The Older I Get, the Better It Was

My birth year is 1959 — positioning me at the tail end of the baby boom.

According to statistics, there are 5.5 million boomers in Australia.

Boomers grew up in a world different to the one we inhabit today.

  • Bank managers were prudent;
  • Teachers were respected;
  • Higher education was free;
  • Welfare was afforded to the elderly or less fortunate;
  • Life expectancy was widely acknowledged to be ‘three score and ten’ (equivalent to the age of 70). Anything above that was considered to be ‘a good innings’;
  • There was an abundance of jobs…without the need for tertiary qualifications;
  • Prior to the introduction of credit cards, you went ‘cap in hand’ to the bank manager for a secured or unsecured loan. You needed to demonstrate your credit worthiness with a proven savings record;
  • You were allowed to go unattended to the park to kick a footy or spend a day exploring bushland;
  • You misbehaved…you expected a clip around the ears;
  • The courtesy of ‘please and thank you’ was the rule rather than the exception;
  • And best of all, there were no iPhones or video surveillance to record those times when you were not quite on your best behaviour…


Life was simpler back then.

But nothing stays the same forever.

The dynamics change.

And while we may reminisce about the ‘good ol’ days’, we must accept responsibility for making the world more complex.

We took full advantage of the previous generation’s austerity to create our prosperity.

The frugality of our parents and grandparents established a solid financial foundation: conservative debt levels; prudent lending conditions; and affordable housing.

Boomers took these stable conditions for granted and leveraged up.

Our willingness and eagerness to bring forward future consumption generated an unprecedented (an unsustainable) level of economic growth.

Upon reflection, I can’t help but think our generation has seen the best of times.

On balance, our youth and working lives have been pretty good.

Boomers are now progressively moving into retirement.

This phase of our lives is not looking so promising.

In the years and decades ahead, the wealth cycle will complete its rotation — prosperity back to austerity.

Sadly, most of my fellow boomers are ill-prepared for what lies ahead.

A fellow boomer recently reminded me of an article I wrote for The Gowdie Letter nearly two years ago.

He said: ‘The more I read and see today, the more I’m convinced of the path you warned about.

Here’s an edited extract of that article:

In my opinion we’re on the cusp of a major trend that’s going to impact asset values in the decades to come.

Whether you agree or disagree with the conclusions, I trust it makes you think a little deeper about the road ahead.

Assuming what’s happened in recent history will “continue to be so”, could prove to be a serious miscalculation. A miscalculation that could literally ‘make or break’ your retirement plans.


Workers and retirees are heading into an unhappy future.

Deflation. Debt. Demographics. Deficits. Depression.

I’ll go back over some old ground quickly.

  • The Depression era generation (my parents) were generally frugal.
  • Boomers were much less frugal than their parents. We borrowed (a lot) to have a better lifestyle.
  • That ongoing debt accumulation process produced artificial economic growth statistics, showing the economy was growing faster than it really was.
  • Governments promised a truckload of entitlements on the back of the artificial (and unsustainable) economic activity.
  • The spiraling cost of living, housing and funding for retirement (all as a result of the debt infusion into the economy) forced families to have fewer “mouths to feed”.
  • The lower birth rates translate into a lower number of future workforce participants.
  • The future workforce participants are burdened with higher levels of borrowing for housing; higher levels of funding for childcare; higher taxes to pay for entitlements promised during the economic golden age; and longer working lives to pay for all the above plus their own retirement.


I think that pretty much sums it up.

We have a serious demographic showdown coming our way within the next decade.

In one corner we have the Boomers. They have expectations of still living a lifestyle just slightly above their means (financed from investment income, capital drawdowns, reverse mortgages, age pensions and access to low cost healthcare).

And in the other corner are Gen X, Gen Y and the Millennials. They’re none too happy with the debt and entitlement legacy left by the Boomers. A legacy which is leaving them with being taxed higher for longer.

The economic tailwind created by the boomers from 1980 onwards is now building into a gale force headwind.

Economic activity is largely a result of a productive workforce.

The following chart shows how GDP growth is impacted by demographics.

Young people detract a little from GDP growth, whereas old people detract a lot.

The economic sweet spot is when you have a large cohort of 20 to 44 year olds in the economy. For those past 44, remember what it was like back then? Setting up your home; buying cars; educating, clothing and feeding children. This all translates into a higher level of economic activity.

