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3 Ways Older Americans Are Going to Wreck Your Life

by Darwin on September 11, 2011

old-people

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?

{ 27 comments… read them below or add one }

Andrea @MoneyMastered September 11, 2011 at 8:51 pm

I do worry about the shift in demographics. Very rapidly, we are becoming a nation of mostly older adults rather than a normal distribution, and that will bring a ton of changes. Older adults have a stronger voice because of (1) greater numbers, (2) thicker wallets, and (3) more time on their hands as you mentioned. Of course any group will fight for their own interests, but when one age group outnumbers the other age groups combined, my generation will be hard-pressed to be heard.

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Darwin September 11, 2011 at 10:01 pm

Just like the current administration is fostering class warfare against basically, anyone who’s been successful financially, I could envision a future administration engendering hostility toward the elderly for usurping our resources, milking the system, taking from future generations, etc. It would certainly make for good political rhetoric.

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Jeff @ Sustainable Life Blog September 12, 2011 at 11:31 am

Good rehtoric maybe, but terrible politics – Like you mentioned, old people are the ones that vote because they have all day to wait in lines. No one is going to go out and trash them publicly or try and go after their benefits.

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Financial Samurai September 11, 2011 at 9:50 pm

But one day, we will be older Americans and get to screw the youth too! :)

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Darwin September 11, 2011 at 10:06 pm

Well, the current generation of US adults is already screwing over the youth (the current generation of children and unborn future generations). Just take a look at our projected deficits over the next several years…

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krantcents September 11, 2011 at 11:54 pm

As an old(er) American, I am not taking any jobs! I am just not ready to retire yet. If anything, many jobs are taken by younger less expensive workers and leaving old(er) workers out of work. I know that may not be your point, but it is the truth. The boomer generation has not sold that much stock because their investments are under water. I am concerned about the future draw down of 401k and IRA savings. It could materially affect the market. I do agree as a voting block old(er) people do vote. Hence AARP wants me to vote in a particular way.

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Darwin September 12, 2011 at 12:00 am

Oh, I know, as a regular reader of your blog you have your act together. In aggregate though, there are an atypical number of Americans not going into a traditional retirement OR taking jobs traditionally held by younger Americans, even teenagers. It’s the new normal it appears. Not to start a generational debate, but just callin’ it like it is. People have to take care of themselves and there aren’t enough jobs to go around for certain skills sets.

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cashflowmantra September 12, 2011 at 5:47 am

It is a change from what we are used to. I am in the middle of the two generations that you describe. I don’t worry so much about the stock issue. I will either get great deals or foreign investors will swoop in to pick up a lot of US stocks.

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Darwin September 12, 2011 at 9:33 pm

I was thinking either foreigners, or flat-out valuations should always force stocks to revert to the mean (P/E), but the historical evidence does contradict that. There appears to be a decent correlation with the cohort from an age standpoint.

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JT September 13, 2011 at 10:12 am

With all this cheap money it would seem to me that LBO would still be just as hot.

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Moneycone September 12, 2011 at 7:36 am

And not to mention, roads are no longer safe! (just kidding!) :)

I think this is part of the transition America is going through. SS withdrawal age will increase and this means the retirement age will be pushed.

Japan went through this transition and it wasn’t pretty.

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Darwin September 12, 2011 at 9:33 pm

Oh don’t even get me started on the roads. Take my money shame on me. Run me over jogging? Shame on you!

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Roger Wohlner September 12, 2011 at 8:43 am

Great post. As both a financial planner and the parent of three young adults (age range 18-23) I can see both sides of this issue. Many implications here for investors going forward.

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Darwin September 12, 2011 at 9:34 pm

Curious Roger, are young people talking about this issue; the future fight for resources, jobs and impact on stocks? Curious what you’re hearing day to day.

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Kristen September 16, 2011 at 8:17 pm

I know I’m not Roger, but maybe you’d like to hear my opinion. If not, I understand. I’m 23 years old, just graduated from UMass in May, and I am looking for a job currently. Some of the people I frequently had lunch with at UMass would indeed talk about resources and jobs at least. We talk about religion, current events, and many what ifs for the future because it will affect us. Maybe I just hang out with the “intellectuals” though, so I’m just one young person who wants to be in the know and think about the future. :>)

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Jeff @ Sustainable Life Blog September 12, 2011 at 11:30 am

You seem to have forgot about the fact that i’ll need to keep giving the government tax money to take care of their programs like medicare and social security.

