Also, there is really no reason to aggregate them all as if it was one huge problem. This seems more like a series of problems that each country will have to deal in its own way at its own time.
Shortfalls are about the same, but I do wonder if the problem is as big as well.
I'm not sure about the US, but in the Netherlands the pensions are a hot topic in politics.
The pension funds have to maintain a minimum amount of money, and need to take action if they risk getting below the minimum.
Some/most funds are no longer indexing yearly based on inflation, and some funds are talking about reducing payouts to the retired. They are actively protecting their wealth to ensure the younger generation still has access to a pension when they retire.
On a grander scale there are talks about a completely new pension system; the big funds where the current generation of workers pay the pensions of the retired is fragile with the general aging of the population. The amount of working persons per retired person is shifting, so they are talking about restructuring in a way where every working person saves money for their own pension.
So when the article states that it is an invisible problem... not entirely true for the Netherlands.
How much of this is addressed by elderly parents selling their homes (which helps the housing crisis...) and moving in with their adult children? It's uncomfortable but frees up enormous amount of capital, and radically reduces costs of maintenance, food and even cable/internet/entertainment.
Back of the envelope: 50M people doing this at $300k average home value and $20k annual maintenance/taxes/insurance over 20 years of lifespan, and costs drop to food and healthcare. Seems like a no brainer.
(yes obviously this depends on people having had kids and not borrowed heavily against their house...)
The population is still increasing and there is a housing shortage.
I'm not sure that really matters. If young people can't afford to keep a huge house that costs a fortune to maintain then any shortage isn't going to get people to buy that house. They can't afford it even if the old people who own it lower the price.
Say an increased supply of 4 bedroom houses appears. More people with 3 bedroom houses will be able to upgrade than previously to replace them, which means more people in 2 bedroom houses will be able to upgrade, driving down the prices of 2 bedroom houses as well, which means more people will be able to buy a house at all.
This assumes that there isn't already a supply of 4 bedroom houses. That assumption is wrong. In fact there are far more large houses that younger people don't want than the market needs, and old people who bought them as investments to sell so they could retire and live off the equity are finding that a big problem - http://www.businessinsider.com/millennials-vs-baby-boomers-b...
At the same time there isn't enough supply of smaller properties that young people ~do~ want. This is another, separate problem.
The 'housing crisis' could go either way. It could be 2008 all over again, someday: the elderly need to sell their houses when every other house is in foreclosure, and their retirement funds have lost over half their value.
What's missing is a practical way to encourage that to happen and make it a default expectation in society.
My wife's parents both live with us, they're Chinese and that's a common cultural norm in China, which which I am absolutely fine. It's not a common thing generally here in the UK though.
I can't imagine doing this with my mother because she is used to living in her own house, with her rules and her way of doing things. There's nothing wrong with that, I get on with my mother fine, but living with us would drive her, or us, or all of us insane very quickly. It's not just about doing it, it's also about the social norms and expectations of behaviour that make it possible.
>What's missing is a practical way to encourage that to happen and make it a default expectation in society.
Lack of options will be the encouragement. It's luxury to be able to live alone with your own rules and way of doing things. I will bet that most people who currently "live by their own rules" will acquiesce once they no longer have the power to do so.
I would really like to see a system where people pay on their ultimate currency of time - it’s something I have occasionally pondered where young fit and healthy people donate their time to help the elderly in order to gain ‘credits’ for when they are older to receive benefits or benefit in some way for when they are sick or require elderly assistance.
I just don’t understand why people see this as the same thing - the value of money is always vulnerable to a myriad of factors however our moral interest towards each other seems (maybe I’m optimistic ) to be more consistent
How does one measure value and then store it? That's kind of the definition of money.
A money market account is insured and the real return is 0%, so it's not as vulnerable as you seem to think.
You can call money a credit. Then you can assign credits to actions and create a moral police to assign credits to people who do these actions and enter those credits into a leger. And now you've recreated communist China. Congrats.
I mean to be fair the current system is "a $400T financial timebomb". I think your parent comment was trying to imagine a system for taking care of the elderly that wasn't so entwined with existing financial markets.
You can do this, but for many people it's hard to hang on to those credits until you're elderly and need to spend them on assistance. Also, the amount of care you'll need when you get to that point can vary over a large range, so it's hard to plan for.
People do this is Singapore and Australia with annuities and can elect to contribute more if they want but the flaw is that annuities are subject to the market and can be wiped out. It’s the same people have to hold onto these funds until they reach retirement age or meet certain criteria
All around, money is a better currency of exchange than time, or any other measure really. It measures well the actual value of time , effort, what have you. 1-to-1 time currency would be particularly bad choice, just imagine how much time you would have to pay back for someone who was born 60 years ago. Life was much much slower and unproductive. In the same amount of time today you can do multiple times the work/product that they did.
> The WEF (World Economic Forum) defines a shortfall as anything less than what’s required to provide 70% of a person’s pre-retirement income via public pensions and private savings.
So people aren't saving enough to retire with 70% of their pre-retirement income.
