Landmark Links May 19th – Peniaphobia


Lead Story….  Economic health is highly intertwined with demographic trends.  As people age they enter different saving and spending cycles that are fairly historically well established.  Generally speaking, people tend to save money during their peak employment years and spend that money in retirement.  The consumption of retirees boosts the economy which, leading to more jobs and higher wages for workers.  The general lack of retirement savings from the Baby Boomer generation has been a well-publicized problem for quite some time.  The Boomers were the first generation to switch en masse from defined benefit to defined contribution plans – shifting the burden of providing retirement income from employer to employee – at least in the private sector.  The result has been woefully underfunded retirement accounts.  However, there is another, far less talked-about conundrum that Ben Steverman of Bloomberg pointed out recently and it could be hindering the economy: rich baby boomer retirees – those that can afford to retire comfortably – are hoarding cash rather than spending as previous generations have.  From Bloomberg (emphasis mine):

There’s a time in everyone’s life to save. There’s also a time when you’re supposed to spend. That time is commonly known as retirement.

Millions of Americans aren’t doing that, however, which has put the U.S. in a perverse situation. Younger generations aren’t saving enough as their income slips further behind previous generations. Older Americans meanwhile sit atop unprecedented piles of assets built through stock market and real estate booms.

Yet these retirees, or at least the affluent ones, aren’t spending it. It turns out they’re afraid of the unknown.

A new study finds many U.S. retirees keep saving even after they’ve retired. The average American over the age of 60 cuts spending 2.5 percent per year, or about 20 percent over a 10-year period, according to an analysis of University of Michigan survey data by financial planning software company United Income. As a result, millions of Americans are living too frugally, said Matt Fellowes, United Income’s CEO 1 . On average and adjusting for inflation, retirees are entering their 80s richer than they were in their 60s and 70s.

Unsurprisingly, given the data, Americans are dying with more money than they used to, adding to the increasing inequality that flows from inherited wealth. United Income analyzed the estates of people who died between 2000 to 2002, and compared them with those who died between 2010 to 2012. Although the later group had just lived through a financial crisis and worldwide recession, their estate values were 130 percent higher.

“We have to get people comfortable with enjoying their retirement and spending their money,” Fellowes said.

Other studies have found affluent older Americans hoarding money. Last year, a study in the Journal of Financial Planning found that the wealthiest fifth of U.S. retirees were spending 53 percent less than they could have. Meanwhile, the poorest 40 percent generally spend more than they safely should; the median retiree spent about 8 percent less than the safe amount.

In many ways, this is part of the lasting fallout from the Great Recession and it’s a classic reaction from those that have undergone financial trauma.  Perversely, it’s also a symptom of people living longer.  If wealthy retirees have experienced a traumatic financial event and and believe that they are going to live well into their 90s, they are more likely to hoard cash, regardless of what the experts say about how much they should spend.  The data might indicate otherwise but data is of little comfort when the consequence of being wrong is running out of money and ending up destitute.  This is where peniaphobia or the fear of poverty takes over for rational financial decision making.  Being a profligate spender isn’t good either but the problem is that retirees have over-corrected and are saving more money that they can ever spend if they lived to 200.  On a personal note, my grandmother is of this mindset.  She is in her early 90s and has more than enough money saved up to be comfortable but refuses to spend any of it despite the rest of the family trying to convince her to enjoy it while she’s still here.

The impact on the economy is profoundly negative since so much wealth has accumulated with today’s wealthy boomers and the generation before them.  The result is that less money gets spent on consumption, leading to less robust economic growth and lower wages.  This leads to younger people making less money than their parents did and carrying higher debt loads – a classic recipe for both economic stagnation and growing wealth and income inequality.  Ben Steverman sums this up nicely in his Bloomberg article (emphasis mine):

The situation for wealthier older Americans couldn’t be more different than that facing younger generations. A study released by the National Bureau of Economic Research last month found the typical American man who entered the workforce in 1983 earned up to 19 percent less over his lifetime compared with one who started working in 1967. (Women’s incomes rose over that period, but that’s because earlier generations of women earned very little money.) Based on more recent data for younger people who are still in the workforce, the authors wrote, “the stagnation of median lifetime income seems likely to continue.”

