Not everything is sold

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mariusm98's picture
mariusm98
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Posts: 25
Not everything is sold

I guess it's right that there would be no market for the total assets of the baby-boomers if they try to liquidate it and consume it in their old days. Prices would have to go down, for instance on real estate and stock.

But will that generation really sell out? Much of the wealth of people that pass away today is given on to their heirs, without passing through the open market. Why would the next generation behave differently?

Poet's picture
Poet
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Joined: Jan 21 2009
Posts: 1891
They'll Sell What They Can
mariusm98 wrote:

I guess it's right that there would be no market for the total assets of the baby-boomers if they try to liquidate it and consume it in their old days. Prices would have to go down, for instance on real estate and stock.

But will that generation really sell out? Much of the wealth of people that pass away today is given on to their heirs, without passing through the open market. Why would the next generation behave differently?

Did a search on Google, which is a great resource:

1. A 2010 survey shows 43% of Americans have less than $10,000 saved for retirement. 27% half less than $1,000 saved for retirement.
http://money.cnn.com/2010/03/09/pf/retirement_confidence/
2. The typical couple retiring in 2010 will need $250,000 for health care premiums, co-pays, deductibles, out-of-pocket prescription costs, etc. And that's with Medicare coverage.
http://money.cnn.com/2010/03/25/pf/retirement_health_costs_/

So... Yeah. They'll sell what they can. Because they have to. And they'll spend very little except on the utmost necessities.

Poet

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JohnDoe2b
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Joined: Jun 12 2011
Posts: 9
Wealth destruction

If you look at the demographic problem in isolation, it is easy to determine that real asset values must fall. This is because a higher proportion of people will be living off accumulated wealth. I see no way for average investment returns to remain positive as the retirement wave ages. This is fundamentally different than the assumptions used in pension models in the last 50 years. People could retire comfortably with a relatively small retirement account because returns were greater than inflation. I feel comfortable predicting that the current 10-year US T-bill rate of 3% will not beat inflation (Even as cooked up in the official CPI rate) over the next decade, even if there is no official default. Combine the demographic problem with the energy crunch and unmanageable debt levels and the following will be inevitable :

1. Sharp declines in standard of living particularly for seniors.

2. Retirement age will have to increase by at least 5 years.

3. High demand for younger, healthier workers.

4. Some unrest as society fails to adjust fast enough to these painful realities.

mariusm98's picture
mariusm98
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Joined: Jun 16 2011
Posts: 25
Not quite convinced

Thanks for the links to the articles. Although informative, I don't find them unambiguous.

1. These figures would start getting really interesting if you showed them for more specific age groups. Workers aged, say, less than 40, without savings for retirement is not worrying me. These people should indeed spend on raising their kids. And for some reason defined-benefit pension plans are not included. I guess quite a few workers rightly believe that they will live solely from this, and hence don't save.

2. So we are talking some 5000 USD per person per year. It is a good deal of money, but depending on your pension, you can indeed live somewhat beyond "utmost necessities".

The more interesting statistics to google up would probably be one telling us how much the average deceased USAnian passes on to his heirs, and how this figure has been changing over the last years and decades. 

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Poet
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Posts: 1891
Would Love To Learn More
mariusm98 wrote:

Thanks for the links to the articles. Although informative, I don't find them unambiguous.

1. These figures would start getting really interesting if you showed them for more specific age groups. Workers aged, say, less than 40, without savings for retirement is not worrying me. These people should indeed spend on raising their kids. And for some reason defined-benefit pension plans are not included. I guess quite a few workers rightly believe that they will live solely from this, and hence don't save.

2. So we are talking some 5000 USD per person per year. It is a good deal of money, but depending on your pension, you can indeed live somewhat beyond "utmost necessities".

The more interesting statistics to google up would probably be one telling us how much the average deceased USAnian passes on to his heirs, and how this figure has been changing over the last years and decades. 

If you get a chance to do more research via Google or other statistics, please feel free to share the results. :-)

Poet

ao's picture
ao
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Posts: 2220
I don't think so
Poet wrote:

2. The typical couple retiring in 2010 will need $250,000 for health care premiums, co-pays, deductibles, out-of-pocket prescription costs, etc. And that's with Medicare coverage.
http://money.cnn.com/2010/03/25/pf/retirement_health_costs_/

So... Yeah. They'll sell what they can. Because they have to.

Poet

I'd disagree with their need to sell.  That projected $250K is amortized over their fairly lengthy retirement lifetime, not needed in a lump sum nor mostly at the start of their retirement.  Furthermore, a large percentage of people spend money on healthcare and drugs which are elective rather than mandatory.  And they'll increasing elect not to spend money on those areas.  It's already happening.  In addition, if people start eating less because they can't afford it and/or they shift to less expensive food sources (i.e. growing their own, foraging, fishing, hunting, etc.), they will, in general, become healthier and experience lower rates of cardiovascular disease, diabetes, hypertension, etc. (i.e. most of the "diseases of civilization") and thereby have lower medical costs.  Also, Fidelity will typically have jacked-up figures to encourage the consumer to save and invest more ... with them.  I have my doubts as to the accuracy of that figure.  

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Poet
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Posts: 1891
Inherit The Wind
ao wrote:

I'd disagree with their need to sell.  That projected $250K is amortized over their fairly lengthy retirement lifetime, not needed in a lump sum nor mostly at the start of their retirement.

Okay. So do you think this time around, especially for Baby Boomers, will the elderly will leave behind 1. a lot more or 2. a lot less of their money to their offspring and other heirs?

Poet

ao's picture
ao
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Joined: Feb 4 2009
Posts: 2220
there're other possibilities
Poet wrote:
ao wrote:

I'd disagree with their need to sell.  That projected $250K is amortized over their fairly lengthy retirement lifetime, not needed in a lump sum nor mostly at the start of their retirement.

Okay. So do you think this time around, especially for Baby Boomers, will the elderly will leave behind 1. a lot more or 2. a lot less of their money to their offspring and other heirs?

Poet

Why would it have to be one extreme or the other extreme?  Why not about the same or a little more or a little less?  Besides, at this stage, I think that's an unknown and any definitive statement would be pure speculation.  On a personal level, I plan on leaving more to my children than will be left to me, largely because I think they'll need it more than I did.

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tictac1
Status: Silver Member (Offline)
Joined: Sep 25 2009
Posts: 175
Assumptions

There's quite a few assumptions at work that may or may not have validity...

The assumption that much of a person's wealth is transfered to children.  Many people "spend their children's inheritance", and much wealth is absorbed by the state and lawyers when the average person dies.

The assumption that people will sell belongs rather than work.  "Jobs" aren't needed to make money, not jobs in the employer sense.

The assumption that standards of living will remain relatively unchanged, i.e. people will not shack up 13 to a house.  The Mexican workers in my area do exactly that, and seem to be pretty happy with the situation.

When i was a "tertiary accounts analyst" (bill collector), I saw with relative frequency the following scam-

Keep your credit impeccable till old age.  Get as many high-limit credit cards and accounts as you can.  Buy yourself an RV, tell the bank to fuck off, and live the rest of your days driving around the country.  I can't really say for certain about the last part, only that they buy RVs and disappear, never to be collected from again.  We simply couldn't figure out where they were, let alone repo anything.  Maybe they went to the Grand Canyon, maybe they parked it at their kids home, who knows, but we wrote those off.

Nowadays, i can't say i blame them for screwing the banks.  Hell, Thomas Jefferson died $100K in debt.  That was a LOT of money back then!

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