Baby boomers' financial illusion

In Crash Course Chapter 14 - Assets and Demographics I make these statements:

The boomers are the wealthiest generation ever, they hold nearly all of the assets, and they will need to dispose of those assets to fund their retirements.

In order to fund their retirement dreams, boomers are going to have to sell off their assets. Who exactly are the boomers planning on selling their assets to? Even if [the smaller following] generation somehow could afford to buy all these assets, there simply aren’t enough people in this generation to buy them.

Figure 1

Figure 1: the Yellow and Red bars represent the US population broken out into age bands of five year increments for women and men, respectively. The green circle draws attention to a “hole” that exists in the population demographics with the Boomers represented as the “bulge” just a little higher up the chart from the hole. In red and yellow text to the right we see the six main sources of wealth for boomers (not ranked). Of the six, the five in red have to be sold in order to extract the wealth contained within them.

Now, within a single decade, both stocks and then homes have failed boomers as investment vehicles. Prior to these setbacks, boomers had only known a world dominated by constant inflation and a future that was always larger. The retirement dreams of an entire generation were built upon these two conditions remaining true.

But now we have ample evidence that there was some sort of a flaw in these plans. As I wrote recently, much of this inflation and growth was an illusion based on an unsustainable expansion of debt that was destined to stop. Why? Because it’s not possible to consume beyond your means forever. Sooner or later the bills must be paid.

At this point I am wondering if widespread retirement was a two-generation long experiment, a happy artifact of an oil-driven bonanza of growth that will not soon be replicated. Retirement was a foreign concept prior to 1930 and may well prove to become an exotic destination in the future.

The next illusion to pop, if it hasn’t already for many, is the notion that a substantially larger pool of boomers can sell their assets to a significantly smaller group of younger folks for anything close to their full asking price.

Remember, markets have a very simple rule:

Well, if boomers outnumber the generation behind them, then it stands to reason that, sooner or later, there will be more sellers than buyers.

So while I think it’s reasonable to discount the value of any potential future Social Security payments downward, I also think the total value of boomer assets have to be discounted as well.

And this brings us to the most likely source of future value: community.

If our monetary assets stand a chance of failing us, then it’s time for us to plan on obtaining what we need and want by other methods.

In this, there’s a bright silver lining, because lives filled with deeper connections and personal interdependencies can be just what the doctor ordered.

This is a companion discussion topic for the original entry at

This is an excellent point and an argument that needs to be considered up against the hyperinflationary theories many of us have.

If the boomers are selling like mad and putting doward pressure on prices and the Fed is printing money to keep the prices inflated, the real question is how will the battle play out? I think the Fed might "prevail" (if you can use that term for hyperinflation) in the very short term, but sooner or later, America is going to have to take stock of its real capital (i.e. not FRNs). Suddenly, I think we’re going to find that a lot of boomers are bringing a lot of houses, cars, computers, dryers, etc. to the market and we’re all going to have to take stock of what real capital America has. This is will also point out some of the glaring luxuries (i.e.non-capital) that we have enjoyed these past years as most people start to realize that paying for a sports car is less important than heating their homes.

I’m still trying to work through how the reflation of the Fed will play out with the deflationary pressures coming from the boomers. I like dealing with variables and puzzles, but attempting to ponder all of this just brings so many variables into play that it’s very hard to call. There’s energy scarcity, other resource scarcity, boomers, the Fed, wars, political instabilities, and soaring population. I believe that energy/resources are so fundamental to all of this that they will underpin everything we are going to witness. But even given that assumption, politics can have immense impacts on the future course. Energy scarcity can be studiend in a straighforward manner, but for me, predicting political actions and mass movements can be difficult because sometimes the smallest sparks can ignite formerly unknown powder kegs.

Any comments on how the boomer deflation might tie into the desire to print?



As a couple on the leading edge of the Baby Boomers (my wife and I were born in 1944), we know how we’re going to play this out. We’re not going to try to sell anything. Instead, we’re going to try to stay in our house until we "shuffle off this mortal coil" and then we’ll leave it all to our three kids and let them figure out what to do next! Wink

Excellent question, Mike. I will also be interested in Chris’ response.

