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ALWAYS CONSULT YOUR INVESTMENT PROFESSIONAL BEFORE MAKING ANY INVESTMENT DECISION

March 23, 2016 | The hole

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

A little over 9,000 people in Canada retire every week. Yes, these are boomers, and they join approximately 10,000 aging American hippies who are going through the same life change each day. This is a massive event, since the wrinklies represent about a third of our population.

Lots of them are screwed, of course (more on that in a moment), but logic tells us they might be way better off than their Millennial spawn who now outnumber them. Their retirement event, in about four decades, should be a mother.

The reason’s simple. Boomers lived through years of inflation and economic expansion, while today we’re borderline deflationary and in a financial funk. For people like me, buying a house that cost three times annual income was a good strategy, even when rates were off the chart. Today kids who overreach to buy property at six or ten times income, with monstrous debt, are taking extreme risk, no matter how cheap money is. Given that real estate will not hold present values, Millennials trying to turn into their parents will probably blow up.

How they don’t see that is weird. Real estate’s a wealth trap. Why any 25-year-old would want to fund the retirement of a Boomer by taking over their $1 million house, or walk into 25 years of payments to live in a condo they could rent for less is inconsistent with Millennials being so smart. What, exactly, did they teach you in all those years at uni?

Anyway, now we have a selfie prime minister who also made himself minister of youth and should understand this stuff. So what did the budget do yesterday to try and guide us towards a better future?

Well, the dole handed out to poorer retired people, called the GIS, was increased by 10%. This amounts to about $8,000 a year (in total) for those below the poverty line. Second, the freebie money every retired person receives, called the OAS (Old Age Security), which was scheduled to start being available at age 67 in a few years, has been restored to age 65. That’s $570 a month, which is reduced the more you earn. And third, as you know, the Liberals chopped the amount you can put into a TFSA every year by almost half. Thus everyone will have a harder time amassing savings that will supplement their retirements, without shrinking their OAS or GIS payments.

Meanwhile plans to revamp and enhance the CPP (which pays an average of $600 a month in retirement) have fallen apart, and it’s quite unlikely reform is coming. Even if it did, this would mean substantially higher premiums paid by every Millennial for the next few decades to gain more after they finish work.

None of this would impress me if I were thirty. There’s no plan here other than to toss a little more money at people who are in a spot you’d never want to trade for. This government’s thinking just like every one which went before. It encourages young people to dive into housing debt – with cheap rates, the homebuyers plan, CMHC insurance, low dowpayments and tax incentives – and yet fails to recognize in a low-growth, low-rate, low-jobs, low-yield world that’s a recipe for enslavement and likely ruin. Too bad. And, to boot, the kids get $100 billion in new federal debt over the next four years – none of which Boomers will be repaying.

Most of us don’t understand what’s coming. Of the nine thousand people a week now retiring, over 84% (according to a BeeMo survey) will ”rely heavily” on CPP cheques to get by. How sad is that, when the annual total averages under $7,500? At least the boomers have real estate to sell – which about half of them plan to over the next few years.

In the US, not much better, although social security payments are higher. About half (48%) of people haven’t even figured out what they’ll need to live on in retirement. Those who have think they’ll need about half a million dollars. But 94% don’t have it, and probably never will.

So what? Well, this massive Boomer retirement thing is scheduled to go on for another decade, at which time there’ll be more thirsty-underwear-wearing, scooter-driving, sex-pill-popping, irritating old farts than at any other time in human history. Not a real boon for the economy, as they suck off health care, dump their houses and drive too slowly in front of you. If I were a Millennial, I’d understand that no other generation has ever faced this kind of obstacle before. I’d see that houses could become a major source of financial deflation, growth could be flat for decades, and the last thing I’d ever want is more debt.

I’d also be looking for leaders who get it. Hard to see how the middle class can be saved by spending money building bridges, taxing at 50% those who achieve good incomes, neutering the best wealth-building vehicles families have, plunging the country into another decade of borrowing, guaranteeing higher taxes or being incessantly encouraged to sink into real estate debt.

But, of course, I’m no hipster. Just a guy who thinks you need to be careful. Voting is easy. Investing is hard. Only one of those really works.

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March 23rd, 2016

Posted In: The Greater Fool

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