Developed Markets GDP Growth 28-08-17

Source: Nomura Research
[Click to enlarge]

The following chart (from the Australian Treasury) projects our population distribution through to 2047.

The fastest growing segment is the over 65s (the grey section — possibly a subconscious reference to hair colour).

Australian Population Age Ranges 28-08-17

Source: Australian Treasury Department
[Click to enlarge]

Economic growth is going to slow down.

This is not unique to Australia.

Europe, the US, UK and Canada are all facing the same demographic headwind. Japan is already in the teeth of the demographic gale.

To avoid following the Japanese economic ‘death by a thousand lashes’ model, changes need to be made.

  • Increased immigration to bolster the 15 to 64 age bracket. This ‘solution’ has problems. Yes, it gives a one-off fix, but what happens when those people reach 65? Do we then have another influx of people to support the supporters? How much population can our country’s resources (or any country for that matter) provide for? This is a fix, not a solution.
  • Increase tax rates. Lots of talk about just how Government is going to do this — GST hike, super grab, levy increases, changing tax laws on overseas corporations. You can only get so much blood out of people. If the tax system becomes too onerous, people find ways to either circumvent the taxes and/or opt out. The other fly in the ointment for governments looking to raise income taxes is automation and robotics. How will they tax a more efficient and lower cost operating structure?
  • Decrease entitlements. But once given, they are very hard to take back…especially when it’s Government promises. Politically this is tough, but it needs to be seriously looked at. Will it be counting the family home in the assets test? Gradually increasing the eligibility age for the pension to 70 or more?
  • Increase the retirement age to 70 and beyond — whether this is done officially or unofficially (because people will not have enough saved to fund a 30+ year retirement) the retirement age is going up and up over the coming decades.

The following chart is based on research from US based Research Affiliates. While this relates to the US, it has applications for us in Australia.

Based on maintaining stable retirement savings — not depleting retirement capital by retiring too early and by living for too long — Research Affiliates calculates that between 2018 and 2030 the retirement age will need to rise to over 70.

Retirement Age: Savings 28-08-17

[Click to enlarge]

Pressure is going to mount in the coming years as both sides of the demographic divide clash out of self-interest.

If something cannot continue, then it won’t. The outcome will be a combination of the options outlined above.

Let’s join a few dots here.

Low economic growth feeds into low investment returns.

Low investment returns mean a lot of retirees are going to find their capital base is not sufficient to generate a standalone retirement income.

Portfolios will be gradually sold down to cover the income shortfall.

Will the following generations pay the price the boomers are asking for the assets they are selling down? Or will they wait for the boomers to blink?

I’ll leave you with this snapshot from Nomura Research on the demographic structure that works better for shares:

Nomura Research Shares Demographic Structure 28-08-17

[Click to enlarge]

Appreciating the headwinds that are in our future, means we have to allocate our capital wisely.

Buying shares based on the banal premise of “shares always go up in the long term” is really dumb investing. The road ahead is going to be very different to the one that allowed the investment industry to come up with this self-serving mantra.

When the next market downturn hits, retirees who thought diversification meant lower risk are going to learn a hard lesson.

In the search for yield, all asset classes have been pushed into overvalued territory, and are therefore vulnerable to heavy losses. The only asset class that will likely retain its value is cash.

The loss of significant capital means a high percentage of boomer retirees are going to be forced into austerity.

A return to the frugality of our youth is not the nostalgic trip boomers had in mind for their retirement.


Vern Gowdie,
Editor, The Gowdie Letter

Vern Gowdie has been involved in financial planning since 1986. In 1999, Personal Investor magazine ranked Vern as one of Australia’s Top 50 financial planners. His previous firm, Gowdie Financial Planning was recognized in 2004, 2005, 2006 & 2007, by Independent Financial Adviser (IFA) magazine as one of the top five financial planning firms in Australia. He has been writing his 'Big Picture' column for regional newspapers since 2005 and has been a commentator on financial matters for Prime Radio talkback. His contrarian views often place him at odds with the financial planning profession. Vern is is Founder and Chairman of the Gowdie Family Wealth advisory service, a monthly newsletter with a clear aim: to help you build and protect wealth for future generations of your family. He is also editor of The Gowdie Letter, which aims to help you protect and grow your wealth during the great credit contraction. To have Vern’s enlightening market critique and commentary delivered straight to your inbox, take out a free subscription to Markets and Money here. Official websites and financial eletters Vern writes for:

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