The following post is from seekingalpha.com
James Eckler author
The baby boomers are reaching the age where they need to decide between asset ownership and liquidity. A growing percentage of this group will use up their savings “between jobs” after age 50 and before retirement. They will go through the process of liquidating their assets at prices that are much lower than a few years ago in order to add to future monthly income.
With over 75 million baby boomers looking ahead at uncertainty, more job shortages for older people, and a largely unfunded Social Security and Medicare system (especially Medicare), they will begin to consider how to get liquidity from their hardest to liquidate assets – their houses. Social Security checks now average about $1100, and for a large percentage of these people this is what they will have to live on.
Sustainability of the existing financial lifestyle among the boomer group will probably be restricted to about 10-20% of the overall group. The rest will need to liquidate assets, especially aging houses, to pay monthly expenses and cover rising healthcare premiums.
The biggest decision for most will be WHEN they sell their houses if they are homeowners. This could easily lead to a large increase in the number of listed homes over the next decade where, unlike before, the seller is not the buyer of another home. It could also lead to many who do have assets (the top 20% probably have around $800,000 in assets) selling second homes and not replacing these homes.
The impact of these changes in homeownership and income will be a big increase in demand for low cost rental housing (under $600 per month with utilities and taxes), a portion of the market that is largely unavailable today.
Since 2000, according to reports created by the former Comptroller of the United States, David Walker, the total liabilities of the U.S. have grown from $20 trillion to $53 trillion by 2007. This number can’t be paid, so the issue that faces the investment community in the U.S. is how to react to what amounts to undisclosed future cuts that will have to be made in programs. Most of these liabilities are for unfunded Social Security and Medicare (especially Medicare). Medicare reached “Warning Status” recently, which requires the new President to make changes to make the program solvent in 2009.
If taxes are raised, it will slow the economy. If benefits are cut, a large portion of the population will have to raise their savings rate, sell assets, and cut spending. Which will be chosen, or will it be a combination?
The Peterson G. Peterson Foundation web site, where David Walker is now CEO, has a great citizens guide for those readers who really understand the scope of the debt issues confronting the U.S. and its financial markets.
The way this issue is resolved will have a big impact on the housing business for the next decade, and on our economy for an even longer period.
Crew Capital Management Thoughts on Investment
Welcome to the Crew Capital Management Thoughts on Investment blog. At Crew Capital, investment education is key to how we work with our clients. We hope our conversation and analysis entice you to think further on your investment strategies and planning. For further discussion, please contact us at rjung@crewcapital.com
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Robert F. Jung, CFA CPA*
*CPA inactve
Thank you!
Robert F. Jung, CFA CPA*
*CPA inactve
Friday, November 28, 2008
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Nothing on this web site shall be construed as advice to any particular investment need or investor. All references regarding investment or portfolio returns are based on historical data. One should not assume that this performance will continue in the future as past performance or results are not an indication of future performance or results.
Certain portions of Crew Capital’s web site (i.e. books, newsletters, articles, commentaries, etc.) may contain a discussion of, and/or provide access to, Crew Capital’s (and those of other investment and non-investment professionals) positions and/or recommendations as of a specific prior date. Due to various factors, including changing market conditions, such discussion may no longer be reflective of current position(s) and/or recommendation(s). Moreover, no client or prospective client should assume that any such discussion serves as the receipt of, or substitute for, personalized advice from Crew Capital or from any other investment professional. Crew Capital is neither an attorney nor accountant, and no portion of the web site content should be interpreted as legal, accounting or tax advice.
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