Retirement plans, in many ways, are just like any other investment – people use their extra money to purchase assets now, so that they can resell those assets for cash and a bit of profit later in life. But if structural changes in the economy make it impossible for younger people (those still hard at work) to buy assets from pensioners, the result will be a massive loss of wealth as prices recalibrate to account for the discrepancy in supply and demand.


“It should be kept in mind that assets (real estate and financial) are gradually sold by the ‘old’ (pensioners) to the ‘young’,” explains Natixis analyst Patrick Artus. If working people are unable or unwilling to buy those assets, Artus predicts that you should see falling real estate prices, rising interest rates, and an increase in external debt. For countries that cannot take on any additional external debt, the first two effects would be exacerbated.

European countries particularly hard hit

Looking at countries with aging populations and falling wages, this is exactly what Artus finds. “This type of development can already be seen in Spain and Italy,” says Artus. “It is delayed by the presence of external assets in Japan, and by the lack of external constraint for the time being in the United States, France, and the United Kingdom.”

People buy most of their assets between 40 and 60

People buy most of their assets between 40 and 60. Before that they are still building careers, and after 60 most people are getting ready to retire. In Spain, Italy and Japan the proportion of 40-60 year olds to retirees is dropping steadily.

population age 40 to 60At the same time real payroll has been one the decline for more than a decade in Japan, and while it had been on the rise in Spain and Italy it is now dropping rapidly since the 2008 crisis and shows no sign of improving, but the total value of assets that would impact retirees is high relative to GDP.

real payroll spain japan italy

total value of assets age article

Monetary policy impotent to change the imbalance between young and old

It’s this combination of factors that Artus believes will create problems. In Japan’s case, the value is being exported and the country’s current account balance is on the decline, though still net positive. Spain and Italy, however, cannot afford to take on more external debt and are seeing real estate and stock prices drop while inflation is on the rise.

“Monetary policy can do nothing to change this development,” says Artus. “If the central bank buys the assets held by the old, this will give rise to the issue of the young holding money.”