From the paper:
> We have assumed that current global conventions of retiring between 60 and 70 are maintained, and that individuals do not simply remain in the workplace longer.
I don't see how this is a financial bomb. 70% of pre-retirement income is pretty arbitrary. The paper discusses this in the context of increasing life expectancy, but doesn't take into account people working longer which seems the natural thing to happen.
> Still, an overwhelming majority of the short-fall comes from government programs. In order to address this problem, governments must adequately and proactively fund their entitlements too, either by increasing taxes or by cutting benefits. Individuals alone cannot save enough to compensate for the unrealistic promises their governments have made.
A better solution would be to stop providing public defined benefit pensions. Instead switch over to defined contribution. Defined benefit encourages government agencies to make promises in the future that they won't be around to carry out. As a worker, I wouldn't want to trust my retirement to the political process over 50 years. Defined contribution prevents you from kicking the can down the road and not properly fund the person's retirement
Now I'm not an economist, but percentage of my current income seems like a braindead metric to work with that doesn't factor in that I spend less than half of my income and the rest is invested for later and that when I retire I will stop doing that. Shouldn't they be looking for "sufficient assets to meet expenses"?
People who are living on less than 50% of their income (particularly less than half of after-tax income) are a pretty much vanishingly small subset of the population.
It's a smart policy, but it's quite uncommon. When economists think of simplifying assumptions that also help to communicate the essence of a situation, this one doesn't seem that bad to me.
I'm sorry but this comment comes from a very privileged position. Let's talk reality here: a large portion of the US can't afford a 400$ expense without going into debt (https://www.cnbc.com/2019/07/20/heres-why-so-many-americans-...). The vast number of people live paycheck to paycheck; to be so surprised that the number of people living on less than 50% of their income is vanishingly small betrays a lack of knowledge of a vast majority of people.
I agree that being able to save so much is a very privileged position. It also, though, represents a proportion of total dollars that is greater than the proportion of its constituent people. The headline number given isn't X people; it's X dollars.
Makes what worse? Nobody is arguing here that gross inequality is good. The question here is whether "70% of current income" is a reasonable metric for individual retirement.
No, it’s not for every individual. It’s on average. My point was that for people like you where 70% is overly high and you’re already saving a lot, you’re skewing the other side of the equation as well. The big picture question is whether people have enough money saved. High savers such as yourself make the picture look better than it is, even if they are high earners, making the situation seem worse than it is.
Selling assets is actually worse than going into debt. I know plenty of people who would not be able to afford paying their bills without going into debt if they had an unexpected 400 dollar charge. The delusion that wealth inequality and massive economic impoverishment is a myth in America is insane. Get out of your bubble.
False. Assets are a resource with economic value that are expected to provide a benefit. If that benefit is worth more than the current cash value, you actually lose more by selling it. You're free to make stupid choices though, like wrongly defining what assets are.
Why are retirees expected to have such high incomes? I fail to see why 50% or less of their incomes isn't enough. Not trying to be difficult, it just doesn't match my blue collar parents' experiences. Most peoples' expenses in retirement basically amount to either property taxes or rent, healthcare, and food. And Medicare kicks in at 65, Social Security around the same time.
What's missing from this article is the current amount of the shortfall and what the historical value has been. Without knowing where we are coming from, there's no way to know how concerning this is.
The risk with this kind of story is that we end up focusing on the financial at the expense of the real.
Ultimately, the goods and services consumed by retirees are provided by the real economy, not by financial instruments (which is just a fancy way of saying that you can't eat savings).
The way to ensure their availability is to make real investments, not financial ones: build infrastructure, factories, accessible retirement homes; train nurses, doctors, etc...
Unfortunately, focus on the financial can trigger (and arguably has already triggered) some extremely counterproductive reflexes. For example, we've been told for decades now that private savings are essential for retirement. This may be true at an individual level, but in the aggregate it causes a savings glut - those low interest rates aren't just the making of central banks - and it withdraws effective demand from the real economy, which disincentives many of the investments in the real economy we need to provide for an aging society.
So yeah, good to see some focus on the aging society, but please try to look beyond the financial smokescreen.
Fair point. In that case, the real issue then is that more people are retiring and living longer, needing more healthcare and labor, and the workforce is dwindling in comparison? Maybe the amount of resources that can be used as medical supplies is decreasing (and if you think single-use plastic like plastic bags and straws are a problem, wait until you see how much single-use plastic and other materials are used everyday day in healthcare).
What's the solution in non-financial terms? Make more young people care for the elderly? Automate as much of the healthcare as possible? Let some elderly people go without healthcare?
I suppose as other people have pointed out in the thread, the first step is figuring out how much of the shortfall is actually real.
But yeah, ultimately the solution would have to be something along the lines of the things you mention. Of course, you don't necessarily have to automate healthcare: if you automate something else, it could also free people to then move to healthcare.
Savings glut isn't just at the level of individuals though - as long as it's in the form of savings, it doesn't matter who does it, sovereign wealth funds, pension funds, social security, insurance companies, etc. But that's just on the supply side.
