My blog today is about the Baby Boomer generation born between 1946 and 1964. There are 9.6 million of us (I am one myself) that represents 25% of the population in Canada. I have recently read several articles, mostly written by expert analysts and economists, predicting the spending habits and decisions Baby Boomers will make in the years to come. One prediction is that a good many will be selling their 3,000 square foot home and replacing it with a 1,200 square foot condo. There are any number of reasons a Baby Boomer might have for doing this but, at the end of the day, this decision will be made, in good part, by the net worth and future earnings for each of us Baby Boomers.
Let me share you with some examples (all fictional). Joe and Sally have lived in their home for 20 years. They are now both retired and their children are all grown up and living on their own. Both collect normal Old Age and CPP pensions along with a small company pension for a total of $30,000 annually. They previously earned $90,000 annually when both were working. Joe and Sally have RRSP’s totalling $100,000 and intend to add this to their current income as a RRIF (Registered Retirement Income Fund) once they turn 71. They live in a suburban community and require a vehicle to get their groceries, doctor appointments, etc. Joe and Sally have decided to sell their home and move closer in to all the amenities. They are looking at condos because by downsizing they will add an additional $200,000 or more to their savings from which to draw monthly funds from to support their current lifestyle that included taking an annual vacation to somewhere warm. They perhaps fit the average scenario that most Baby Boomers may be in today that our economists speak of. That is why we are hearing so much these days that places like Toronto are needing so many more condos.
But wait a minute. What if Joe and Sally’s situation was quite a bit different. What if their investment portfolio and recent inheritance now totalled $500,000 or more? Do they (or would they) still move into that 1,200 square foot condo? Some may still do that to enjoy even more funds available to them in their retirement years. Others may choose to move up (yes, I said up!) to a newer home (single family dwelling) that has all the bells and whistles we all dream of having (ie new kitchen with granite tops, new hardwood flooring, new bathroom fixtures, etc.) in a newer neighborhood with possibly a smaller yard (cutting grass is just a hassle for most of us!). Interestingly enough, you just need to check your local real estate listings and new subdivisions that actually promote their new homes by catering to the Baby Boomer generation. Joe and Sally are now interested in one of these new homes, instead of a condo, as they have the extra funds to spend without having to worry about needed cash flow in their retirement years ahead.
In conclusion, what Baby Boomers will do in future will be determined mostly by their personal net worth and cash flow available to them in order to sustain the lifestyle they are comfortable with. Perhaps the economists need to determine this before assuming what each of us are most likely to do.
The million dollar question? . . . It’s really the answer!