Sunday, September 18, 2016

Sustainable Aging

Japan is the oldest country in the world, and 32000 people are going to turn 100 this year. I see long lives as a good thing. People can share their experience and knowledge with younger generations and help in material ways as well.

The issue with this starts with how we have managed how people get wealth in their latter years.  Historically of course this had meant that seniors get a pension from their company which pays them out of future profits until they die. This is the classic putting your all of your eggs in one basket. Fortunately the future of this is knocking to last forever the old pensions of your our dying as people have pensions die. In the future my of the generation born in the 1950s and 1960s is going to see billions of seniors across the world owning capital in corporations across the world this a going to be at least 1 billion people within a few decades as they are retiring. The difference of this is going to make is first of all the more distribution of wealth because many pensions are not inheritable upon someone's death and you can't really say I have Y amount of money in the pension the way you didn't say I have X amount amount of stock in Google or some other company. The reality is that the richest families of in the world have become rich because they own capital. And the middle class until the 1980s did not have inheritable assets beyond maybe their house, and even in the 2000s the cost of Housing did not go up as much as the stock market, and has not recovered at the same rate since the great recession. All of this means that in 30 years we won't have the same pensions coming up for seniors at the rate we are having today. This is caused because in the 1930s when these programs were made they didn't expect such a huge revolution in healthcare, which is due to things like antibiotics chemotherapy and countless other medical discoveries and inventions over the last 50 years. This has made it so that life expectancy has increased from 59 to 79. Programs were designed with the idea that less than half the population would retire, however today most people will retire yet our Public Safety nets have not evolved to face this massive change.

In the long run assuming that we continue to have technological growth this problem will go away because of this change in retirement plans. The question today is how do we survived with this existing system over the next 30 years as people born between 1920 and 1950 are in retirement. I do not know how we are going to survive as pensions stop being paid out to people. It is going to be a very difficult time for developed countries with such systems. If we chose to front load the pension plans in capital which will grow in value until they die we will be pulling money out of current Investments into the younger generation. This will have gigantic long term costs as we have less money for education or be pulling money out of the economy today for people who are not currently working for creating any real value. That is the problem as I see it. It is not that's we cannot afford to pay pension retirees but more that we are pulling money out of current economic growth to support people who have never consulted a financial advisor or Economist in their lives. This reduction in investment is why pensions reduce our GDP growth. At least with modern retirement plans that's money is being used by the private sector to invest in the future which is why it is fundamentally different from pensions and why 401k plans are sustainable while pensions are not.

In most of my posts I and with an uplifting note of a solution to the problem. The solution has been found and it is that retirement is now based on capital, but in this case I do not know how we can take care of the promises made by my great great great grandparents generation without massive costs to my generation and my children and grandchildren's generations. The private sector already solve the problem as best as is possible today (as I see it) without breaking the promise and leaving seniors out on the street without what they were promised by their grandparents.

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