click for ginormous graphic
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Source: Bloomberg

Category: 401(k), Digital Media, Investing

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

32 Responses to “Global Retirement Dilemma”

  1. mpetrosian says:

    Great graphic, already used it with some clients today. I’m meeting with so many new referrals all fitting into the same basic pattern. 55-65 years old, 100K-200K in a retirement account, tiny little 401K accounts littered everywhere, own a small 300K condo with a 200K mortgage, some credit card debt, living on SS with a part time job, no reserves, no plan, no close relatives. They are fine right now. What the F%&K are they going to do 10-15 years from now?

    • pirannia says:

      Retire to Mexico?

      Seriously now, why isn’t there a “reverse” immigration process for retirees who cannot afford to live on SS in US. I predict an entire industry emerging in “emerging economies” dedicated to this. Europeans already retire to the south and it’s not just for the climate.

      • I have heard of that before — Baja Peninsula is a good example. Costa Rica and other places south of the border are similar retirement destinations

      • DHM says:

        Why isn’t there more reverse immigration to emerging economies? Simple answer: seniors place a premium on access to quality health care facilities. However, this might change in the future.

  2. msn says:

    A very interesting set of stats, except of course for the shortfall figures for the U.S.. Absolute numbers are useless as they give no indication as to whether that’s ‘a lot’. What’s the size of the U.S. economy cumulatively through 2087? Bet it’s at least an order of magnitude over those numbers. That would be useful to know.

    The worker/beneficiary ratio is also highly misleading if you don’t know the history of the program. The current number has been pretty stable for decades. (The number could be quoted as highly magnified in the opposite direction as the program started taxation before benefits).

  3. rd says:

    The US and Canada have a huge advantage over most of the rest of the world regarding this issue.

    We can accept immigrants to help replace the younger working cohort. Culturally, most of the rest of the world is incapable of bringing in immigrants as an integral part fo their society because the very definition of their countiries is based on their ancestry, language, culture, and religion. Areas that have multiple different ancestries tend to be a major source of conflict, as we saw at the outset of WW II in Poland, Chzekoslovakia, and Alsace-Lorraine with multiple competing claims on the same area based on ancestry and language.

    The US and Canada have built themselves by being melting pots and people come here to be absorbed and to help provide diversity to the culture.

    • ami_in_deutschland says:

      Though what you say has validity from a historical standpoint, increasing globalization and migration has tranformed many countries known traditionally for their distinct national identities into de facto multicultural immigrant countries over the past couple of decades. Germany, to name just one, is currently experiencing record immigration levels. You only have to watch the next World Cup to see what a melting pot the entire world is becoming.

    • In addition to the cultural issues, immigration will be constrained in many regions due to high population density and resource limits.

  4. super_trooper says:

    What’s Canada doing right? Why do they spend less on pensions while still making sure that the poverty rate is low for elderly?

    • rd says:

      1. More coherent immigration policies
      2. An effective healthcare system that doesn’t bankrupt its users (2/3 of the US cost)
      3. Less poverty and income inequality
      4. Much less military spending
      5. Taxation and spending authorities and responsiblities tend to be paired at the appropriate legislative level. Much more taxation occurs at the provincial level and less at the federal level in Canada than in the US.

      Lower healthcare and military spending alone opens up 10%-15% of GDP to other more productive uses.

    • danm says:

      Universal health care makes up a big chunk of the difference.

      But we are not out of the woods yet… an increasing percentage of boomers are retiring with debt and no big pension to help them… lifestyles are too big for what people have saved and many don’t realize just how little their government pension will be.

  5. I think it’s actually a bit simpler than that ginormous infographic suggests. Consider a very simple model that nonetheless captures crucial details:

    There’s a population of N people on the planet. A certain fraction (f*N) work, and produce a total planetary output G in goods and services, based on an average productivity p such that G = p*f*N. The average person is able to consume only 1/N worth of the planetary output, because that’s what’s available.

    So the planetary average standard of living (call it L) is L = G/N = p*f. Note that N drops out altogether; what counts in the standard of living isn’t the number of people, but the fraction who work and the productivity of that fraction.