Keep in mind that more boomers are going to defer retirement after seeing their 401K crash; others are trying to seek employment at unfortunate ages and with no jobs available ("paper or plastic?").


That may influence their desire to disinvest.




Does this link help?

It doesn’t seem to. Thank you, though.

The unfortunate thing for those boomers looking to defer retirement or seeking employment is that, if they are currently employed, they may be laid off or, if already unemployed, may not be able to find work as they will be facing ferocious competition from the younger generations. Makes me glad that I’m already retired as it isn’t pretty out there! Frown

[Edit at 1728]

Added this link to show example of my comments above:

How about this:

What I get from both the previous link and this one is that the fertility rate dropped significantly after the baby boom generation was born. Hence, Chris’ chart showing lower population right behind the baby boomers.

Hi Sam,

You’re looking at lower population by age group. The fertility rate of the boomer generation did drop significantly from the generation which preceeded it, (to about 2.1, or roughly replacement rate). However it was never below replacement rate. If you look on the chart, you can see that each bar represents only a 4 year age group.

The "cliff" which you see behind the boomer generation bars represents the fact that while the average boomer mother will bear 2.1 offspring during her breeding life, these two children may be born anytime during a 25 year window. If you add up all the bars after the boomer generation which will be of working age by the time a partcular segment of the boomers retire, you will see that it is larger than the boomer generation itself.

Furthermore, even though the 2.1 children had by the average boomer mother may be born anywhere within a 25 year window, since they will almost all be born before the mother is 45 years of age, all of the boomer’s children will have matured by the the time the boomers retire. The end result is that in 2030, by which time all of the boomers will have retired, there will be 3 retired boomers for every 10 persons of working age, and at least 1 adult boomer child for each boomer retiring at any given moment.

That gap which you see in the chart is not a drop in population. It is a drop in population growth rate. Make no mistake, this drop in growth rate is of great significance to the retirement plans of the boomers. however I don’t see how it can be strictly accurate to say that the boomers outnumber the generation which follows them. Each boomer will have 3.33 persons of working age to which they will sell their assets. Certainly less than in previous generations (and this is very important), but there will still be more buyers than sellers.

The boomers will retire in a great wave, but each boomer will not sell all of their assets immediately upon retirement. They will sell their assets slowly over a period of 30 years (~55 years total), during which time the total population will continue to grow. And the people buying the assets will not buy them all at once upon reaching working age, but slowly over their working lives. While this may still be bad news for the homebuilding industry, for example, what I don’t understand is how this could mean that there would be physically more sellers than buyers. There should be about the same number, it seems.


I defer to your well thought out description as I now understand what you were trying to get across. Smile

The above statement makes a lot of sense to me - but doesn’t leave me feeling any more comfortable about my retirement prospects (I was born in 1957) since we really cannot "leave aside the debt load of the younger generation" (nor their justifiable disenchantment with those of us in the boomer generation coupled with the growing influence they will have in politics as time moves on).

While there can be some sparring with specific details of statements that have been made - the message remains the same (at least from my point of view).



P.S. Also, a significant part of the assets of each boomer will never be sold, but will simply be inherited by their children. This probably includes many houses, washing machines, and snowblowers. Their children, it seems, would receive these assets just in time to give them to their children, so that they will not need to buy a snowblower upon moving into a house.

This certainly means that fewer snowblowers will be purchased new, but I don’t think that would depress the price of those snowblowers which are sold on the open market, and must still be bought by boomer grandchildren whose grandparents did not leave them a snowblower in their will.

I have no idea what this percentage of boomer assets is which will never see a market, but it must be significant. It seems this might take at least a small amount of price pressure off of those boomer assets which are sold on the market.

I agree. It also doesn’t make me feel like going into the snowblower manufacturing industry before I retire…


To say the Boomers outnumber the age groups right after them, not the next generation, seems more accurate, depending how you define a generation. There will still be more workers than retirees, or buyers than sellers, but as CM pointed out in the crash Course that ratio used to be a lot higher than 3:1. The other factor that seems important is that only certain age groups, not all of them, will be interested in buying the Boomer’s assets because it depends on what phase of life you’re in. For example, people like me in Gen X who have growing families and established professions who are ready to upgrade their homes may be most likely to buy Boomer’s homes as the Boomers downsize. But there are fewer folks in my generation, we’re broke, and Gen Y and Z probably are not ready yet even if they had money. I don’t have data to back this up but it seems logical.