The real problem is on the demand side of funds, we've run out of low-hanging fruits and marginal productive investments, whether in infrastructure, tech or labor are returning less than before, which drives the rates lower. This is in turn driving up the prices of existing profitable enterprises and premium real estate, squeezing out both productive ventures and labor.
> The WEF defines a shortfall as anything less than what’s required to provide 70% of a person’s pre-retirement income via public pensions and private savings.
Oh come on... why 70%? Presumably retirees don't have childcare costs, can downsize on housing, no more daily commute so savings on transport and lunch costs, ... Also, does "private savings" account for accumulated housing equity?
Also, I think that "retirement savings" are a fundamentally misguided economic policy... There's a fixed amount of wealth created at any moment (and a lot of it isn't transferable over time - in particular, labor, energy and food), so by "saving for retirement" we're actually causing a deflation (less money spent to buy same amount of wealth) and will cause an inflation when we start "spending retirement savings" (more money spent to buy same amount of wealth, so prices go up). This is a rat race, you only get ahead as long as you save more than others (similar to the housing bubble). The only sustainable solution is the working population to subsidize the non-working population (kids, students, retirees) in real time, year by year. If that math doesn't work out, we need to change it (make more kids who become new workers or make less retirees by having people work longer). Or post-scarcity economy of course.
In a steady state economy and accounting for compound interest, more value goes into retirement savings than get's pulled out. The delta is people dying with retirement savings.
In effect retirement increases economic activity by forcing huge numbers of people to save for benefits they don't receive.
It’s not all just sitting there. Other people borrow it to spend it on things. The more people save, the more money is available to borrow and the lower the interest rates.
Even if saving decreases economic activity, I doubt it decreases it that much.
Why can’t I just give people money in exchange for their goods/services, rather than give the bank money, which then gives people money, that they then pay off by providing goods/services. What macroeconomic value does the bank provide serving as a middleman?
Safety, as having large quantities of cash in transit, at homes, or at business is risky and dangerous. Even banks try and avoid this as much as possible.
Convince, as writing a check or using a bank card allows for large and specific transactions. Paying rent every month via check for 1234.56$ is easy, with cash you need to count and recount etc. This is especially true for transactions over the internet.
Scale this up and you get into Logistics for large transactions like buying property. Verifying a 1,000,000$ Bill is not fake is one issue, as is trying to get change for huge denominations. On it’s own this would creat an ecosystem of bank like entities such as money exchanges with associated fees.
Efficiency, banks make use of deposits for loans which allows them to offer services at a discount. Remove that and people end up directly paying for this stuff.
Banks provide other services like transactions between physical and digital currency at ATM’s. The large unbanked population ends up paying high fees for many services banks provide.
By all means, if you desire to live paycheck to paycheck, immediately spending all of what you get, go for it. If you don’t, then you’ll have your answer as soon as you figure out why you don’t.
Money is an abstraction. If you buy a house the money is not just siting there it’s going to the prior owner. If they then buy some asset from another owner they can extend the chain, but eventually someone ends up spending the money.
For example, VC firms entire business model is based around investors generating economic activity by handing it to someone that’s going to spend it. Government bonds are another ‘investment’ that seems to sit around doing nothing, but the bonds are not money. The money was more or less instantly spent by the issuing government or handed to an earlier bond holder.
> Oh come on... why 70%? Presumably retirees don't have childcare costs, can downsize on housing, no more daily commute so savings on transport and lunch costs, ... Also, does "private savings" account for accumulated housing equity?
I came here to say the same thing; was even typing it up. Then I paused. Healthcare (in the U.S. at least) is going to be at a crisis point in a decade. Prices keep going up and it isn't sustainable. Retirees will spend a large portion of their retirement income on healthcare.
I think you are underestimating how difficult it is to get a long-term visa for most European countries. Someone who is not employed or is soon to retire without an extraordinary amount of wealth has virtually no change of gaining entry outside of refugee crises/political persecution or other unusual circumstances.
You've already gotta be pretty damn rich for the most likely outcome, even as a quite comfortably retired person who's careful not to overspend, not to be "hospitals and hospice care take all my money in the last few years, and I die nearly penniless".
We're rapidly approaching a time when leaving inheritance will no longer happen at all for nearly all people who've worked their whole lives (i.e. have never been owners, "capitalists", as their primary source of income). I mean I know there's not much there already, but soon that'll just not be a thing anymore. Healthcare expenses plus the death of pensions are going to cause some serious unrest in the next decade or two, unless we course correct hard and very soon.
I really don't know what to think about healthcare expenses... Like, dying pennyless makes sense! Why wouldn't you spend all your money just to prolong your life a bit longer? Obviously, our (civilization's) resources are limited, and we need to make decisions how to allocate them... EU countries decide by fiat (government says, we'll spend this much taxes on healing kids vs that much on healing old people), whereas US decide by market (rich people, young or old, can spend more on their own health). Personally, as technology improves, I really don't see us spending less on healthcare... after all, it's literally life, the most (individually) valuable thing there is!
