Who Buys When Boomers Cash Out?

Your superannuation statement tells you what your investments are worth. But when you need that money, someone has to buy what you’re selling. With baby boomers drawing on their retirement savings, who will buy their assets, and how much will those buyers pay?

The Reserve Bank’s October Financial Stability Review gives us a reason to ask those uncomfortable questions. It identifies increasing demands for cash as more super members enter retirement, alongside the potential for funds to amplify financial stress. The institutions entrusted with our savings face a changing job: paying money out while managing the investments that remain.

More than a decade ago, Nick Hubble put the underlying problem bluntly. In a 2014 presentation reported by Money Morning, he argued that younger Australians would lack the numbers and buying power to purchase retiring boomers’ assets at the prices their retirement plans assumed.

That question reaches beyond super. It applies to investment properties, businesses and shares held directly. Accumulating assets is one thing; finding buyers willing and able to pay your asking price is another.

For decades, compulsory contributions have supplied investment markets with a dependable stream of money. Workers receive wages, contributions enter their funds, and fund managers buy assets. Retirement changes the direction of that relationship. Members need payments to meet living expenses, and funds must provide the cash.

Investment income, cash reserves, and incoming contributions can meet withdrawals. Where those sources fall short, assets must be sold. If selling pressure meets insufficient demand at prevailing prices, prices fall. A retirement balance can then suffer from both withdrawals and investment losses.

Vern Gowdie explored the broader demographic problem in his writing on the population pyramid: an ageing society cannot assume that the conditions supporting yesterday’s prosperity will continue indefinitely. Younger generations inherit the task of sustaining an economy whose older members increasingly depend on accumulated wealth.

Hubble returned to the super argument this July, predicting that inadequate buyer demand would eventually bring the system undone. Indeed, the RBA identifies a structural shift as more Australians move from building their super to drawing it down, increasing the cash funds must find to pay them. It warns that growing liquidity demands could cause funds to amplify financial stress. While participating funds met withdrawals in APRA’s stress test, the danger is clear: more retirees needing cash could mean more assets sold into falling markets, driving prices lower and eating further into retirement savings.

Australians compelled to surrender part of every pay packet deserve clear answers. How much can their fund pay out without selling into a falling market? How reliably are its harder-to-sell assets valued? What happens when withdrawals rise at the same time that investment prices plunge?

These are questions about the security of ordinary people’s wages, saved over decades of work. They deserve answers more substantial than another glossy retirement projection.

Before accepting what your super will supposedly be worth tomorrow, ask who will buy its assets when you need the money.

“It’s only when the tide goes out that you learn who’s been swimming naked.”
– Warren Buffett