[quote=woodman] only certain age groups, not all of them, will be interested in buying the Boomer’s assets [/quote] That certainly seems like a logical concern. But since each boomer will be selling off their assets gradually over a period of about thirty years, and each member of the receiving generation (which will be maturing over this same time frame) will buy over the course of their adult lives (albeit with peaks at certain times), it seems as though there is enough overlap to avoid at least a catastrophic crunch. Not the most profitable ratio of buyers to sellers, and certainly less profitable than in generations past. I just don’t see how there could come a point where there will be more boomers selling houses than members of several younger generations waiting to buy one. I’m not saying it isn’t logical that prices will go down, or that the rate of production of new assets won’t decrease, I just don’t understand how there could be fewer buyers than sellers.

[quote=jrf29]P.S. Also, a significant part of the assets of each boomer will never be sold, but will simply be inherited by their children. This probably includes many houses, washing machines, and snowblowers. Their children, it seems, would receive these assets just in time to give them to their children, so that they will not need to buy a snowblower upon moving into a house.

This is an excellent point, and if I can play a Gerald Celente for a minute, I think that this will also be a trend for the future. I think that we are going to see more and more goods passed down through generations as consumerism goes through its death throes. I think it’s pretty clear to say that one of the impacts of the crisis is that families will be forced to be a little more tightly knit and share their possessions more fully. It is already being reported that college grads moving back in with their parents are rapidly rising during this time frame.

I think this transference of capital to the next generation also brings the possiblility of further destroying the consumerist mentality. As people come to view goods as durable and reparable, there will be less of an urge to buy crap and throw it out when it breaks. The default mindset could shift and become more quality focused. If Wal-Mart doesn’t make some big adjustments to its business model, it could be facing some strong headwinds.


Chris, I’m not sure I understand this. How could baby boomers outnumber the generation behind them? Total fertility rate for the baby boomers is projected to settle around 2.1 (approximately equal to, or just slightly below, the replacement rate).

Furthermore, we can assume that the majority of baby boomers will have borne all of their children before the age of 45. This means that by the time the boomers retire, virtually all of the offspring borne by the retiring portion of the boomer generation will have matured, and be available to buy assets. Therefore, the generation behind the baby boom ought to be roughly the same size as it.

By 2030, the baby boomers will be between the ages of 66 - 84, and there will be 3 retired baby boomers for every 10 persons of working age, meaning that each individual baby boomer will have 3.33 people of working age available to buy their assets.

Leaving aside the debt load of the younger generation, how can you say that there are fewer buyers than sellers? Isn’t it that there will be not as many more buyers than sellers, as there were in previous generations?

Someone needs to throw a "real wages multipllier" into this argument, as Americans have been grossly overpaid relative to a large percentage of the world’s workers; that ratio is changing. I suppose this is where the deflation/inflation argument would be seen to be a determinant, but my gut says the net effect of any paper wars will still be the continued decrease in the average American’s purchasing power. Look at the auto industry employees for example; exact wages aside, their wages are much further down the spectrum toward Walmart employees’ wages; any serious inflation would turn what were some of the best paid blue collar workers in America, for several decades, into working peasants… Working peasants buy food, not stocks and bonds…

Mike, I really hope so.

My mom passed away last year and pretty much most of her furniture was split amongst us. The house, however, had to be sold. We fixed it up nicely and sold it at $20,000 less than the other houses. It sold in -1 day (sold to the people that came out immediately to look at it before the open house).

I’m not sure families will inherit and live in a home because jobs will be (and are) scattered all over. Families currently don’t live in the same town so they would have to find a new job or never move out once they graduate from HS or college.

Now that I think about it, I guess that will be the trend - you don’t move out and just inherit the house. You guys already pointed that one out.

[quote=Nonzeroone]Working peasants buy food, not stocks and bonds…

Nor the goods they manufacture.