World savings is a misnomer. You redeem savings by drawing on the resources of the rest of society. The world can't be a net saver.
Imagine a desert island of two people. They have a system of savings. You can bank away a voucher that makes the other person gather coconuts for you, and do other necessary work.
One of the two people could conceivably work harder in their youth and then work less later using the vouchers. But:
1. They can't both do it
2. If the other person loses capacity to work hard in their later years, your savings voucher loses value.
How can they both save? To a limited extent, they can store resources like extra coconuts, build infrastructure and tools while young, etc. But this only goes so far: food rots, infrastructure depreciates.
On a global scale the world is no different. A savings shortfall means that global youth productivity won't be high enough to support global elderly retirement. We will need to either:
1. Get youth more productive
2. Make more youth
3. Take a greater percent of youth's income
4. Have old people live on less or not retire so early
Notice that none of these are about saving now? That's because moving 1's and 0's in a ledger isn't a provisioning of future goods. You need actual future goods production.
Your logic seems to require labour to be the primary creator of value. Returning to your desert island analogy, both castaways could spend their youth planting coconut trees close to their shelter, thereby reducing the amount of work needed to gather coconuts as their mobility decreases. It seems to me that any economic system which invests in productivity and automation could similarly replace the labour required to subsidize the 'retired' population by investing in labour replacement technologies.
Right, but money sitting in a bank account isn't necessarily being invested in a meaningful way. A lot of "investment" these days is in financial instruments, which don't generate value in the way that would be realise these benefits.
Wrong. Money sitting in a bank account is loaned out by the bank to people who will use that money profitably. The only place that money can sit without contributing to the economy is in a piggy bank or under a mattress.
False. Trillions of dollars are simply re-invested in financial activities (many of which are risky and borderline illegal as well as insured by your taxes) that serve only to generate more numbers with 0 physical contribution to the world. At least you can lift your mattress up with money underneath it or use your piggy bank as a paper weight.
Interest rate has nothing to do with profitability - it's just a price that balances the supply and demand of funds and on the short end, it's heavily influenced by monetary policy and on the long end, it's heavily influenced by the inflation and growth expectations. Lots of consumers borrow at very high rates and it's not because they expect to be profitable with the money they borrow.
Whether you put your money in a piggy bank or a bank account doesn't impact the productive capacity of an economy. Keep in mind that money can be created out of thin air and that's effectively what would happen if enough people cashed out - it would reduce the supply of money and the central bank would make up for it until the desired level as measured by inflation would be reached. Other than some volatility this would create if it was coordinated, it would have little impact on the real economy.
This is true. That's why it's alarming that most people's energy today is wasted on useless zero-sum activities like social media, finance, marketing, bureaucracy... The problem is actually quite simple, the people who control capital today are not intelligent enough and so they don't have the confidence to take the measured risks that are necessary to really innovate.
If you look at the generations who were working between 1980 and 2000 (spanning 20 years), they delivered mind-blowing innovations: personal computers, graphics cards, databases, the internet, countless vaccines... It's impossible to list everything. What did the newer generations do in the last 20 years? Facebook, Twitter, Snap, Youtube, Netflix, Uber, Bitcoin... The only genuinely impressive thing that we achieved was the successful commercialization of the electric car. Our generation sucks. We are stupid and unwise. We can't allocate capital.
not sure that we cannot allocate capital, the previous generation harvested most of the low hanging fruits, it can be argued that most modern progress needs more and more energy, and we are on a path of diminishing returns.
1 seems achievable by automation. We already see that farming is done by a tiny fraction of the people that were necessary 100 years ago, and it seems feasible that most manufacturing is automated in another 50 years or so.
In your analogy, both people can redeem their coconut voucher if they've built a robot that gathers the cononuts.
Yes they can. Assuming there are enough resources to sustain both their entire lives (let's say 75 years); each can work enough to accumulate those resources in 50 years so they don't have to work the final 25 years.
Youth is always more productive because they use tools and strategies worked out by the older.
>2. Make more youth
In some wealthier, western countries many people in their 20s and 30s can't afford to have a dog.
>3. Take a greater percent of youth's income
That's how you divide a nation, young will hate the old, riots will start. Check out "2030: The Real Story of What Happens to America"
>4. Have old people live on less or not retire so early
That's how politicians lose support, Brexit happened because more old people voted than young people, now opinions of old people are being listened to, young are ignored, because they have less voting power.
Food is not the only cost of owning a dog. Vet bills alone can bankrupt an owner. Besides, you'll have a hard time giving a good life to a dog if you're working long hours or more than one job.
What are they going to do with the coconuts, are they free, whats the point of cash then if they both have cash? Why would either accept cash from the other?
That's the real key to "world savings", and in your terms you can think of it as "making youth more productive" (or making the elderly productive enough).
In the desert island, You seem to imagine that labor is a zero-sum game (the desert island is the same tomorrow as today) rather than a positive-sum, where I improve the world by my labor, in addition to providing for today's consumption.
