A Social Thumping?


I had a moment of clarity on the stairmaster yesterday that while I am far from early on this thought, it is grim for society nonetheless.

Based on various things I read and anecdotal observations I am convinced that baby boomers (I am using this term for economy of space, not for rigid age parameters) is going to spend beyond their means, looting their nest eggs and one way or another to end up living for years way below the lifestyle they tried to save for.

This will cause various strains on the system that I cannot quantify.

I have read about this before obviously but for whatever reason it just now struck a chord with me. Plenty of folks have offered explanations as to why this might happen but I am not sure it is something that needs to be explained.

Most people know they need to watch what they spend, they know the market can go down every now and then, can grasp how the numbers work but just as that is true many people end up living $100,000, or more, lifestyles when they can only live $80,000. The $20,000 doesn’t sound like much of a difference but two or three years like that combined with a 10% drop in the market and the odds for failure now go way up.

How many boomers do you think have retired since 2003 (rhetorical question, I have no idea)? Anyone who has spent too much in the last couple of years is now probably relying on the market to bail them out over the rest of the year. Maybe it will or maybe it won’t but clearly they have no hand in the outcome–unless they go back to work right now and don’t take anything out of their account for the next 24 months.

I have written about this sort of thing before but it has been a while. I agree that the way in which people retire will by necessity (for most folks) have to evolve, it probably has been evolving actually. To me the easiest idea is to seek out multiple streams of income (there is a book out there by that title). That can include your portfolio, social security (even if the benefits get discounted) and some sort of job (part time or otherwise).

The ideas here are limitless. I have a neighbor who is 76 (I mentioned he was 77 in an earlier post, sorry Phil) and can have all the work he wants with his backhoe at $60 per hour. Another neighbor owns a small snowcat and plows everyone out (we pay him $20 for about 3 minutes work). Both of these are tonka toys to these guys; they have figured out how to monetize playing on their toys.

There are ways to monetize certain hobbies. Chances are if you have a hobby you love that you’ve been doing for 20 years it wouldn’t be that difficult for you to assess whether it can be monetized and then proceed.

I realize not everyone can work until they are 70 and there are potential obstacles that go with getting older but the bigger picture to what I am describing is the need to be resourceful within your circumstances, to live within your means and figure out how you can take some stress off your nest egg (I just had an image of Albert Brooks from the nest egg scene in Lost In America).

I think the impact on society could be very serious, the action you take will determine whether this involves you or occurs around you.

24 Comments

  1. Unfortunately everything you say is all to true. On top of that US equities will not be bailing people out for a number of years to come.

    seg

    Reply
  2. that domestic equities will not do well is not the problem. Assuming this is a normal bear market that ends in a normal time, even if reutrns at home are below normal other markets will provide historically normal returns so this is another need for people to be resourceful.

    I know many people think the current event will be worse than normal but for now I still believe in normal.

    Reply
  3. Roger,

    The strains you anticipate will also come from government(s) trying to [stay/get] elected. And, as the problems unfold, we’ll see some compounding due to well-intentioned, but not well thought out, policy positions (cf. HRC’s freeze on interest rates for 5 yrs).

    I don’t want to revert to a “gold, water and ammo” investment posture, but in the spirit of diversification is the only free lunch, I’d say that the percentage of one’s portfolio hedged as such may deserve a tweak upwards.

    On another note, I recently read another fairly persuasive argument (consistent with Hussman) that returns are inversely correlated with normalized average 10 yr P/Es. By avoiding buying stocks when they are historically overvalued (and for the 40+ yrs analysis in the blog, the P/E ratio of 16 was seen as the bottom threshold of overvalued), one could have avoided a big chunk of the “underperformance” of equity returns – again using only 10+yrs as the investment horizon.

    Simple question: do you know where I can find data looking at historical P/Es measured in dollar adjusted terms? (Ideally, using a dynamic basket of currencies?) (The current valuation of the market at average PE 23+ is obviously different given a $/E value of 1.5.)

    Thanks.
    Rick
    PS: where does one learn to use a backhoe?

    Reply
  4. Rick the odds that the politicians screw things up is pretty low, AHEM.

    As far as trying to find data, my first (and only) suggestion is to get in touch with Bespoke.

    Learning to use a back hoe probably isn’t thing, but getting the financing might be!

    Reply
  5. The first baby boomer collected her first social security payment just couple of weeks ago. It was in the news. I am not sure how that correlates to how many retired by choice — if any — since 2003.

    The baby boomers are much like our republic and much like the Roman Empire. After what seems like “eternity” of good times, they get intoxicated with their “success” and spend themselves into poverty (or worse).

    Reply
  6. Well normal or not depends on your choice of norm, doesn’t it? Do you pick your norm from the 1982-on biggest bull market in history or do you look back further? But in any event, the past doesn’t predict the future. The real problem is that people don’t understand the different impacts of market declines when withdrawing rather than accumulating. If you spend down your capital base in a drawdown, the effects can be lethal. So you really, really need to avoid those drawdowns because blowing snow is not going to save you.