    As the population distribution ages (or if economic mismanagement causes widespread unemployment, or a baby boom takes place), then f decreases. If f decreases faster than p increases, then L also decreases. There can be a global decline in standard of living due to “aging out” of the workforce, just as occurs with a recessionary spike in unemployment. Except that an “aging out” decline won’t reverse unless more folks are able to work again.

    In the short term, an “aging out” decline, or a recessionary unemployment decline, can be compensated by reduced fertility, because young children also do not work. However, over time the reduction in the youth population worsens the problem of “aging out”, because there are no young workers to replace retiring older workers, so f declines again.

    • Greg0658 says:

      imo your formula needs food for humans and food for machines incorporated into it .. population more than double’g in this past century has its tolls … the invention of robots who work with less food has saved some humans for a period of time – till balance is arrived .. we need to get off that dinosaur fuel

      • I hear you. But, in the scheme above, resource constraints would show up as a decline in productivity per worker.

        Another angle is the rise of “non-productive” jobs. There are a lot of jobs that don’t really add value to the economy, though they benefit the organization for which the worker is working. For instance, all the military, homeland security agencies, airport security etc. are basically overhead costs for the rest of the economy. If we had a more peaceful world, those folks could be doing less “defense”, and more production of goods and services that would make us all better off.

        Similarly, a large fraction of the healthcare industry works to prolong the lives of folks who are terminally ill. Something like half of a person’s lifetime medical care cost is in the last 6 months of life. If we could find a way to make the “final year” less expensive, the nation would gain back a lot of production capacity that might be put to better uses (e.g. helping those who are going to live a lot longer, to be healthier and work a lot longer).

  6. Michaelfwiw says:

    I’m an unemployed 45 year old guy in the USA. Nobody wants to hire me. I used to look forward to working until I died. Things aren’t so rosy anymore.

    • LeftCoastIndependent says:

      Sorry to hear that Michael. I “retired” at 50 after working 2 jobs for 25 years. It was so boring, after 1 year I went back to work. Of course being self employed when you don’t have to work makes it all a lot easier, but I will never retire again. It takes a bit of effort to reinvent yourself in midlife, but find your niche and go for it. Be realistic and write a plan. Read it every morning. Don’t listen to the naysayers, even if it’s family. Believe in yourself, and put 100% into it. You might be surprised. A lot of employers prefer a mature 45 year old over an indecisive 25 year old. You have nothing to lose by trying. Good luck.

  7. carchamp1 says:

    Workers supporting one Social Security beneficiary:
    1950 – 17
    2010 – 3

    Herein lies a big part of the destruction of the American middle class.

    • Demographics are destroying the middle class?

      • rj chicago says:

        Barry:
        Other factors that determine this might be – what?

      • It’s certainly a headwind. Look at this FRED chart of which shows the effective average hours worked per capita since 1964. There’s a 10% drop since ~2000. That’s got to be among the more significant factors eating into median per-capita income and offsetting productivity gains.

        http://research.stlouisfed.org/fred2/graph/?g=pza

        Details: I plotted average weekly hours for production & nonsupervisory employees from the payrolls reports (establishment survey), multiplied by the total number of production & nonsupervisory employees and then divided by total population. No data are seasonally adjusted.

    • willid3 says:

      guess we just have to wait till those in retirement die? is that what you are thinking?

  8. MidlifeNocrisis says:

    The one thing that bugs me with regards to this type of information, is the narrative in the lower-right part of the graphic, in which it is “hinted” that Social Security and Medicare can run out of money. The United States is the sole monopoly source of unlimited fiat dollars. While shocking to most, the US can not run out of money and both Social Security and Medicare can be funded forever. They might run out of “reserve funds” (which in fairness is what the graphic says), but we will never “run out of money” to pay benefits. In fact, if we’re going to deficit spend, I’d much rather see those dollars go to American seniors than say… the military industrial complex or for corporate welfare.

    • Greg0658 says:

      how very social of you to submit that money is no real object – I agree with you .. but cash divy for something is our operating system that has prevailed for 6000+ years .. Chinese desire all the things that divy system supports .. now, we have funded a rival with knowledge & cash – we shall see how the balance works out

      I wonder what Detroit and the Illinoisan public workers think of that MBA line of thought .. wishing the kids of this babyboom era all the best in find’g employment to survive by

    • louiswi says:

      You so nailed it!!!!

