Assumptions about age don’t apply to boomers

Just as they changed the way we think about youth and growing up in the 1960s and 1970’s, expect the boomers to completely change the view on aging, says one of Canada’s best know pollsters.

In a keynote address to the Investment Fund Institute of Canada’s annual conference in Toronto, Allan Gregg, chairman of market research firm Harris/Decima, said past assumptions about retirement and retirees cannot be applied to boomers.

There are a lot of “urban myths” and scare-mongering about boomer retirement scenarios, such as the bankruptcy of CPP, labour shortages and a crippling health-care crisis, that he says are possible but not probable given the ability of the boomer demographic to defy conventional behaviour. Instead, he says boomers tend to create a seismic shift in their wake that has changed Canadian society and attitudes.

“Population needs don’t change in a straight-line fashion. If that was the case, when the boomer generation finally wrapped up university starting in the early 1980s, we should have seen university enrollments drastically fall. To the contrary, our universities are bursting at the seams,” he says. “Similarly, if everything changed in a straight-line fashion, our first-time housing market would have started collapsing in 1996 as this generation completed first-time homeownership. To the contrary, we have had an unprecedented housing boom. The fact of the matter is, populations change.”

The reality is that boomers are embarking on retirement and entering the final stage of life, he said, so there will be more old people. But businesses that cater to boomers, like the investment industry, need to start thinking about a “new type of old person.”

“Of all the generations, they continue to be the demographic most likely to underestimate their age — it’s between 12 and 15 years ,” he says “They continue to want to be alive, active and engaged.”

Most notably, Gregg says statistics on those born between 1947 and 1966 show boomers want to put off full retirement as long as physically possible. He notes 80% of boomers expect to be active in the workplace well into retirement.

“What is the barrier we use in demographics more than any other? It’s age,” Gregg says. “People have a target market of 55-plus or maybe it’s 18 to 34. Well scrap that, because age has become a very poor predictor of behaviour. To assume what a 35-year-old does now is what 35-year-olds are going to do 15 years from now is complete bollocks. We’re on the verge of labour shortages? Think again; legions of octogenarian consultants are far more likely.”

The financial services industry will have to manage outsized expectations, Gregg said. Boomers have achieved unprecedented levels of wealth and are now the economic lynchpin of the North American economy.

He noted that over the last 30 years, those who were 54 or older, which includes the generation that preceded the boomers, have seen their net worth explode, which in turn has driven much of the mutual fund and investment savings industry, not to mention high-end retailers.

“The top vehicles purchased by 50- to 59-year-olds in 2004, according to J.D. Power and Associates … was the BMW Z3. Number two was the Infiniti G35, number three was the Mercedes CL Class, number four was the Chevrolet Corvette and number five was the Lexus RX,” he says. “Does this sound like a generation that is getting ready to go away?”

At the same time as boomers have been living it up, those 35 years or younger have seen their comparable wealth fall back more than 75%. While the generation that preceded them is sitting on mounds of savings, the boomers are supporting not only themselves but their adult children as well.

“In fact the single-biggest change reported by StatsCan between 1991 and 2001 is the percentage of 20-year olds living with their parents. It has doubled from 21% to 42%,” he says. “Fifty-eight percent of boomers have some sort of financial responsibility for their adult children. That’s adult children. While at the same time, 24% have some sort of financial responsibility for their aging parents.”

Gregg highlights that supporting both their parents and their kids has put considerable financial and emotional stress on boomers — for many, this is the reason they must keep working — and for all the wealth they have amassed, they still have cumulatively no net savings.

“Over the last 30 years, we have eradicated poverty for old people in this country, save for very old single females. We offer discounts on bus passes, movie fares etc., and seniors right now are laughing their asses off,” he says. “In fact, for the baby-boomer generation — those born between 1947 and 1966 — as a group, their net value is zero. Right now their liabilities equal their assets. The older generation is doing very nicely. This [boomer] generation is extremely stressed.”

Gregg says financial professionals who work with boomers will therefore be planning on two fronts: asset accumulation — which will likely continue well into retirement — and asset liquidation. He says the latter will be more difficult, because many boomers will psychologically equate tapping into their capital with being old — something they are loathe to admit.

“One of the hurdles you’re going to have to face with this generation is the idea of eroding capital. No one wants to erode their capital. Everyone wants to live off interest or dividend income,” he says. “You’re going to have to convince them to do that without making them feel like they are an old person.”

Filed by Mark Noble, Advisor.ca, mark.noble@advisor.rogers.com

(09/24/08)