The End of Retirement as We Know It – Business – The Atlantic


That retirement for a large share of one’s life may hard to support whether or not from the government, was I thought an interesting idea.  It may be offset by the addition of savings to capital though.

Retirement experts typically say that retirees should shoot for 75-90% of their working income in retirement (the theory being that some expenses fall, but other expenses rise, and you don’t need to save for retirement when you’re already retired).

That’s fine when the ratio of workers to retirees is 1:12, as it was within the Social Security system in the early years.  But by the time you get to 5:1, it starts to pinch–assuming everyone has the same income, each worker has to toss at least 15% of their own income into the pot to support the retirees.  Once you get to 2:1–which is where we’re rapidly headed–33% of your income is going to support someone in retirement.  Woe betide you if you also have kids.

It’s important to note that this is true no matter how retirement is funded.  Whether you collect a dividend check, get a corporate pension, or live off your social security, your retirement is funded by real claims on the output of people in the workforce.  Private pensions have a couple of advantages:  the investments that fund them actually help make the economy more productive, unlike transfer payments; and they aren’t necessarily indexed to inflation, so over time, as incomes grow, it becomes easier to support the older retirees.  But they don’t eliminate the problem; they merely mitigate it.

Mathematically, society simply cannot have a high and growing dependency ratio–at least, not if the retirees expect to be supported in the style to which they have become accustomed.  (I take it that this is what is meant by “a decent living and a stable retirement”).  We can warehouse people in spartan old folks homes (or treat them like kids and move them into the spare bedroom), in which case they can enjoy a lengthy retirement.  Or they can retire for less time, and live more lavishly.  But there is no conceivable system that is going to allow the vast majority of the population to spend a full third of their adult life in retirement, at anything like the same standard of living they had when they were working.

The End of Retirement as We Know It – Business – The Atlantic.

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