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Darwin September 12, 2011 at 9:35 pm

Oh yes, this was “just” 3 things. I could list out a whole litany of things. Imagine what our kids will write about us! brutal.

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Kellen September 12, 2011 at 11:36 am

I think part of the shift to working longer may not just be needing the money, I think it’s part of a whole cultural shift to valuing work more, to expecting to live longer, and to having more expensive tastes. My dad just retired last month, but now he is looking for a new job because he hates the feeling of not working while he still can. We value work a lot in our society.

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Darwin September 12, 2011 at 9:36 pm

I agree, many people (men especially I’m finding) are not prepared mentally for retirement. My father certainly wasn’t. After working 35-40 years, it’s tough to lose your sense of purpose like the flip of a switch.

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retirebyforty September 12, 2011 at 2:50 pm

I haven’t thought much about the boomer issues you’re describing. This is why we should open up the country to more immigrants. ;) We’ll get young blood who will work hard to support the older generations. Sure unemployment is high, but I think immigrants are much more driven than the average person.

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Darwin September 12, 2011 at 9:37 pm

Ya know, if you watch enough Fox News, you start to fear immigration (illegals of course), but the reality is, we do need them in several regards – to fill the gaps in labor (both skilled AND unskilled) and to maintain a growth cohort which directly benefits our economy. GDP cannot and does not expand with a declining population. People tend to forget that.

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Paula @ AffordAnything.org September 19, 2011 at 12:09 pm

Great photo!!

Totally disagree with this post, though. Sorry Darwin!

First of all — it’s sad that some of them are in such a bad financial state that they have to compete with teens for an hourly job. What a horrible position to be in while you’re old.

But realistically, it’ll be hard for them to support themselves on $7.50 an hour. Ultimately they’ll need to rely on their adult kids for support, or flee to another country with a lower cost of living. (My friend’s 60-something dad, who has $0 saved for retirement and a teacher’s pension worth $1K/month, is doing exactly that … fleeing to South America, where $1K/month goes further.)

#2 — if they sell stocks, value investors like me will get great deals. And let’s not forget that it’s we the working-adult-generation who are responsible for the subprime mortgage mess that caused our market and home values to plummet.

#3 — good for them for keeping tax dollars low! I support education in theory, but I don’t trust the government to spend my money efficiently. Show me a spending plan that I trust isn’t full of graft and waste, and you’ll have my support.

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Darwin September 21, 2011 at 8:03 am

Hi Paula,
Thanks for your comment. My thoughts.
#1 – I’m not sure what you disagree with in particular.
#2 – while I suggested value may be created with mass selling by one cohort, there historical data does suggest (link in article) that there is a strong correlation between age cohort in country and equities returns. So, if we see the pattern we’ve seen historically, we may expect a major under-performance in equities for the next decade or two.
#3 – well, keeping tax dollars low is one thing; continually voting down any budget for selfish reasons (bc you no longer have school-age children) is another. It would be a tough argument to make that the current generation of retirees has ‘put more in than they’ve taken out’. To the contrary. This applies to everything from federal entitlement spending vs contributions to the increase in national debt during tenure. Not to say it’s “their” fault, but the politicians did do this under their watch.

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Bret @ Hope to Prosper September 19, 2011 at 2:20 pm

Great post Darwin.

I have written on this subject a number of times and I agree with many of your assumptions. I am looking for the opportunities in this demographic change and hoping to retire myself with enough resources to avoid depending on the government.

To me, the Baby Boomers aren’t the biggest problem we face as taxpayers. Their retirement and medical needs were predictable 20 years ago. The biggest challenge we face are the millions of other people receiving entitlements who should be working. This is a recent and unexpected phenomenon. Entitlements now consume over 65% of our Federal budget. This is dangerously high and rising quickly.

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Financial Independence September 28, 2011 at 2:12 pm

Great post. I am totally agree, but on selling stocks…

Yes there has ben always an issue, that older generation will pass stocks over younger ones.
Maybe it is youngesters are not capable of taking power from older generation?

I am concerned, but this is nothing we can do about, apart from opening the gates and letting more immigrants in.

This is nothing, in England, fo example, by 2050 over 2% of population will be older …than one hundred years old…..

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Terry January 20, 2012 at 3:55 am

They’re not “your” jobs. Nobody is owed or guaranteed a job.

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Darwin January 22, 2012 at 5:34 pm

I agree nobody is “owed” a job. But this is the first time in modern history that there has been such a generational change in that people normally entering retirement will instead be “occupying” jobs normally performed by younger people, often teenagers or recent highschool and college graduates. I don’t think most people have come to that realization yet.

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