    Reply
  7. Retirement? I’m a technology teacher and I love my job. I’m going to teach until they pry the mouse out of my cold, dead hand.

    Reply
  8. fwiw my idea of normal is a decline that bottoms out in the area of 30% from the top lasting 9-18 months.

    if you live in buffalo blowing snow might fill the gap and then some:-)

    the point of course is thinking outside the lines and figure out what you in your situation can do to relieve some of the burden of your portfolio.

    $60 an hour for playing on a tonka toy, as an example, for as many hours as you want seems like a good way to me.

    Reply
  9. OT but relevant to retirement–Interesting article up on Bloomberg today noting that Calpers has authorized up to 3% of its assets to be invested in commodities as part of a larger allocation to “inflation-linked assets.”

    Reply
  10. My epiphany came on a treadmill as I’d just learned my sibling’s family is virtually bankrupt due to poor investment choices atop unforeseen medical expenses that will be ongoing. Despite my planning for a secure retirement, they will likely have to join my household. For the first time I’m considering there will be tremendous social system ramifications from the combination of boomers & house price implosion. I have to think my extended family is not the only one with such a coming trial.

    Reply
  11. my wife and i each have a sibling….

    Reply
  12. Roger, maybe your sibs will be more responsible than mine -or- in better health! (I’m still in a reactive phase & want to put them in a cold garage. Thanks for letting me rant.)

    Reply
  13. a positive sign, general attitudes about saving & consumption are reversing. For instance, yesterday’s Oprah featured a young couple that dumpster dives for fun & profit, preferring to pay off their home rather than spend to be happy.

    Reply
  14. Not all baby boomers are alike…
    having 4 grandparents that lived
    thru the depression helped us
    live in reality….hope they
    are being blessed in the aftelife.
    Anon 10:01
    Sorry you have to deal with the
    burden….we cannot protect
    ourselves from everything. We can make all the plans in the world
    for security…but Life happens.
    I hope things work out for you
    and your family.
    I think some baby boomers are
    expecting to inherit from their parents…big mistake….as their medical bills etc. will take a toll.
    Thanks for the topic Roger….
    forwarding to husband.

    Reply
  15. Roger, I’ve been hearing for sometime now that the dollar looks to be bottoming. Is there some level thru which it is very unlikely (tho not impossible) to fall, because some countervailing market force would, of necessity, kick in?

    Reply
  16. based on what Bernanke said, I would say no there is no market force to kick in.

    in commentaries on this subject we hear about orderly decline versus panic. the move this week does not seem to be that orderly, maybe i have that wrong.

    i was interviewed about this today and i said that often after big moves in one direction many people extrapolate the move to continue which is of course when it ends.

    euro 160, aussie at parody and so forth leads me to think that we see some snap back very soon but we’ll see.

    i will repeat that the fed seems content to disregard the dollar to prevent recession.

    Reply
  17. Where to start ? Roger, you’re what, 41 ? I’m 50, but even at 50 I begin to see how so many of the ‘things’ I thought I needed are silly. I know plenty of people my age who are planning to live on SS alone (house paid off), and I think this is possible. There are plenty of people out there who don’t need a second home in Hawaii to feel good; for them, a pleasant walk around the neighborhood is fabulous. These are the people who never had much during their work years, they don’t aspire to much when they retire; they mostly hope for decent health (not even good, just decent), and for their family and friends to not experience ‘bad times’. You’ve got a great blog, and I’ve learned a lot from you, but sometimes I have to remind myself that a TON of people will never approach even your lifestyle – and they will be very content. Sorry for the lower-middle-class point-of-view, just needed to vent.

    Reply
  18. valid sentiments of course. hopefully you don’t take that i think people should want what i want in terms of lifestyle. we all have our own priorities and should pursue them.

    however i do believe in the notion of saving as much as possible in order to preserve as much choice as possible for the future.

    having a lifestyle covered by social security would be great. coincidentally i looked at my benefit. when i am 70 we would get a combined $3700 in today’s dollars. If SS lasts that would cover our expenses (assumes no more savings, no mort on the HI house which we should pay off in 10-12, and minimal taxes) so we would not need anything from the portfolio to live on.

    this creates a flexibility for some unknown event, good or bad, that might come. If SS fails before I get there I fall back on the portfolio. all of this assumes i cannot work which i hope to do till the end.

    i am not the least bit critical of what you say but i believe in saving aggressively, trying to enjoy my work and by doing something I love hopefully i will be good at what do. i probably to project those beliefs through the writing.

    Reply
  19. i will be shocked if it doesn’t counter trend for at least a couple of weeks.

    Reply
  20. That is what makes a market – people believing in different out comes.

