Prelude to the Opening Act

Sense of Events does the math:

Now, where is all the money to pay for our retirement centers, medical care and vacations in Costa Rica going to come from? It will come from the equity investments we made before we retired. In short, we are going to sell stocks, bonds and mutual funds like crazy starting very soon. And because each successive year adds millions more to the retired ranks, the selloff will accelerate every year into the late 2030s and almost certainly well into the ’40s.

The fate of traditional equity markets, beginning, oh,
next year. Found at Boomer Cafe.

The plain fact is that tens of trillions of dollars are going to disappear from the value of the DJIA and other stock indices over the next 20-30 years. And with each year, as the selloff accelerates, the decline in equity-companies’ market value will drop even more – because each successive year, boomers will sell more equities than the year before, both as a group and individually, just to stay even.

In fact, if the near-term retiring boomers cash out only $1,500 of equities per month, starting with zero retired boomers and adding about 360,000 every month, then in only six months more than $3 trillion of sold-share value will be reached.

Read this slowly: Three. Trillion. Dollars. Sold off every six months. That’s in addition to the previous semiannual’s sum. That’s $18 trillion of equities sold in just the first 18 months. And it only goes much higher from there. Folks, we are looking at possibly hundreds of trillions of dollars of equity sales over boomers’ retirement years.

There are two huge problems with this. First, the total world market’s valuation is only $37 trillion. So boomers’ simply cannot cash out enough equities to maintain their standard of living because there is literally not enough money in the world to do it, assuming that boomers need only about $1,500 of sold principal per month to make up a shortfall of dividends and interest. Even if you halve the figure, the numbers can’t be sustained.

So – we boomers simply are not, as a population group, going to enjoy in retirement the high standard of living we are accustomed to.

But wait, there’s more:

The second problem is that Generation X, boomers’ successors, doesn’t have nearly enough money to match as inflow into equities what we boomers are going to take out. Gen-X is the generation hit hardest by the multi-year Great Recession. Enormous numbers of them have already sold out just to stay afloat financially. And even before the recession hit, they were piling up debt like madmen.

The Gen Xers, generally defined as those born from 1965 through 1980 — now 27 to 43 years old — have even less assurance than the boomers of receiving company pensions and projected Social Security benefits.

In 1979, when the oldest Gen Xers were teenagers, the sole retirement plan for 62% of workers was a traditional pension, according to the Employee Benefit Research Institute (EBRI). By 2005, when most of the Gen Xers had joined the workforce, that number had flipped: 63% of employees found themselves covered only by voluntary 401(k) plans. So much for the corporate safety net.

On top of that, the Gen Xers’ life expectancies, and thus their retirements, will likely exceed even the boomers’. They’ll need to save more aggressively. Yet, burdened by high housing costs, stifling college debt, stagnating wages and outsize health insurance and gas prices, Gen Xers are saving too little for retirement, just as workplace benefits have shrunk.

According to the EBRI, more than one in three workers ages 35 to 44 aren’t setting aside any money for retirement. Among those ages 25 to 34, 45% aren’t saving.In short, the traditional US equities markets – the Dow, the S & P and the NASDAQ – are heading over the falls and there is nothing they can do about it. Anyone younger than 50 today is going to get clobbered if they keep investing for retirement with the old “buy and hold” method of investing in funds or stocks.

I have nothing in the markets as of today. I cashed out this year, and took the tax hit. It was substantial, but Mrs. Matson and I collectively decided that we wanted to be cash heavy rather than watch our investments dwindle to nothing.

On another note, my parents (62 & 60) are retired boomers. While they are financially as stable as anyone you have ever heard of, their standard of living is higher than at least 99% of the world and likely 95% of Americans. With the probability of life into their eighties being fairly high, my guess is that at some point in the next five to ten years, they will be living with my family in our tiny suburban compound and working a day gig.

Couple that economic impact with creeping state control and you have a blueprint for one of the most brutal time periods the western world has ever seen.

 

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