Baby Boomers are Screwed. Or Are They?

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I am part of Generation X and am a child of Baby Boomers.   As I grew up, I witnessed first-hand the Baby Boom Generation ride repeated waves of wealth generation.  At the moment their average standard of living has easily surpassed that of their parents and has done so for most of their adult lives.

Let’s review: they partied in the 70’s; rode the buyout waves of the 80’s; rode the technology craze in the 90’s and the housing boom at the beginning of the 2000’s.

Then just as they were all set to retire, what happend?  

The rug got pulled out from under them.  

As a result of all the chaos happening around them, their home equity shrunk or disappeared entirely, their 401K’s look like 201K’s, their parents and their children need help with monthly expenses, and their jobs are less secure.  A sharp downturn as you get set to retire is the ultimate wealth killer — especially if selling begets more selling and everyone rushes to the door at the same time.

Things went from easy street to “oh my god what are we going to do” within a heartbeat.  I am afraid if Baby Boomers (My Parents) are not careful, things will become unglued in a hurry, turning all the years of hard work, saving and investing into a big pile of smoke.

I suggest all Baby Boomers make one fundamental change today.

Given that time is no longer a friend of the Boomers, I suggest all of them stop focusing or even worrying about net worth, and instead focus on creation of passive income streams.  They need to create dependable and secure income streams that pay them every month without their having to work in a conventional way.  Obviously the larger the income stream they create, the better.

They have a couple of options to achieve this. 

Here is my analysis of The Good, The Bad and The Ugly.

The Ugly:  Have you noticed how low Money Market, Savings or even CD interest rates are these days?  Can you say Ugly?  It gets much worse when you factor inflation into the equation.    Inflation has to be running at north of 4%, regardless of the officially published number.  Ask yourself this question, if you earn 1% and lose 4% to inflation are you really winning the battle? Answer: NO

The Bad:  It has been decades since the average dividend yields on stocks exceeded the 10-year treasury.   Boomers could buy high yielding stocks to secure the dividend stream and deal with the ups and downs of the stock market.  Buying dividend paying stocks certainly could turn out to be a viable solution, but then again what happens if something really goes sideways?

I call buying dividend paying stocks “The Bad” due to the headline risk of stocks. When you are living off a limited stream of income, high risk does not translate well. In addition, let us not forget that it is not uncommon for companies to stop paying dividends, which will kill cash flow if things get really bad.

The Good:  Everyone needs a roof over their head and a place to call home.  Baby Boomers should  take advantage of the current real estate market.  They should think about  becoming either active real estate investors buying their own rental properties.  Or they should think about becoming a passive real estate investor by partnering with active real estate investors.

Many Boomers have been negatively impacted by the real estate bust and are now shying away from the market.  The good news is that they can participate and secure nice sized returns by simply taking on a first or second deed of trust on a rental property with limited downside risk, when done correctly.  These returns are easily 5 to 10 times greater than they can earn in money market accounts.

Being a passive investor allows Boomers the opportunity to secure larger dependable cash flows without the daily management and ownership risks.  They will need to investigate the investor to ensure that both the investor and the program are rock solid.

Why is investing in real estate different this time around? 
The difference is that the yield/return on investment is much higher than it was 5 years ago. If an investor has a documented track record of success, a clear and easily understandable plan that offers a large margin of safety for all parties then a Boomer could secure above average returns.

Remember Baby Boomers need to focus on securing passive monthly income to insure their ability to retire and sustain their retirement years, without taking on unnecessary risks.

Stop talking or thinking about net worth.  Instead Think or Plan for how much Cash Flow comes in every month without having to work!!!

The best option in the current market for most boomers will be to participate in Real Estate Investing either as active or passive investors.

Good Investing

Photo: NealeA

About Author

Michael Zuber is an active buy-and-hold real estate investor who still has a full-time job. Michael is not an agent or broker, and simply uses the internet and agent relationships to drive his business. He currently averages at least one deal a month and has developed laser focus on his 5 step process.

5 Comments

  1. The study of the future of baby boomers is quite interesting. As you pointed out they are not only a massive group but also have dynamics that we habe never experienced before. They lived their entire lives differently than their predecessors and although it seems as if they have had the rug pulled out from under them they should expect to retire differently than their parents did as well. With dramatic advancements in medical care people live much longer. I feel a huge task is before our nation to redefine retirement, somewhat as you describe. Retirement should be seen as a stepping stone to the next productive stage of life as many retirees have a good 20 years left on average. Retirement shouldn’t be seen as mearly living out your final years and enjoying these years in leisure. I believe there is much time for this but also many years of serving and building wealth in a personal passion. This is a great project that America needs to overcome and it will take a great culture change but is possible if not neccessary.

    Anyway, Michael, I do question why you believe that inflation is at least 4%? My biggest problem with this assertion is that when one looks at the weightings of inflation numbers and how these are actually came to I still feel we are in a deflationary position. Food and energy prices have elevated as FED actions caused push inflation based on thier CPI data. They used the data and manipulated it in order to calm the markets as a deflationary CPI reading is percieved as aweful and hard to reverse.

    Anyway the biggest problem I have with the current calculations for inflations numbers is that housing is weighted at roughly 42%. Now this might make one think that that would be a large drag on the overall numbers but actually it is the opposite. This is because housing costs in inflation numbers are calculated as average equivilant rent cost. This means that if on owns a home worth $250,000 that lost or gained $100,000 over the last 5 years is regardless only the amount it could be rented for. With 33% of homes in the US owned outright with no debt and a home ownership rate of 66% it is rediculous to assume that inflation is rising based on average rental costs that affect 34% of the population. This is directly related to real estate which I find fasinating but also sad at how distorted mainstream understanding of our economy had become as time goes on. People need to question what they habe been taught and believe are laws of science when in reality the laws of economics are very fluid as things evolve. As the boomers age and retire our world will truly change and it will be very interest to watch.

    Thanks for your insight.

    • Kyle,

      Thanks for taking the time to share your insights, I found them very interesting.

      Couple of thoughts.

      1) Inflation vs Deflation: I believe we are experiencing both at the same time. I believe the average cost of living is increasing (Food, Gas, Medical Care, School, and yes Rent). I also believe we have Asset Deflation caused by Supply outpacing Demand. This will be fixed with time but it might be awhile.

      2) I believe the printing of money will eventually lead to Asset Price Inflation in a big way as the US is not the only currency being printed in mass quantities.

      3) Lastly I agree it will be interesting to watch.

      I beleive most people would be better off focusing on Passive Monthly Cash Flow vs Net Worth. If we focus on the wrong metric our retirement or last 30 years of our life could be a big surprise.

      Good Investing

  2. A very interesting article and informative. As a younger baby boomer, I would suggest being prudent and save, save and save. The author’s idea on monthly passive income streams is the way to go. Also, get into work that you really like and can continue to do through your retirement years.

    • Hi Terry

      I don’t know your situation so offering any advice would be unwise on my part. That said you are a head of the game by realizing you need to take action and control your future.

      Good Investing

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