    Still I am glad I dumped my Asian ETF’s today. I suspect the rally is over. I am left with just the gold miners ETF I have been accumulating.

    I will be leaving for a cruise soon so I will likely be out of touch, but this is the first cruise I intend to take a laptop.

    I expect a lot of volatility comming soon and not in a good way.

    seg

    Reply
  21. When politicans encourage a victim mentality amongst the population to help get themselves elected, the end result is what Roger fears.

    While the Democrats are masters of creating this mindset, I am not naive. The Republicans are not blameless in this game.

    I don’t worry about myself. I worry about my children and grandchildren. They are going to contend with a real mess, economically and socially.

    Class warfare will be taken to even higher levels of societal destruction in the not too distant future.

    Until then, let’s focus on stocks and have some fun waiting for the fiasco to occur.

    T

    Reply
  22. I’m with T on this: let’s focus on stocks and have some fun while waiting for this unraveling to unravel. (A word from Roger on how these dour sentiments are common in bear markets wouldn’t hurt, however!)

    I will offer my own dour sentiment in passing – having direct experience on the Street until very recently, I’m convinced that this current bear is the market’s manifestation of the bursting of housing price mania (borne of the seeds that when overwatered by greed grew into the credit/liquidity crunch) and the system wide consequence of failing to change the culture so clearly identified by the LTCM/Enron/WorldCom/Richard Grasso/etc chutzpah.

    For so long as short term rewards (cf. CDO capital structures designed to throw current cash flow to equity, while comforting the senior debt holders with what have been revealed as largely guesswork ratings) so completely overweight back-end returns, the “go along to get along” and “I’ll be gone, you’ll be gone” culture will over reach into excess, with only painful corrections.

    One difference this time (relative to Enron/Worldcom, etc) is that the problem (of poor oversight and risk management) from derivative products has penetrated so deeply into so many disparate areas.

    How bad is it? When I asked someone at a rating agency how they could have affirmed the monoline’s rating, the answer boiled down to “how could we not?”

    Brrrrrr.

    R in NY

    Reply
  23. —I don’t want to revert to a “gold, water and ammo” investment posture…—

    Hmmm…ammo prices have been going up a lot faster than the S&P! Of course that will come to an end once peace breaks out in the Middle East…

    Maybe some people have hobbies they can make money from, but I can tell you from experience that raising horses is NOT one of them. “How does one make a small fortune raising horses? Start with a large fortune.”

    Reply

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A Social Thumping?


I had a moment of clarity on the stairmaster yesterday that while I am far from early on this thought, it is grim for society nonetheless.

Based on various things I read and anecdotal observations I am convinced that baby boomers (I am using this term for economy of space, not for rigid age parameters) is going to spend beyond their means, looting their nest eggs and one way or another to end up living for years way below the lifestyle they tried to save for.

This will cause various strains on the system that I cannot quantify.

I have read about this before obviously but for whatever reason it just now struck a chord with me. Plenty of folks have offered explanations as to why this might happen but I am not sure it is something that needs to be explained.

Most people know they need to watch what they spend, they know the market can go down every now and then, can grasp how the numbers work but just as that is true many people end up living $100,000, or more, lifestyles when they can only live $80,000. The $20,000 doesn’t sound like much of a difference but two or three years like that combined with a 10% drop in the market and the odds for failure now go way up.

How many boomers do you think have retired since 2003 (rhetorical question, I have no idea)? Anyone who has spent too much in the last couple of years is now probably relying on the market to bail them out over the rest of the year. Maybe it will or maybe it won’t but clearly they have no hand in the outcome–unless they go back to work right now and don’t take anything out of their account for the next 24 months.

I have written about this sort of thing before but it has been a while. I agree that the way in which people retire will by necessity (for most folks) have to evolve, it probably has been evolving actually. To me the easiest idea is to seek out multiple streams of income (there is a book out there by that title). That can include your portfolio, social security (even if the benefits get discounted) and some sort of job (part time or otherwise).

The ideas here are limitless. I have a neighbor who is 76 (I mentioned he was 77 in an earlier post, sorry Phil) and can have all the work he wants with his backhoe at $60 per hour. Another neighbor owns a small snowcat and plows everyone out (we pay him $20 for about 3 minutes work). Both of these are tonka toys to these guys; they have figured out how to monetize playing on their toys.

There are ways to monetize certain hobbies. Chances are if you have a hobby you love that you’ve been doing for 20 years it wouldn’t be that difficult for you to assess whether it can be monetized and then proceed.

I realize not everyone can work until they are 70 and there are potential obstacles that go with getting older but the bigger picture to what I am describing is the need to be resourceful within your circumstances, to live within your means and figure out how you can take some stress off your nest egg (I just had an image of Albert Brooks from the nest egg scene in Lost In America).

I think the impact on society could be very serious, the action you take will determine whether this involves you or occurs around you.

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