The ageing population

September 04

We know that people are living longer. This is, obviously, good news for all of us on one level.

On another level, however, it places great strain on the economy as a far greater proportion of the population will live for much longer after they cease employment. For example, someone retiring today will probably live for 10-20 years, wheras someone who retired 25 years ago probably lived for 5-10 years for then.

The immediate impact is that state-funded pension schemes are going to come under much more pressure. I include schemes like the minimum income guarantee in this, not just the state pension.

As more voters are retired, the political pressure to abandon prudence in favour of generosity, without thought to how it's ultimately funded will increase. Many people will, alas, fall for whichever party promises to put more money in their pockets, without considering where that money comes from. The best case is that this will work itself out naturally, the worst case is that this will put the government into a financial crisis at some point around 2020-2030.

The overall mindset that we need to provide for ourselves in retirement, rather than expecting that the state will be able to do so is critical. I believe that everyone currently in their 20s and 30s should plan their futures on the assumption that the state pension will not be able to contribute anything to them.

Property is, obviously, a long-term path to wealth creation, not a get-rich-quick scheme. Investors should be looking for properties that will generate both long-term capital growth, and positive cashflow. A small positive cashflow now can easily turn into a torrent, given 25 years of inflation to fuel the growth.

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