taking jobs that younger Americans traditionally took. Wonder why teen unemployment in America is at an absurd high? Wonder why a 20-something can’t even get a job at the local Starbucks? It’s because a 55 year old just took it. So, the retirement age Americans that would normally be retiring now are either a) working longer or b) taking jobs they wouldn’t have taken otherwise that normally would have been fulfilled by a younger American worker.
- They’re Selling Stocks, Wrecking Market Returns – A recent study by the Federal Reserve of San Francisco indicates how retiree risk profiles are going to wreak havoc on equities returns (study). The premise here is that as the total population holding stocks declines (we’ve all been taught the older you are, the lower your stock allocation should be, right?), the aggregate demand for equities will decline and stock prices will in turn, decline. Dramatically. This is expected to match the step change demographic shift we’ll be seeing in America in the coming decades which is a mathematical certainty. The only wildcard is whether younger American investors would step up and increase their exposure to equities to adjust for the perceived “value” created in P/E compression (which wasn’t addressed in the study but is my 2 cents contrarian argument). If things play out the way the study suggests, younger Americans are screwed again. Not only can they not find the jobs their parents did, but they won’t be getting the stock market returs their parents did in the 80s and 90s either. Oh, that’s on top of not getting the home equity appreciation their parents saw either.
- Battle for Resources and They Have All the Time in the World to Vote – I remember as a kid hearing my Dad complain about all the old geezers who would vote down the school budget every year (we lived in New Jersey where budgets were subject to vote) because they were cheap. They wanted to live in a nice town with working professionals and tax revenues but didn’t want to invest in the future of those taxpayers’ children. On one hand, he was kinda right in that a) old people do tend to place more value on their own needs and not those of kids 70 years their junior and b) they are VERY active in the goings-on about town with respect to budgets and spending because they have plenty of time and much more interest than a soccer mom running 4 kids from place to place and juggling the 90 other things a parent has to deal with. On the other hand, as we saw last year, I’m glad half the towns in New Jersey voted down the school budgets because Chris Christie’s my hero. Teacher and public sector unions have gone out of control and states can no longer afford their demands. How’s this tie to America’s future? Well, you haven’t seen nothin’ yet! Americans are old and getting older. If you think some local town budget showdowns are a big deal, just wait until large voting blocks are fighting over healthcare dollars, education dollars, heating assistance, food stamps, and more on a much broader scale. America is finally starting to realize we can’t continue to spend more than we take in and on top of that, there will be some tough decisions to make. Politicians of course, pander to their voting blocks because their primary focus is always on re-election. So, as the elderly population explodes, they will of course demand more resources ($$$) and we’ll begin to see generational warfare over resources. Don’t believe me? Just wait and see.
If you’re an older American, while you may take this as an attack on your generation, it’s not. I’m pointing out how this is likely to play out without casting judgment one way or the other. People are motivated by self-interest and incentives. It is rational to vote in your best interest and ensure you can enjoy the best retirement possible, especially when people will live to age 150 which has its own unanticipated financial implications.
If you’re a young American, are you concerned by this demographic shift?