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Living realistically is not
something anyone wants to do in an election year, and it may be especially
difficult for the Baby Boomer generation to grasp, along with their children.
Over the last two decades as wages swelled, and job prospects were unlimited,
the Baby Boomers became accustomed to living well beyond their means.
Moreover, if money wasn't coming in fast enough, there was either a stock
market or housing bubble to tap into to keep spending alive. Even condominium
buildings were built and given names with this in mind.
A high-rise
condominium completed around 2005 in Boca Raton, Florida, was named
"Luxuria". Models are lavishly decorated with names like
"Milano" and "Toscana". The project back then was
marketed as "a gem and one of the most spectacular preconstruction
projects in Florida". One ad even claimed it would be "an
exceptional privilege" to live there.
The last time I
drove by the "Models Open" signs were flapping in the wind, many
units remained unsold, and prices were slashed (still extraordinarily
expensive) with no buyers in sight. My research also indicates that well over
one-half of the units are still owned by the developer.
American Boomers thought that the
future would always bail them out, but the future is here and the house is
upside down, the credit cards are maxed out, and job stability has vanished.
The prosperity they thought they had achieved was only a fantasy and the
Boomers have now become the Baby Busters.
When you actually sit down and
examine the cost of living these days, the nickels and dimes can add up real
fast. After paying for food, phone, cable, electricity, newspapers,
maintenance, gas, taxes, and insurance, most of us are left with only
pennies. Also, a healthy lifestyle - gym memberships, organic fresh fruits
and vegetables - is beyond reach for many creating a frustrated society where
diabetes is fast becoming a pediatric disease. It's no wonder fast food
restaurants continue to thrive as they cater to the masses; they're
inexpensive for sure, but the food can make you obese and send you to the
emergency room.
Surprisingly, the Boomers remain
in denial and disbelief that the party is over, but perhaps not for long. How
can they vacation in Europe or buy that house in the Hamptons when their
utility bills and property taxes are eating them alive, as they search for
work? Evidence suggests that the behavior of the Baby Busters may be evolving
from being frozen like a deer in the headlights, to slow capitulation of
letting go of the old lifestyle. Slowly, the second and third home that can't
be rented out is being sold or simply abandoned because it's underwater. The
first home, a huge McMansion, is being swapped for a more affordable place
one-third its size. Not even the very rich can afford to heat or air-condition
a place the size of a small hotel, and the Baby Busters are realizing they
desperately need to be saving for retirement rather than spending into
oblivion.
As my wife and I watch these
events unfold before our eyes, we both feel fortunate not to have fed into
the frenzy. We never really upsized, perhaps because of our upbringing, but
our parents had common sense and a strong work ethic which fortunately rubbed
off. More likely, though, it's because my wife and I both lived for decades
in Manhattan where the cost of living is extraordinarily high. An average
two-bedroom 2-bath apartment there could cost a whopping $1.5 million or
more, without a great view. This price point is way beyond the cost of a
modest apartment of the same size on the island of Palm Beach, yet we get
free parking, a stunning view, and a swimming pool. By focusing on keeping
the monthly expense "nut" down and having the old-fashioned
attitude that if you can't buy it for cash, you shouldn't buy it at all,
we've discovered that, by luck, we managed to downsize by never really
upsizing to begin with!
But time is not on our side. Some
Baby Busters only have a few years left to provide for retirement. Others
might have as much as ten years, which can pass in the blink of an eye. If a
Boomer wants to avoid becoming a Buster (living on cheese wiz and saltines)
they'll need to do the following: First, cut back by living within their
means and stop incurring debt; Second, a safe retirement is unattainable when
there is debt so you'll need to cut back even more to pare down that debt;
and, Third, you'll need to save. Saving is not easy in a zero interest
rate environment but you'll need to save even more because the Fed wants
savers to get nothing! Worse yet, counting on winning at the stock market
casino is not a plan for the average saver, just a surefire way to make the
owners of the casino (Goldman Sachs) rich. So, downsize, pay down debt,
and tighten the belt again to save before it's too late!
For far too many Baby Busters
living frugally is like being held in purgatory, living without easy credit
feels like an excruciatingly slow death, and saving money, while paying back
debt, is a living hell.
For lack of a better word, my wife
and I were "lucky" to have survived the turmoil of our generation.
As my wife politely reminds me from time to time, "it's nice to live in
heaven before you die", but the joke is if we had upsized in the '90s
like most Boomers, today we would be having a hell of a time.
Richard
Benson
SfGroup.org
Richard
Benson is the founder of The Specialty Finance Group ("SFG") was
founded in 1989 as a financial broker to private finance companies,
introducing them to major financial institutions that would provide them with
equity, subordinated debt, and senior credit facilities using the Capital
Market.
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