In this letter presented by John Maudlin “Thoughts From The Frontline”, Bill Gross takes a look at the future of the US boomer generation as consumers. He considers some startling, though rather obvious, conclusions:

“it will be up to younger generations to do the Lord’s work and there aren’t enough of them to provide health care, a comfortable retirement, and to compete head-on with the Asian invasion at the same time.”

We can postulate based on his rationale a number of consequences for the boomer generation: with fewer workers, productivity will have to rise to maintain the nation’s standard of living; prices for services for retired people will rise dramatically as more people use their wealth to purchase these services; many services provided originally by local and state government will become unworkable because of a shortage of labor, which no amount of local lawmaking will be able to solve; taxes will probably rise for everyone – creating a disincentive for individuals to work harder anyway, and forcing more corporations to look for cheaper tax shelters; … you can see where this is going. The intergenerational balance will be altered and as always in such situations, when one thing changes in one way, there is always a backdraft going the other way. Raise taxes … more money for government to spend on people… fewer jobs… fewer investments… possibly even capital flight.

“A lack of workers can be solved only by producing more of them and that will almost assuredly be done only by extending Americans’ retirement age into their late 60s and a scaling back of their benefits”

Most societies will manage the transition to an older society in a number of ways: increasing the retirement age to 70-75 perhaps; decrease state pension benefits (by delinking inflation enhancements); increase private provisions through Pension schemes (though the risks will be borne largely by the investors); make it easier for older people to keep working by changing laws, removing age discrimination; improve tax structures for individuals seeking to invest for their pensions; and so on…

“To think that all the boomers have to do is sell their homes to pay for retirement and healthcare begs the legitimate question of “to whom and at what price?”

–Reverse Mortgages–

When you retire and suddenly find yourself on a fixed income, you may encounter financial difficulties. Those difficulties may be alleviated if you take out a reverse-loan, which will allow you to retain ownership of your home and receive cash payments each month to help you with expenses. Unlike a traditional type of home loan, a reverse loan offers peace of mind because you cannot be evicted from your home for lack of payment, since no monthly payment schedule will exist.

However, your heirs may not inherit the home, if you pass away while you still have an agreement with a reverse mortgage lender unless they opt to pay the balance. If the balance goes unpaid, the lender can recover a partial or full amount through the sale of the home but cannot lay claim to assets other than the money from the sale.

–Reverse Mortgages–

Of course when demand rises, so do prices. The opposite also occurs: when products become abundant, prices fall. Inevitably, the assets that the older generations have accumulated to provide in their old age will be of less value in the future as competing herds of people try to sell to provide income: they will sell their houses, their stocks, their businesses, their antiques… Naturally, some will find buyers through international markets, but many will simply have to sell at lower and lower prices.

So where does that leave the boomer generation, especially those who have made so few provisions for their retirement?