Why You’ll be Forced to Live Week to Week in Retirement

I don’t want to live past 85,’ said Emma, the Irish hairdresser in Amsterdam.

I’ll see if you feel that way at 84 and 10 months,’ was my reply.

Emma had just returned from visiting her 92 year old granddad in Dublin. Granddad is in a nursing home with his 98 year old brother.

Granddad is not in good health but according to Emma, ‘He’ll probably kick on for a few more years.’

I mentioned to Emma that advancements in medical science with biotech — cracking the gene code, 3D printing of vital organs — means more boomers and Gen Xers can look forward to life expectancies of 100 or more.

Be buggered if I’m going to be cutting bloody hair till I’m 80,’ was her blunt Irish reply.

The future frightens Emma…and she is not the only one who feels that way.

While in Holland we visited a relative who is a permanent resident in a purpose built facility to care for dementia sufferers.

What struck me the most from the visit was the number of patients being cared for in the facility, and the amount of construction work underway to increase capacity.

The relative’s son said he’s not looking forward to getting older. I reminded him the alternative is not much fun either.

Medical science may well find a treatment for dementia, Alzheimer’s, cancer and a host of other serious illnesses (renal, liver and heart failure).

We may also see, in our lifetime, the ability to slow down or even reverse the ageing process.

We’ve discovered genes that control how the body fights against ageing and these genes, if you turn them on just the right way, they can have very powerful effects, even reversing ageing — at least in mice so far,

David Sinclair, Professor of genetics at Harvard and UNSW,
November 2014

In theory living longer should be something we rejoice in. However, nothing in life is ever one dimensional…there are always unintended consequences.

For instance there’s the prospect (or in Emma’s case, the fear) of working until you are 80.

When it comes to saying ‘I do’, do you really want to be married to this person for 80 or more years?

Are there enough natural resources to cater for a global population that defies the traditional lifecycle?

How can we afford to live for that long and/or how can governments collect sufficient tax revenues to honour increasingly expensive welfare and healthcare promises?

We are in the midst of a seismic change — economically, financially, technologically and medically.

The past is running headlong into the future. We know from history the past always loses.

Smack bang in the middle of this transition are the baby boomers. We see one or both of our parents living into their 80s and 90s. If they pass away under the age of 80, there’s a feeling they died ‘young’.

It is no great stretch of the imagination to think more of the boomers will live into their 90s and over 100.

As my wife and I are boomers, I hope this privilege is afforded to us.

Besides being afforded the privilege, you must also be in a financial position to afford to live longer. Health and wealth are both critical.

This is where promises from a past era are going to disappoint so many boomers in the future.

The age pension is a luxury paid to those over the age of 65, courtesy of the taxpayers. The argument of ‘I’ve paid taxes all my life’ is an emotional one. It does not stack up financially. The taxes paid during one’s working life funded the expenses of the government of the day. There was no allocation to a national retirement fund from which an age pension would be paid.

The social contract to provide welfare and healthcare was one entered into in the past — a world where life expectancies were lower, economic growth rates were higher, there were relatively low unemployment rates, the western world was more than happy to procreate, and all levels of society (governments, corporations and individuals) had enough room on their balance sheets to take on greater levels of debt.

The future is nearly the mirror opposite of the past:

  • Higher life expectancies (whether we like it or not)
  • Lower economic growth rates (unless productivity increases due to western population bases growing and/or people are prepared to work longer hours for a longer number of years — provided the jobs are available)
  • Lower rates of return on investments
  • A greater level of automation — driverless cars, robotics, virtual experiences — that threatens to be a major disrupter to employment.
  • Default or restructuring on some (maybe 10%, 20% or even 30%) of the world’s US$200 trillion debt pile — one way or another someone, some institution, central bank or the IMF is going to have to take a severe haircut.


As the past is being placed under pressure from the future, the cracks are already starting to appear.

Despite a very strong 2014…U.S. pension funds remain in dire straits. According to a July 2015 report from the Pew Charitable Trusts, total unfunded U.S. state and local pensions likely topped $1 trillion in 2014.

Value Walk 15 July 2015 (emphasis mine)

US state and local pension plans are US$1 trillion shy of what the actuaries estimate they need to meet their future obligations to members.

In my experience this number will be on the low side. Why?

My guess is actuaries are still putting two incorrect assumptions into their computer modelling — higher rates of return, and life expectancies levels that do not reflect the future.

The US share market, ably assisted by the Fed’s misallocation of resources, has delivered a return in excess of 150% over the past six years.

Fixed interest (bond) funds have also delivered extraordinary returns due to falling and suppressed interest rates over the same period.

Based on the principle of ‘recentism’ — extrapolating the recent past into the future — actuaries are likely to have dialled up the expected returns in their forecasting models.

The point to note from the Pew Research report is that, even with all the post-GFC market positivity, US pension funds are still in the red.

What happens when the next (and much harder) GFC hits? The one the actuaries are not factoring into their models? And if they are, I’ll bet the downside is nowhere near the extent of what it promises to be.

The Shiller PE Ratio (based on the inflation adjusted earnings of the past decade) is currently 27.1.

In the US share market’s 140-year history the Shiller PE ratio has rarely been at this level. When it has, in 1929 and the 1990s, the average return for the next eight years has been minus 0.7% per annum.

I’ll bet you the actuaries aren’t plugging this number into their forecasting models.

The combination of lower returns and more boomers moving into pension phase in the next eight years is going to put considerable stress on these funds. Pension cuts and disappointment awaits.

This is the same story the world over — the vast majority of pension and superannuation funds are not adequately capitalised to fund future retirement demands.

The way I see it, we are headed for a massive market downturn. Anywhere from 50% to 90%. Next time around the Fed and its other central banking cronies will be unable to pull any more QE and low interest rate rabbits out of the hat. They’ll try, but it’ll be the equivalent of pushing on a string.

Therefore, the market will have to do what it is meant to do — genuine price discovery.

If the past is any guide, it will take a decade or two for the US market to revisit its current high.

Millions and millions of boomer pensioners going into austerity mode will create a vicious feedback loop for government revenues. More disappointment awaits on welfare and healthcare entitlements.

Living longer, but living on a week to week basis is not how many envisage their retirement. Sadly, this is what awaits…not now but in the coming years and decades.

The first step to avoiding this fate is dodging the market’s next GFC bullet. Six years of extraordinary central bank intervention means the gun is well and truly loaded and cocked.

No one knows when the command will come to fire. But when it does, it will be too late to exit.

The decisions you make in the near term — remain in or cash out (partially or fully) of the market — will determine whether you are going to fear or embrace getting older.


Vern Gowdie,
Editor, Gowdie Family Wealth

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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