Imagine an isolated homesteading family with no community. How would this person/family save for old age? By building up the farm, building tools, planting orchards, building irrigation systems, managing forests, so that today's labor can reduce the amount of labor required for the future.
Agafia Lykova is such a person - https://www.businessinsider.com/72-year-old-hermit-lives-in-... - she lives alone, using tools saved from an earlier time, in a home her family built in previous decades. Life with this infrastructure, including maintenance, requires less effort than initial construction, which was done when there was surplus labor available.
Similarly for a country or a world - the net savings exists in acquired infrastructure (capital) that enables future production (& consumption).
Trees are a good example - by planting fruit trees (capital investment), I enable future fruit harvests. Managed timber forests provide future lumber (or fuel) production decades later.
Similar investments in infrastructure (water systems, equipment, buildings, etc.) all represent net saved value today that enhances future production in subsequent years.
Yes, labor is required in future years, both for production and maintenance (unless/until we can fully automate), but the ratio of consumption today to future consumption is not constant, even in global sum (e.g., the years 1940-1945 may have been a world-wide net loss of acquired capital, certainly for Europe). That net improvement in infrastructure is global savings (or loss).
Note that as savings pile up in banks and brokerages, they supply the world with more loans for starting new businesses or new ventures. The money in a bank doesn't just sit there. It is a basis for economic activity throughout the country and even the rest of the world.
A more appropriate example is not an island that constrains population, but a population where new people are born and make investments into new businesses and new ideas. You can certainly have people transition more towards savings over time as they enter their prime career earning potential, without it impacting the rest. This is because there will always be other people who are willing to start businesses.
I addressed that by saying the islanders could work on infrastructure and labour saving tools while young. That's investment, deferred consumption.
However, this has limits. A country with a 8:1 worker:retiree ratio is currently much more productive than a country with a 2:1 or a 1:2 ratio.
Maybe savings could change this for the future, by really making something that hardly needs labour. But presently we have a real labour barrier to this kind of saving.
I agree it would be better if we saved more though, as this does indeed translate to invest. I hadn't explicitly spelled this out, so thanks.
The islanders are indeed better off if they defer. But, they cannot make themselves so well off as when their society was young, and they still need some labour.
> The WEF assumes many people born recently will live beyond 100, which may be a bit much (the Social Security Administration expects most Americans born today to live into their mid-80s).
The title of the WEF paper is "We’ll Live to 100 – How Can We Afford It?" The entire paper is an extrapolation of that one assumption.
There is no country in the world with life expectancy over 84. There is also no US congressional district with LE over 84. The idea that any collection of humans can exceed even 90 years in average life expectancy is unproven, much moreso for the entire human population. In fact, the LE for the USA has been decreasing for the last 5 years.
Imagine you're an alien visiting Earth on 2050 and it's the worst-case scenario as predicted. You see all the suffering, people starving, not a lot going on and then you look at all the arable land, the mineral resources, the factories, etc and nothing is happening. People refuse to help each other at a large scale. It's like the hungry ghosts story in planetary scale. You'd be very puzzled, wouldn't you?
Well it all happens for a reason. And I don't mean as part of some master plan, but cause and effect. Since we're talking about an alien civilization capable of traveling to earth, vastly technologically and intellectually superior to us, they'd probably be able to assess the problem pretty quickly based on human nature. It confuses us because we can't understand collective human behavior. This made me think of the line from MIB: "A person is smart. People are dumb, panicky dangerous animals and you know it."
Your US Social security retirement "invests" their money in US Tresury bonds. The US will default by 2030. Those treasury bonds turn into "IOUs" that can't be paid back, ever (aka default). By 2030, people won't buy new treasuries as the last generation mature, so they will have to be paid back by money printing.
2030 is when US Social security retirement hits a big wall.
An even bigger financial time bomb IMO is that society and our financial system was built on risk-free investment returns, and those have disappeared.
Some have said that financial reserve banking enabled the industrial revolution. The party is over, we now have negative nominal interest rates, and very negative real interest rates.
Society has adjusting by chasing risk. Comments like "as long as you hold for at least 10 years, investing in the stock market is risk free" become common. They make these statements by cherry picking American returns. Meanwhile an investment in 1914 German stocks would not return your investment until 2014. I don't believe that we're comparable to 1914 Germany, but potential isn't comparable to the last century of American growth either...
A society does not become rich by moving pieces of paper around. A society becomes rich by increasing its capacity to provide goods and services.
USA can sell debt to finance social security and medicare. This is possible as long as (a) US Dollar is global reserve currency (b) every other country want to export to USA (c) every non-American wants to immigrate to the states.
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[ 3.8 ms ] story [ 184 ms ] threadBut there's about 20x more people in the US as in NL. The shortfalls are about the same.
I was looking at exactly that 6T figure, and was like: This is an AWEFUL LOT for a country with less than 20 Million people.
I'm not sure about the US, but in the Netherlands the pensions are a hot topic in politics.
The pension funds have to maintain a minimum amount of money, and need to take action if they risk getting below the minimum.
