The baby-boomer transition into full retirement will not happen anytime soon, and this is good news, according to Dr. Sherry Cooper, executive vice-president and global economic strategist at BMO Financial Group.
Cooper, a high-energy 57-year-old with no plans for retirement herself, believes that given contemporary quality of life standards, market statistics and current demographics, the baby boomers are not going to respond in the typical, predictable ways when dealing with retirement.
This opinion, in itself, is not new. However, Cooper’s assessment of how boomers will react to retirement, and what impact that have on the real estate and equity markets, is new — particularly in an industry consumed with doom-and-gloom forecasts of mass retirement, a depletion of investment resources and the impact this will have on an already shaky stock market.
Cooper believes that even the oldest boomers should “never divest all their equities” and that because of the current market, these same boomers should “have half [their portfolio] in equities.”
She qualifies this statement by saying that despite the current average retirement age of 61, many boomers are living well into their eighties and nineties due to “healthy aging” practices (such as eating healthy, exercising and continuing to learn and expand their horizons).
Given this extended lifespan — one which boomers’ parents did not have to contend with — Cooper believes that no other investment vehicle can provide the tax benefits and returns offered by the stock market. This means that stocks will not feel the sting of realized equity as boomers cash in their chips, so to speak. Instead, Cooper is suggesting that boomers, as they retire, continue to anticipate a quality of life that requires a portfolio with a good return on investment.
Cooper also believes that the real estate bubble will not burst, due to a glut of family homes on the market from boomers attempting to realize their home equity.
To downsize, and take money out of the family home, means a boomer must purchase a property in Canada’s current real estate market, the same market that has seen the cost of condominiums rising — luxury condos sell, on average, between $1,300 to $1,800 per square foot in Canada, compared to $5,000 a square foot in New York or London. As a result, Cooper doubts boomers are going to downgrade their homes.
“Space in condominiums is expensive compared to single family homes,” she said during the launch of her latest book, The New Retirement. This added expense, in conjunction with a lifestyle of new hobbies, careers and volunteer commitments, will mean more and more boomers will opt to keep the family home. The extra space will simply be converted into rooms that accommodate this new lifestyle, says Cooper, such as home offices, exercise rooms or hobby centres.
“There’s more to retirement than working or not. Retirement is a transition to late life and what it takes to achieve a successful final third of your life.”
Originally filed on Advisor.ca on January 15, 2008