The idea that we can retire at 65 and maintain our current standard of living is a far fetched fantasy of which we have seen the foundations crumble in the past few years. Just like many other ideals, e.g. being able to buy a house, single-earner households, stable income and employment contracts, younger generations such as Millennials and Gen Z would love to be able to retire at 65, but given that previous generations exclusively chose to satisfy their own needs and “forgot” to think of the future, I guess that will continue to be a dream. As more people retire than enter the workforce, and more take from the state pension fund rather than contribute, there are questions that need to be asked regarding how much the state can and should help. These are questions that are predominantly being asked in the West, where often the state does contribute and families quite often do not, as the cultures are relatively individualistic. My vision is that as things are going, state support will continue to decrease, as most political parties aren’t exactly keen on increasing wealth taxes. Snakes.
Moving from the state to an individual level, most people are woefully unprepared for retirement. There is a tendency to massively undersave, whether employer matching programs are in place or not. To ensure much more saving, and I do mean MUCH more, several things need to happen, both on a structural and psychological level. First, employer matching needs to become much more common, with a high default setting and almost a minimum savings mandate regulated by the state. The application of programs such as Save More Tomorrow might also need to be employed, not as an option, but as a mandate, to just reach the bare minimum. Retirement savings need to become a top priority for both financial institutions (we are seeing this) and governments (as always, lagging about 20 years behind, if they have been found to give a damn). I’ve outlined how I expect that the financial services industry will have to change with regards to retirement and the casualization of work. I’m not expecting people to be able to retire whilst spending most of their lives working on a near minimum wage within a casualized job that does not provide employee benefits and retirement savings plans. With reduced state support and very few people with sufficient individual savings, the future doesn’t look bright. It looks rather bleak.
Leaving economic factors to the side for a bit (you can tell I’m not an economist by training), there is much more to consider. Our expected lifespan has been on the rise (quick drop with covid-19, but a general upward trend). Medicine has made strides if not leaps and as a result we could easily become 85 years of age, several people becoming quite a bit older. Reaching the ripe age of 100 years is no longer a rarity, although questions can be asked as to how desirable reaching the big 1-0-0 really is. Regardless of that debate, we are going to live for a long time. To paint the picture, most people work 20-65 (or thereabouts), that is 45 years, for some it might be longer, for some shorter. That means you have 45 years to make sure you can retire, whilst not working for the 15-25 years (I’m working with some margins here) that the retirement entails. I hope you’re good at making and investing money mate. In addition to the basic mathematics of that no longer adding up as most people cannot even afford to save large enough amounts of money to consider investing in stocks, real estate or anything else really, you might want to ask yourself: what are you going to do with 20 years of free time? This is another point I mention in the “future of financial services” articles (yes, there’s two of them, lucky you). Two decades is a long time. Sure, I’ve got things I’d like to do (Yes I have a 40 year plan, back off), but I don’t think they can fill up 20 years. If you are in the position of privilege that you love your job, or your work in general, do you want to give it up just because you reached an arbitrary age? With all that experience, you are valuable. If you’d want to continue making use of the value you’re in luck: in this day and age, there are lots of ways to make money of experience, especially in the knowledge economy. But that is also an issue: you very likely have to be part of the knowledge economy, which is often occupied by the higher socio-economic classes. Additionally, you often need some starting capital and large chunks of time. Creating online courses or writing books (or other informational resources) require a lot of upfront investment, and then (hopefully) garner passive income. And let’s be honest, if someone with decades of an experience drops a book or a course, that should almost sell itself (well, to be sure do hire someone who does marketing/PR). So, from a psychological perspective, I wonder if people who held jobs they really enjoyed will really not want to do any form of work during retirement. On an economic level, I wonder what most people who are not in positions of privilege are going to do…
If you ask me, at the rate that we are going, retirement as we know it will die with the boomer generation (I said, I won’t take it back). For the generations after that, it’s a question of what will remain, and what form those remnants will take. I am a firm believer in increased taxation of the rich, it’s just unfortunate that quite a few of the rich do not seem to feel the same way. I’m also a massive proponent of mandating retirement savings, and taking the choice (the temptation) away from our present selves to the benefit of our future selves. But how do you justify taking money now to have for later from someone who is already struggling as their current wage is barely enough, if it’s enough at all? By no means do I think I have real answers to any of these questions. There are much smarter people who have worked on this for a long time, and there will be much smarter people who will continue to work on this. I just know that at the ripe age of 25, as a PhD student, I have dedicated a large chunk of my savings to the stock market, so that when I’m 65 I will at least have the option to retire (or take a sabbatical before I get bored again). Hopefully. Because I’m worried there’s not much else to count on. But then again, I’ll also be that 75 year old teaching online courses. So prepare yourself for that!