Some/most funds are no longer indexing yearly based on inflation, and some funds are talking about reducing payouts to the retired. They are actively protecting their wealth to ensure the younger generation still has access to a pension when they retire.
On a grander scale there are talks about a completely new pension system; the big funds where the current generation of workers pay the pensions of the retired is fragile with the general aging of the population. The amount of working persons per retired person is shifting, so they are talking about restructuring in a way where every working person saves money for their own pension.
So when the article states that it is an invisible problem... not entirely true for the Netherlands.
Back of the envelope: 50M people doing this at $300k average home value and $20k annual maintenance/taxes/insurance over 20 years of lifespan, and costs drop to food and healthcare. Seems like a no brainer.
(yes obviously this depends on people having had kids and not borrowed heavily against their house...)
What am I missing?
Old people sell homes and combine households with family. Young people (larger total population) buy up those homes.
Thats how its supposed to work, but instead we have real-estate as investment and old people sitting alone in their massive houses until they croak.
I'm not sure that really matters. If young people can't afford to keep a huge house that costs a fortune to maintain then any shortage isn't going to get people to buy that house. They can't afford it even if the old people who own it lower the price.
At the same time there isn't enough supply of smaller properties that young people ~do~ want. This is another, separate problem.
My wife's parents both live with us, they're Chinese and that's a common cultural norm in China, which which I am absolutely fine. It's not a common thing generally here in the UK though.
I can't imagine doing this with my mother because she is used to living in her own house, with her rules and her way of doing things. There's nothing wrong with that, I get on with my mother fine, but living with us would drive her, or us, or all of us insane very quickly. It's not just about doing it, it's also about the social norms and expectations of behaviour that make it possible.
Lack of options will be the encouragement. It's luxury to be able to live alone with your own rules and way of doing things. I will bet that most people who currently "live by their own rules" will acquiesce once they no longer have the power to do so.
> No problem! Just move in together!
The point is to find a way to resolve the shortfall before it happens, not just accept it as an inevitability.
but it's not the only mistake made: pensions are easily affordable as a society, but not for individuals.
the idea to link pensions to financial markets was the first and huge mistake.
No need to create a tyrannical government to force people to do deeds of arbitrary value for elderly people.
A money market account is insured and the real return is 0%, so it's not as vulnerable as you seem to think.
You can call money a credit. Then you can assign credits to actions and create a moral police to assign credits to people who do these actions and enter those credits into a leger. And now you've recreated communist China. Congrats.
All around, money is a better currency of exchange than time, or any other measure really. It measures well the actual value of time , effort, what have you. 1-to-1 time currency would be particularly bad choice, just imagine how much time you would have to pay back for someone who was born 60 years ago. Life was much much slower and unproductive. In the same amount of time today you can do multiple times the work/product that they did.
1. https://www.imdb.com/title/tt1637688/?ref_=nm_knf_t3
So people aren't saving enough to retire with 70% of their pre-retirement income.
From the paper:
> We have assumed that current global conventions of retiring between 60 and 70 are maintained, and that individuals do not simply remain in the workplace longer.
I don't see how this is a financial bomb. 70% of pre-retirement income is pretty arbitrary. The paper discusses this in the context of increasing life expectancy, but doesn't take into account people working longer which seems the natural thing to happen.
> Still, an overwhelming majority of the short-fall comes from government programs. In order to address this problem, governments must adequately and proactively fund their entitlements too, either by increasing taxes or by cutting benefits. Individuals alone cannot save enough to compensate for the unrealistic promises their governments have made.
A better solution would be to stop providing public defined benefit pensions. Instead switch over to defined contribution. Defined benefit encourages government agencies to make promises in the future that they won't be around to carry out. As a worker, I wouldn't want to trust my retirement to the political process over 50 years. Defined contribution prevents you from kicking the can down the road and not properly fund the person's retirement
It's a smart policy, but it's quite uncommon. When economists think of simplifying assumptions that also help to communicate the essence of a situation, this one doesn't seem that bad to me.
https://www.mrmoneymustache.com/2012/01/13/the-shockingly-si...
That is not true
From TFA they would have to sell something(assets), and probably adjust their spending in the next paycheck
The myth that abled bodied human beings in 2019 America are unable to come up with $400 is ridiculous
https://www.federalreserve.gov/publications/files/2018-repor...
It’s things you bought that you can sell to access those $400
not selling those assets and going into debt is a choice
Ultimately, the goods and services consumed by retirees are provided by the real economy, not by financial instruments (which is just a fancy way of saying that you can't eat savings).
The way to ensure their availability is to make real investments, not financial ones: build infrastructure, factories, accessible retirement homes; train nurses, doctors, etc...
Unfortunately, focus on the financial can trigger (and arguably has already triggered) some extremely counterproductive reflexes. For example, we've been told for decades now that private savings are essential for retirement. This may be true at an individual level, but in the aggregate it causes a savings glut - those low interest rates aren't just the making of central banks - and it withdraws effective demand from the real economy, which disincentives many of the investments in the real economy we need to provide for an aging society.