What can get rich elderly Americans spending more? One way is to reassure them they’re not going to run out of cash. Tools such as annuities and bond-ladders can turn a retirement account into a regular stream of income, mimicking a paycheck. Insurance products could also protect retirees against huge, late-in-life expenses from medical care—a dominant fear. Browning likes longevity insurance, an annuity that kicks in only if you live to 80 or 85. Other options are reverse mortgages or long-term care insurance.

Maybe the problem requires more creative solutions. Financial planners need to help retirees realize they have a “cognitive bias” that makes them too gloomy about the future, said United Income’s Fellowes. Survey data often show older Americans are less optimistic about financial matters then younger people. Fellowes analyzed the data further and found this optimism gap has been widening over the last four decades.

Even as retirees live longer, healthier lives, they’ve become more pessimistic about the economy, the stock market, and their own financial situation.

After a lifetime of saving, it requires some psychological gymnastics to start spending your nest egg. Browning’s suggestion is that financial planners urge their thriftiest clients to make big purchases–like a second home or a fancy car–before they retire, out of their pot of savings. The idea, he said, is “training people to spend.”

Unfortunately, I’m a bit more pessimistic about this problem than Fellowes and Browning in the passage above.  Wealthy retirees are just a few years removed from the Great Recession.  It is terrifying to watch your life savings put at risk due to a crisis that could have brought down the banking system.  Unfortunately, slow economic growth is the collateral damage and I’m just not sure how you “train” a lifelong saver to become a spender again after they have experienced a recent financial trauma.  IMO, there is only one cure for this sort of problem – the passage of time.


Don’t Call it a Comeback: It took a decade but household debt, led by surging student loans has now surpassed it’s prior peak from 2008.  Of particular interest is that student debt, which cannot be discharged through bankruptcy, now makes up 11% of total household debt, up from 5% in 2008.  See Also: Student debt is eating your household budget.  Contra: This is much ado about nothing and debt service as a percentage of household income are still at 40-year lows.


Magic Printing Press: How Japan’s Abenomics proved that printing money can actually work (sometimes).

Yellow Light: Is the bond market signaling a change in course for the Federal Reserve as flat economic data leads to lower long rates?


The Mothership: Apple’s new corporate campus looks absolutely insane.

Rising from the Ashes: Retail may be suffering but e-Commerce, coupled with upzoning of land to residential use is fueling an industrial real estate boom in the NY area.


Site Unseen: Rich young Chinese are buying overseas properties on their smartphones. This seems like an incredibly prudent idea that will end in great wealth for all involved.

The Survivors: Why fewer home builders mean happier home builders.

Avalanche!  The ongoing housing affordability crisis in CA has led to a whopping 130 housing-related bills currently being proposed in Sacramento.  Unfortunately, they range from incremental improvement to doing more harm than good.


Winning: Amazon’s vertical integration,  innovative culture and focus on last-mile delivery solutions make it highly unlikely that it will face a substantial challenge anytime soon. See Also: Amazon is hiring people to break into the multi-billion dollar pharmacy market.  I wouldn’t want to be a CVS shareholder right now.

Tipping Point: New restaurant industry research found that independent restaurants and small chains are outperforming big chains mostly because people have (finally) come to the conclusion that big chains generally suck at food.

Sad But True: From selfies to personal branding to the rise of influencers, nearly every Millennial social media trend can be traced back to one person: Paris Hilton.  Let.  That.  Sink.  In.  See Also: Businesses from restaurants to fashion are building “selfie booths” so that unwitting Millennials can help them get free advertising.

Chart of the Day

What a difference a decade makes.

Source: The Irrelevant Investor


Just Shoot Me: A new clothing company on Kickstarter is trying to make rompers for men into a thing.  It’s called fashion, you wouldn’t understand. (h/t Chris Gomez-Ortigoza).  As awful as this is, it made for some great memes.

Scout Leader of the Year: A Girl Scout leader from Kentucky was recently indicted for stealing $15,000 worth of Girl Scout Cookies.

Seems Reasonable: An Austin, Texas man became a hero to bros everywhere when he sued a woman to reimburse the cost of a movie ticket after she refused to put her cell phone away during a movie date.  The lawsuit is for $17.31.

TMI: A giant TV flat screen in DC’s Union Station caused a stir earlier this week when it began streaming porn videos.  Station officials claimed it was hacked, also that they subscribe to Playboy because they like to read the articles.

Landmark Links – A candid look at the economy, real estate, and other things sometimes related.

Visit us at