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.<p>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.<p><i>One</i> of the two people could conceivably work harder in their youth and then work less later using the vouchers. But:<p>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.<p>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.<p>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:<p>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<p>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.
The risk with this kind of story is that we end up focusing on the financial at the expense of the real.<p>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).<p>The way to ensure their availability is to make <i>real</i> investments, not financial ones: build infrastructure, factories, accessible retirement homes; train nurses, doctors, etc...<p>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 <i>just</i> 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.<p>So yeah, good to see some focus on the aging society, but please try to look beyond the financial smokescreen.
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.<p>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.<p>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...<p>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.
That bar chart is terrible. It puts the US at a 137T shortfall and the Netherlands at 6T, making NL look much better than the US.<p>But there's about 20x more people in the US as in NL. The shortfalls are about the same.
> 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.<p>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?<p>Also, I think that "retirement <i>savings</i>" 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 <i>more</i> than others (similar to the housing bubble). The only sustainable solution is the working population to subsidize the non-working population (kids, students, retirees) <i>in real time</i>, 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.
> 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.<p>So people aren't saving enough to retire with 70% of their pre-retirement income.<p>From the paper:<p>> 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.<p>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.<p>> 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.<p>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
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.<p>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.<p>(yes obviously this depends on people having had kids and not borrowed heavily against their house...)<p>What am I missing?
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"?
> 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).<p>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.<p>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?<p>Food for thought...
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.
A book I would highly recommend looking at the future of financial systems related to this retirement bomb is:<p>"Sleeping on a Volcano: The Worldwide Demographic Decline and the Economic and Geopolitical Implications"<p>Non-affiliated, just though it was a very good read:
<a href="https://www.amazon.com/Sleeping-Volcano-Demographic-Geopolitical-Implications/dp/1793927758" rel="nofollow">https://www.amazon.com/Sleeping-Volcano-Demographic-Geopolit...</a>
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.
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.
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.<p>2030 is when US Social security retirement hits a big wall.