US-Population-Growth-19502010-GIFThe baby boom is truly a demographic force to be reckoned with. Chances are good that you are in this age demographic.

You and your contemporaries control government, control business, control vast amounts of wealth.  Over a lifetime, you have a lot of expectations from the government and for your money.

The Demographic Problem:

Unfortunately, government services and benefits are built on economic assumptions that may not be supportable by demographics anymore.

Government debts are at all time record highs.  But we are led to believe that future growth in Gross Domestic Product and economic vitality will produce taxable income to service our debt and to service the promises our government has made to you and your generation.

But the Demographic risk to Retirement can be summed up by this quote that I saw when I first found this image:

“Speed it up fast enough and that Baby Boom is like a wave that’s going to crest over the levees of our Social Security apparatus.”

Source: Reddit

demographic risks 2But look at this chart again….. The yellow arrows point to the productive workers and the young.

Note how few, relatively, there are…

Gen X is the top arrow in the 30 to 40 age range. We are the ones trying to raise our families at the bottom of the age ranges, and also looking to support our parents looming over us.

So why is this a concern to the retirees higher up in this chart, in their late 50’s and 60’s?

Well, where does mainstream media and Wall Street tell you to invest? Stocks and bonds…..

And what do you do with a stock/ bond portfolio when it comes time to retire?

You sell- it’s known as a ‘systematic withdrawal rate’ and is usually promoted around 4% of a portfolio per year……

But back to the beehive population graph- a market requires a seller (retiree) and a buyer to function…. Who’s the buyer???

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As millions of Americans move from asset accumulation to income generation, there WILL be dramatic effects on the stock market and on income producing assets.

Just think for a moment and look at the beehive chart.

In 1950, a wide base of workers supported a relatively small population of elderly people.

Now look at us today.

How can the wide overhang of Baby Boomers aged 55 to 75, expect their kids in the narrow waist of workers age 30-40 to simultaneously…

…..Buy their stocks when they want to sell…..

……Buy their homes when they want to downsize…..

…..Fork out trillions in Medicare and Social Security……

…Fund an out of control, profligate Government…

…Pay their own Taxes….

….Oh, and Support Their Own Families (YOUR GRANDKIDS!!)….

It simply can’t be done.  There isn’t enough wealth creation going on to support the simultaneous need for asset disposition, Government spending, Social Security/Medicare/Etc, private investment, asset accumulation, and education.

US-Population-Growth-19502010-GIF

demographic risks 2

My Conclusion:

With government stressed to the breaking point around the world, and debt levels at astronomical highs, it is demographically very challenging for a small number of productive workers to support a large number of dependents both younger and older.

It is quite likely that deflation and asset price declines may take hold in this wave of selling pressure.

Mitigate this risk with some sort of guaranteed portion of your portfolio.

Demographic Risk Summary

  • Demographics May Make All Other Risks Worse
  • Government Benefits Likely To Be Lowered
  • Social Security Benefits Likely To Be Taxed
  • Fewer Workers + More Dependents = Economic Stress
  • Many Sellers, Stressed Buyers= Lower Equity Prices
  • Higher Taxes To Pay Debts = Lower Growth

.

Demographics… What If…

What happens when this massive sales pressure takes place not for a month, but a year? Then five years, and ten years. With no end in sight for decades? With up to 50 million Boomers attempting to cash out trillions of dollars of investments each year?”

And further:

 What happens to prices as the cash coming in slows down, and the profits are taken out instead of being reinvested? When instead of cash, cash and more cash pouring into the markets – it is cash, cash and more cash being pulled out of the markets?”

Source: Dan Ammerman, Contracts With Our Children

Solutions For Demographic Risks

What can you do about this demographic time bomb? Well, honestly there is very little you can do to change reality.  But you can protect yourself and your family’s financial future by putting a huge financial institution like an AA Rated Life and Annuity company on your team, to make sure your income needs are covered.

The biggest risk, as I see it, is relying on the stock market to provide for an orderly appreciation of your assets. Ditch the systematic withdrawal plan as your sole method of generating income.  Put a foundation of Guaranteed Income in place you can rely on, and take pressure off your equity portfolio.

Protect Your Assets By Purchasing Income Annuities

An Annuity-Backed ‘Personal Pension’ Mitigates Risks

  • Mitigate Risk Of Lower Government/ Social Security Benefits
  • Mitigate Risk Of Weak Market Performance/ Overselling

Mitigate Risk Of Taxes By Utilizing Tax-Deferred Annuities To…

  • Hold Your Money
  • Protect Your Money
  • Grow Your Money
  • Take Income From Your Money

Harry Dent writes extensively about demographic risks to the economy in this book

demographic risks