Beyond Downsizing. How Baby Boomers Can Avoid a Failed Retirement

Here’s a little bit of a twist on some conventional analysis.

Let’s start with a trend.  The baby boomers are getting older.  Their kids have departed (most of them).  It’s time to downshift towards prepare for 20-30 years of “active retirement.”

How?  They need to get their ravaged finances in order, by cashing out of their biggest investment, their home.   And since this trend will be both huge and will occur very quickly, it’s going to have profound effects on the US housing market.   Specifically, three things:

  1. The market for bigger homes will decline sharply.  It’s important to not be the last one out before the prices soften or crump.
  2. The market for smaller homes for couples will improve markedly (there aren’t nearly enough homes in the current housing stock to support this shift).  Most of these will be in suburbs (boomers aren’t going back to the city).
  3. Many of these new purchases will be to nearby communities that are less expensive (reversing the trend that drove up prices in towns with great school systems — putting even more pressure on #1 above).

However, this downsizing won’t prove to be enough.   Modern “retirement” can be longer than many “working careers” and very few people have full featured pensions or the millions in retirement savings required to do this without ending up in poverty within a decade or two.   Further, even if you do, many will find that a volatile market and systemic fraud/theft (of the type that went unpunished in 2008) can crush a financial nest egg nearly overnight.

So, what can be done?  I don’t have a solution to financial volatility/busts.  Nobody in the financial world does either.  I do have an alternative idea.  Make the investment in an asset that supports you every day, from the moment you downsize.

Use the cash you get from the sale of the bigger home to buy/build a home that pays for itself as much as possible.  From producing electricity that can be sold back to the grid to generating income using the income bootstrap.  I’ll have more on this.  It’s important.

This is the one shot most baby boomers will have at avoiding an American Nightmare.


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Discussion — 7 Responses

  • James Bowery November 19, 2013 on 6:34 pm

    One thing to avoid like the plague: Retirement villages. My father won the national clean plowing championships two years running before a combination of the GI bill and conflict with his father “carrot & stick”-ed him into civil service where, of course, he ended up with a full-featured retirement. At retirement he sold his house and bought a spacious manufactured hom in a south Texas retirement villag. There he carefully worked his little plot of land into high productivity over the course of 15 years. However, during that course of time, some guy in NYC bought the retirement village and started raising the — initially low — monthly “membership fee” a little at a time until it was as large as a mortgage payment on a new house in Iowa where he had moved from. Then, after experiencing the wonders of the illegal immigration-overloaded south Texas “health care system” my father died. My mother was then left to try to figure out how to escape south Texas, but by then the shrewd owner of the “village” had locked down the internal real estate market so that only he was authorized to sell your “property” — if you advertised independently then he could essentially seize your manufactured home — including any improvements you made to have it “pay for itself”. The nightmare is ongoing.

    • Javier James Bowery November 20, 2013 on 11:58 am

      So, an aspect untouched is this: Home mobility,
      the unbundling of the home from the terrain.

      If a home is movable, even in container sized modules, it allows a margin of maneuvre
      and the power to go where opportunity is
      in a day’s notice.

      think about it as the plausible promise of
      being able to arbitrage regulations etc.
      plus having a structural device in place
      similar to an eject button.

      • James Bowery Javier November 20, 2013 on 3:31 pm

        True, the retirement village American Nightmare can happen in any jurisdiction due to regulatory capture by rent seekers, so maintaining the option jurisdictional arbitrage needs to be given its actuarial due.

  • Javier November 20, 2013 on 1:48 am

    American Nightmare, thats all i take from it

  • djysrv November 21, 2013 on 2:48 pm

    As an aging boomer, here are some strategies I have in mind;

    1. Multi-family “geezer communes,” but with more privacy and “personal space” than what we accepted in our 20s.
    2. Shared workshops & workspaces for economic activity including gardening, wood working, machine shop / auto repair and other light industry.
    3. High speed internet, on the same order as Google in Kanasa City to support virtual workspaces and especially the part time nature of employment in later years.
    4. We already downsized from 3200 sq feet to 1400 sq feet. The biggest challenge was getting rid of all the stuff we hadn’t touched in years. Next stop in about 15 years, at age 80, will be that multi-family idea.

    • James Bowery djysrv November 21, 2013 on 3:31 pm

      You’ve just specified a “retirement village”. Danger: See my above comment.

    • John Robb djysrv November 22, 2013 on 11:39 am

      That’s the start of a good idea. The “maturing American household” — a home that is multi-generational, multi-income, productive, etc. Modular/unbundled for flexible family arrangements and income generation.