The Baby Boomers are living longer - what are the implications to younger Canadians?
With all of the talk lately of the Canadian economy and the lack of jobs, high interest rates, inflation, and the housing crisis - it’s starting to appear that the quality of life for young Canadians in each generation has slowly become worse and worse.
In this blog post, we delve into how it’s going to stay challenging for the Millennials and Gen X-ers to thrive if they are banking on receiving inheritances to fund their retirements or even purchase assets like homes.
Let us be clear:
Gen X & Millennials will inherit a bunch of Baby Boomer $ over the next 10-20 years.
But the timing around when Millennials / Gen X receive inheritances from Baby Boomers is increasing by the year, as Baby Boomers are living longer and longer due to advancements in health.
This means that Millennials / Gen X will receive the bulk of inheritance at an advanced age professionally, not when they need it - which is NOW.
Tune in below to understand the mechanics behind this trend and the implications of this.
1st chart of the day
We are making the following assumptions for the purposes of defining the age range of the different generations:
Gen Z (11-26 years old)
Millennials (27-42 years old)
Gen X (43 - 58 years old)
Baby Boomers (58 - 75 years old)
Roughly speaking, based off the age population statistics, the highest percentage of the Canadian population are Millennials and Gen X.
So, what’s the problem?
Baby boomers have all of the wealth in Canada and to the tune of about $1T of wealth.
That’s a lot of money. As mentioned above, what’s great for Millennials and Gen X is the baby boomers hold all the wealth and they are on track to transfer money to their Gen X and Millennial children.
So what’s the problem, then - Millennials and Gen X-ers? You’re about to inherit a bunch of money. Stop complaining!
Wrong.
The problem (and it’s a morbid way of looking at this so keep this in mind) is that Baby Boomers are living longer and longer. With an aging population that lives longer, comes more costs on the Canadian system and infrastructure.
More healthcare costs incurred by Baby Boomers
Baby Boomers who will rely on fixed income like pensions to survive will receive pensions for longer, which means that Canadians will need to fund this (these are funded by taxes typically)
Baby boomers will stay in their homes for longer and will exhaust more of their retirement savings as a result of being in their homes for longer
Inheritance transfer won’t be passed down until later for Millennials and Gen X, at an advanced age
2nd chart of the day
The chart above shows the average life expectancy in Canada. The trend on life expectancy is up.
You can see how the average life expectancy has went up from 74 years old in 1980 to 81.5 since 1980. That’s about 7.5 years of an increase over 40+ years.
While that doesn’t seem like a lot, it’s still sizeable. It means that it will take an additional 7.5 years for wealth to be transferred. And particularly, another 7.5 years of additional cost (healthcare, infrastructure, etc).
If the average life expectancy is 81.5 years, let’s assume that the average 81.5 year old had a child at around 30 years old. This assumes that those who will receive the bulk of inheritance will be 51.5 years old.
This means that it’s going to stay expensive for the near future.
With the trend of a current high cost of living and lack of housing affordability, it’s about to stay expensive for Canadians. More healthcare costs, more pension funding, higher taxes.
The implications of this are huge
That means many folks who can’t afford a home NOW will be waiting to inherit a sizable amount of assets or money. Canadians who want to buy homes need money NOW, not later.
It also means that:
Home prices will likely still increase as Baby Boomers stay in their homes and don’t sell, further excaberating the housing crissis
So what can you do about it? Recommendations for Millennials & Gen X
Early and Aggressive Saving in TFSA / RRSP: Start saving as early as possible. If you are in your early 20’s, assume that you have another 25+ years of saving and income before you will inherit a sizeable amount of $. Even small amounts can grow significantly over time due to compound interest.
Invest in Financial Markets: We’ve recommended investing in the S&P 500 index’s, which on average, return 9% per year compounded.
Where do you live?
Renting vs. Buying: In some cases, renting and investing the difference can be more financially advantageous than home ownership in a high-cost market.
Real Estate Co-Investment: Explore co-investment opportunities in real estate, where multiple parties pool resources to buy property.
Education and Upskilling: Emphasize the importance of continual education and skill development to increase earning potential. The job market is increasing in its technology requirements, so learn technology. Period.
Alternative Housing Solutions:
Downsizing and Minimalist Living: For those already owning property, consider downsizing to reduce living costs.
Exploring Different Locations: Sometimes more affordable housing options are available in less popular areas. Encourage considering relocation as a viable option. Affordable cities are booming in population growth in Canada. You might want to consider relocating to a low-cost city. I know most want to hear this, but you may have to sacrifice 5-10 years of your life in a world class city not named Toronto or Vancouver.
Lifestyle Adjustments: Advocate for a more frugal lifestyle to cut unnecessary expenses, allowing more money to be diverted into savings and investments.
Estate and Financial Planning for Parents: Encourage discussions with parents about estate planning. Understanding their plans can help in forecasting future financial situations and making more informed decisions.