So yeah, good to see some focus on the aging society, but please try to look beyond the financial smokescreen.
What's the solution in non-financial terms? Make more young people care for the elderly? Automate as much of the healthcare as possible? Let some elderly people go without healthcare?
But yeah, ultimately the solution would have to be something along the lines of the things you mention. Of course, you don't necessarily have to automate healthcare: if you automate something else, it could also free people to then move to healthcare.
The real problem is on the demand side of funds, we've run out of low-hanging fruits and marginal productive investments, whether in infrastructure, tech or labor are returning less than before, which drives the rates lower. This is in turn driving up the prices of existing profitable enterprises and premium real estate, squeezing out both productive ventures and labor.
Oh come on... why 70%? Presumably retirees don't have childcare costs, can downsize on housing, no more daily commute so savings on transport and lunch costs, ... Also, does "private savings" account for accumulated housing equity?
Also, I think that "retirement savings" are a fundamentally misguided economic policy... There's a fixed amount of wealth created at any moment (and a lot of it isn't transferable over time - in particular, labor, energy and food), so by "saving for retirement" we're actually causing a deflation (less money spent to buy same amount of wealth) and will cause an inflation when we start "spending retirement savings" (more money spent to buy same amount of wealth, so prices go up). This is a rat race, you only get ahead as long as you save more than others (similar to the housing bubble). The only sustainable solution is the working population to subsidize the non-working population (kids, students, retirees) in real time, year by year. If that math doesn't work out, we need to change it (make more kids who become new workers or make less retirees by having people work longer). Or post-scarcity economy of course.
In effect retirement increases economic activity by forcing huge numbers of people to save for benefits they don't receive.
Even if saving decreases economic activity, I doubt it decreases it that much.
Convince, as writing a check or using a bank card allows for large and specific transactions. Paying rent every month via check for 1234.56$ is easy, with cash you need to count and recount etc. This is especially true for transactions over the internet.
Scale this up and you get into Logistics for large transactions like buying property. Verifying a 1,000,000$ Bill is not fake is one issue, as is trying to get change for huge denominations. On it’s own this would creat an ecosystem of bank like entities such as money exchanges with associated fees.
Efficiency, banks make use of deposits for loans which allows them to offer services at a discount. Remove that and people end up directly paying for this stuff.
Banks provide other services like transactions between physical and digital currency at ATM’s. The large unbanked population ends up paying high fees for many services banks provide.
For example, VC firms entire business model is based around investors generating economic activity by handing it to someone that’s going to spend it. Government bonds are another ‘investment’ that seems to sit around doing nothing, but the bonds are not money. The money was more or less instantly spent by the issuing government or handed to an earlier bond holder.
I came here to say the same thing; was even typing it up. Then I paused. Healthcare (in the U.S. at least) is going to be at a crisis point in a decade. Prices keep going up and it isn't sustainable. Retirees will spend a large portion of their retirement income on healthcare.
We're rapidly approaching a time when leaving inheritance will no longer happen at all for nearly all people who've worked their whole lives (i.e. have never been owners, "capitalists", as their primary source of income). I mean I know there's not much there already, but soon that'll just not be a thing anymore. Healthcare expenses plus the death of pensions are going to cause some serious unrest in the next decade or two, unless we course correct hard and very soon.
Money doesn't work that way. Fixing the problems that can be fixed usually isn't a crippling amount of money.
And when hospice is expensive, it's not because any notable treatment is happening, it's just to give you a place to live.
Imagine a desert island of two people. They have a system of savings. You can bank away a voucher that makes the other person gather coconuts for you, and do other necessary work.
One of the two people could conceivably work harder in their youth and then work less later using the vouchers. But:
1. They can't both do it 2. If the other person loses capacity to work hard in their later years, your savings voucher loses value.
How can they both save? To a limited extent, they can store resources like extra coconuts, build infrastructure and tools while young, etc. But this only goes so far: food rots, infrastructure depreciates.
On a global scale the world is no different. A savings shortfall means that global youth productivity won't be high enough to support global elderly retirement. We will need to either:
1. Get youth more productive 2. Make more youth 3. Take a greater percent of youth's income 4. Have old people live on less or not retire so early
Notice that none of these are about saving now? That's because moving 1's and 0's in a ledger isn't a provisioning of future goods. You need actual future goods production.
Addressed by graeme as "build infrastructure and tools while young."
If you look at the generations who were working between 1980 and 2000 (spanning 20 years), they delivered mind-blowing innovations: personal computers, graphics cards, databases, the internet, countless vaccines... It's impossible to list everything. What did the newer generations do in the last 20 years? Facebook, Twitter, Snap, Youtube, Netflix, Uber, Bitcoin... The only genuinely impressive thing that we achieved was the successful commercialization of the electric car. Our generation sucks. We are stupid and unwise. We can't allocate capital.
See the various options under :
https://en.wikipedia.org/wiki/Secular_stagnation
and
https://en.wikipedia.org/wiki/Energy_returned_on_energy_inve...
the world is not infinite, and economic growth can not be infinite.
