Retirement strategies. Saving for and spending during. The world is awash with writings on how to save and invest for retirement. The volume of material is vast and it is being added to daily, including by me. Why is it so? If ever there were a topic that should have been settled over 100 years ago, retirement savings is it. There is no need for continuously adding to the material. The fact that such material is ever growing hints that there is a problem. If the topic was settled, there would be no need for a constant barrage of new material.
There most definitely is a problem in retirement savings (in advanced economies): it is the futility of trying to save effectively on an individual basis without any risk sharing arrangements in the context of lengthening life-spans, higher costs of living and higher expectations of lifestyle. It is a cruel hoax foisted on the bulk of the population that insists they can do it, provided they have the right investment strategy, the right draw-down strategy, the right contribution strategy and so on. But the right combination does not exist. That is why people are always looking for new ways, new ideas, some development or technique that will allow them to save effectively and retire securely in a lifestyle that meets their expectations. Yet it cannot happen but for the small proportion of each country’s most wealthy. It was over 400 years ago that the earliest friendly societies became established. They were accumulating societies that people paid a small money premium into on a regular basis. In return, on death or sickness of the member, the society paid a benefit to support that person and their dependants. Friendly societies are still in existence today, based on the insurance principle of pooling risk as an effective, and we should acknowledge ingenious, way of using scarce resources to best possible use. The people who joined those societies did so because they knew that they could not afford to accept the risks on their own. The incidence of death or sickness was unknown. Today, the concepts have not changed. However, there is a pervasive idea that given the right investment and savings strategies, people can accept the risks on their own.
By far the biggest risk these days is having insufficient funds in retirement. Mortality rates have fallen at all ages over the years so that most people at work can expect to live a longish retirement period, and are actively encouraged to save as if they have 25 years or more of post-retirement living to enjoy. It is a futile exercise. It is futile for three reasons: scale, averages and the gig economy.
Firstly, scale. 25 years of living expense in retirement is such a huge economic commitment it requires a very long period to save for. It is not as if our costs of living are low. Most figures show the Australian population approaching retirement with balances that are simply too small to even contemplate funding 25 years. Further, there is some evidence of those approaching retirement still not having paid off their housing debts. The task is too big, and investment returns are not big enough.
Secondly, averages. Given our system of saving on an individual basis, even if the average person managed to save just enough and no more, with their retirement funds running out just as they died, everyone else will get it wrong. They will either die too soon with excess savings passed to the next generation for no good reason. Or, they will die ‘too late’ and run out of money beforehand. Not everyone dies on the requisite average date or adheres to that old actuarial maxim that actuaries expect everyone to be dead on time.
Thirdly, the gig economy. The concept of a career followed by retirement is relatively new. Our economy appears to be advancing to a replay of the old pre-industrialised economy. It is referred to as the gig economy, where people will have a portfolio of jobs, working more as free agents moving from contract to contract as the need arises, a gig here and there. This is how economies (in non-agriculture sectors) used to operate before the industrial age, the growth of the corporation and the career. In such a gig economy, work patterns are different and retirement as a concept of completely stopping work and living on the proceeds of savings will diminish. Instead, older people will continue with their gigs, but just wind them back, do fewer, do the easier ones as increasing age makes working harder.
It is fashionable to prefix words with ‘peak’. Peak-oil. Peak-human. Peak-neoliberalism. Peak-prepostmodern white male hegemony. Often, the predictions of the ‘peakedness’ are plain wrong, spectacularly so in some cases. I’m willing to stick my neck out and predict peak-‘how to save for your retirement’ literature is not far away. I think the era has passed.