    • “The United States is the sole monopoly source of unlimited fiat dollars…. the US can not run out of money.”

      I agree with you general point that depleting the reserves is not at all similar to not being able to pay benefits, but I take issue with your “unlimited fiat” argument.

      There’s no unlimited fiat dollar source under current law. Even if we ignore the debt ceiling farces, there’s still the limitation on the Federal Reserve to maintain the supply of money & credit consistent with (reasonably) stable prices. I’m assuming you did not want to argue that we should go the Weimar / Zimbabwe route, where retirees receive trillion-dollar Social Security checks each month that can only purchase a single loaf of bread.

      Also, as my model above points out, it’s mathematically impossible to argue that the workforce can decline (retiree population increase) faster than productivity gains, without the overall standard of living slipping. Doesn’t matter what a dollar is worth in that case, overly generous benefits have to come from somewhere.

      • Biffah Bacon says:

        Weimar and Zimbabwe are incompatible comparison sets for the United States.
        Weimar was unable to pay foreign debts in its own currency thanks to the terms of the Versaille treaty.
        Zimbabwe was a former colony going through a period of redistribution as a means of addressing race based inequities in land ownership gone berzerk-are we to consider this your prediction that Obama really is a Kenyan Muslim socialist planning to redistribute the means of production to the proletariat mobs?
        Citation of these cases as possibilities for the United States are typically a shibboleth raised by adherents to a particular narrative that resists fact-based intervention in their weltanschaung.

        Next, workforce can decline as long as there is a taxable population in the United States, which is the entire reason we have a congress. Congress could lift the cap or remove it entirely, levy new taxes, raise existing taxes to their former rates, cancel a weapons system-and find funding to support Social Security (a small challenge) and Medicare/Medicaid (the drunken rampaging elephant in the room). Would even the tea party choose to defund its own sacred system of government benefits? Not directly, I would suggest.

  9. [...] The Global retirement Dilemma. Pretty big, judging by the size of this infographic… http://www.ritholtz.com/blog/2013/12/global-retirement-dilemma/ [...]

  10. jacobh says:

    And this is why I am not convinced that right now the market is fairly priced.
    I am mainly talking about Europe (my area). Recently analysts have claimed that Europe is cheaper in terms of P/E compared to the US. To me, that is completely justified, given the demographics of the US vs. Europe (let’s not even mention Japan!). Where the US will be able to keep growing at least moderately, Europe will stay stagnant, with increasing pressures on the government budgets, and increasing austerity.
    These are not the fifties, sizties or seventies anymore, with decades of growing population ahead of us. Granted, globalization is a boon for the biggest corporations as they will be able to profit from the expanding middle class in India and China (and hopefully Africa down the road), but they will also have to compete with their companies.

  11. gman says:

    Much of this “crisis” in the US premised upon HC costs going up at 15%/yr. The SS shortfall as a % of the overall economy is manageable. If we had a healthcare system that was as cheap as France per year of life expectancy we could afford the Bush tax cuts.

    Any projection going out that far(2087) changes dramatically with very subtle changes in projections.

    Maybe when we get down to the feared ’1 worker for every retired person”, the labor market may start to show signs of tightening? For now at least it seems the more people retire..the MORE slack get put into the labor mkt.

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  13. victor says:

    One simple accounting fact often overlooked about the Employee/Employer contributions to all mandatory SS programs as a percentage of wages is that the Employee actually pays 100% of the “contributions” via lesser wages, at least from a purist’s view. Tax breaks for the employers and size of their profits as well as the recycling of the funds back to the retirees must be of course accounted for. I often wondered if there is somewhere any comprehensive research/study that addresses all factors and normalizes the results accordingly. But to those who advocate tax increases across the board, please! The poor and the middle class ALREADY pay taxes comparable to Finland’s, see Barry’s own findings when he traveled to Northern Europe. As for the rich, they may be NOMINALLY taxed more in the future but they also have the best accountants, tax lawyers and politicians at their disposal.