I have no proof if we are effectivelly at "the limits to growth" or not. It sure starts to feel like it.
In your analogy, both people can redeem their coconut voucher if they've built a robot that gathers the cononuts.
Yes they can. Assuming there are enough resources to sustain both their entire lives (let's say 75 years); each can work enough to accumulate those resources in 50 years so they don't have to work the final 25 years.
Do you believe you can store coconuts for twenty-five years?
Youth is always more productive because they use tools and strategies worked out by the older.
>2. Make more youth
In some wealthier, western countries many people in their 20s and 30s can't afford to have a dog.
>3. Take a greater percent of youth's income
That's how you divide a nation, young will hate the old, riots will start. Check out "2030: The Real Story of What Happens to America"
>4. Have old people live on less or not retire so early
That's how politicians lose support, Brexit happened because more old people voted than young people, now opinions of old people are being listened to, young are ignored, because they have less voting power.
How can anyone not afford a dog? They are free and don’t eat that much
"Free" after veterinary costs and a bit of equipment. Plus the food. Let's say that's N dollars per month.
That's the N dollars some people don't have.
Or, if they have them, it can be seen as a failure of the current embodiment of capitalism: obviously someone is not extracting enough rents.
5. Automate more, and make sure the production value from the automation benefits those that need it.
This is the basic idea behind Universal Basic Income.
If you have a coconut harvesting robot, none of the two islanders need to work -- assuming there isn't a third person charging them for the coconuts.
> You need actual future goods production.
That's the real key to "world savings", and in your terms you can think of it as "making youth more productive" (or making the elderly productive enough).
In the desert island, You seem to imagine that labor is a zero-sum game (the desert island is the same tomorrow as today) rather than a positive-sum, where I improve the world by my labor, in addition to providing for today's consumption.
Imagine an isolated homesteading family with no community. How would this person/family save for old age? By building up the farm, building tools, planting orchards, building irrigation systems, managing forests, so that today's labor can reduce the amount of labor required for the future.
Agafia Lykova is such a person - https://www.businessinsider.com/72-year-old-hermit-lives-in-... - she lives alone, using tools saved from an earlier time, in a home her family built in previous decades. Life with this infrastructure, including maintenance, requires less effort than initial construction, which was done when there was surplus labor available.
Similarly for a country or a world - the net savings exists in acquired infrastructure (capital) that enables future production (& consumption).
Trees are a good example - by planting fruit trees (capital investment), I enable future fruit harvests. Managed timber forests provide future lumber (or fuel) production decades later.
Similar investments in infrastructure (water systems, equipment, buildings, etc.) all represent net saved value today that enhances future production in subsequent years.
Yes, labor is required in future years, both for production and maintenance (unless/until we can fully automate), but the ratio of consumption today to future consumption is not constant, even in global sum (e.g., the years 1940-1945 may have been a world-wide net loss of acquired capital, certainly for Europe). That net improvement in infrastructure is global savings (or loss).
A more appropriate example is not an island that constrains population, but a population where new people are born and make investments into new businesses and new ideas. You can certainly have people transition more towards savings over time as they enter their prime career earning potential, without it impacting the rest. This is because there will always be other people who are willing to start businesses.
However, this has limits. A country with a 8:1 worker:retiree ratio is currently much more productive than a country with a 2:1 or a 1:2 ratio.
Maybe savings could change this for the future, by really making something that hardly needs labour. But presently we have a real labour barrier to this kind of saving.
I agree it would be better if we saved more though, as this does indeed translate to invest. I hadn't explicitly spelled this out, so thanks.
The islanders are indeed better off if they defer. But, they cannot make themselves so well off as when their society was young, and they still need some labour.
Or they could have a system where they store food for the winter...
The title of the WEF paper is "We’ll Live to 100 – How Can We Afford It?" The entire paper is an extrapolation of that one assumption.
There is no country in the world with life expectancy over 84. There is also no US congressional district with LE over 84. The idea that any collection of humans can exceed even 90 years in average life expectancy is unproven, much moreso for the entire human population. In fact, the LE for the USA has been decreasing for the last 5 years.
Food for thought...
"Sleeping on a Volcano: The Worldwide Demographic Decline and the Economic and Geopolitical Implications"
Non-affiliated, just though it was a very good read: https://www.amazon.com/Sleeping-Volcano-Demographic-Geopolit...
2030 is when US Social security retirement hits a big wall.
Some have said that financial reserve banking enabled the industrial revolution. The party is over, we now have negative nominal interest rates, and very negative real interest rates.
Society has adjusting by chasing risk. Comments like "as long as you hold for at least 10 years, investing in the stock market is risk free" become common. They make these statements by cherry picking American returns. Meanwhile an investment in 1914 German stocks would not return your investment until 2014. I don't believe that we're comparable to 1914 Germany, but potential isn't comparable to the last century of American growth either...
A society does not become rich by moving pieces of paper around. A society becomes rich by increasing its capacity to provide goods and services.