The beauty of this exercise is that accounting gimmicks cannot come into play. The wealth is either there or it isn’t, the poor bastard lives or the poor bastard dies.
Human rights versus the concept of retirement
We begin this thought-experiment by posing a starkly disturbing question: Is a society that kills its elderly, once these folks are no longer productive, more “honest” than a society which falsely promises to care for its elders but makes woefully inadequate plans to do so? To put it another way, does the former society have more truthful accounting practices than the latter?
Don’t be too mortified by my harsh question. Certainly, don’t be a self-righteous prick and refuse to consider it. If you indignantly demand we provide goods and services to retirees (or other nonworkers, for that matter) without having a realistic plan to fund it, you are a flat-out liar and eventually a murderer yourself—but, admittedly, you’re sure as hell infinitely more likely to get elected and reelected to political office than would a draconian truth-teller.
Yes, that’s correct. Reeking of simple-minded indignation, we decry the politician’s lies, but we insist on every last one of these falsehoods. Not one ounce of truth do we begrudge those who we elect, not to lead us, but to maintain a morass of status quo, no matter how delusional or destructive. Leading us nowhere but to where we’re already mired. Fiscal-related lies epitomize a politician’s dishonesty—and the voter’s insistence on it.
Anthropologists could share with us many examples of cultures that “respect” their elders and whose citizens are expected to care for their family members in old age. Often these are primitive or Third World peoples who haven’t reached our industrialized level of enlightenment. But in fairness to us “advanced” folks, it’s the backwardness of these other societies and cultures that make the numbers of elderly conveniently small in relation to the general population. Cholera and malaria and sleeping sickness keep the numbers of old coots manageable, whereas in Western cultures we’re hostage to our incredible success (suffering Stockholm Syndrome no less). It’s raining old fogies who, like the rest of us, cry out for entitlements galore—whether or not such expenditures are fundable, let alone merited.
Formal retirement, supported by public pensions, private pensions, and personal saving systems (e.g., IRAs) is a relatively recent development in human history. We generally agree as a society that this is a good thing, an economic virtue to which we collectively pat ourselves on the back. “We care about our elderly!”
But so-called virtue is meaningless without honest accounting. Money, or the lack thereof, doesn’t give a hoot about our so-called virtuous intentions. Whether we merit an entitlement is irrelevant. Whether we desire to show how much we “care” about our old folks is irrelevant. Whether it’s the “right” thing to do is irrelevant. The only thing that ever matters is whether we can pay for it now and as promised in the future.
In less-advanced societies, producing a lot of children—preferably, male ones—is the retirement program for parents, especially when high infant mortality rates conspire against the goal. The desired “maleness” of such a retirement plan comes with consequences—the Devil’s due. Notice, I didn’t say “unintended consequences” because the intent is fully intentional. In these cultures, the sons are expected to bear the burden of caring for parents in old age. Sex-selective abortion and female infanticide result. All those missing little girls snatched away by an economically-driven child predator as vicious and evil as any flesh-and-blood deviant we’ve locked up behind bars.
It doesn’t take a genius to see that improving health and sanitation, which reduces infant deaths and lengthens lives, results in rapid population growth. Eventually, as societies become wealthier, fertility rates plummet and their populations age. This then triggers its own host of issues, economic and otherwise, not the least of which is the ratio of workers to retirees drops, exposing our retirement systems for what these largely are: Ponzi schemes.
What I’m trying to say is that I’m not unduly impressed with how people elsewhere handle the care and feeding of the geriatric strata. They do or they don’t. We may rightfully respect an obligation to one’s elders. But we esteem it even more if it does not involve an expectation of government largesse, since nobody has a right to expect such charity, as is true with any good or service costing money.
When considering retirement (or any expenditure of public funds), we must acknowledge that human rights are abstract things, albeit incalculably valuable; they cannot be things which cost money because this would imply a lack of money voids the right. A right to free speech is a right more valuable than any tangible good and should exist regardless of a society’s wealth—you’ll soon enough find out just how dear is its loss, since cowards and censor-happy fools have us well down the path of losing this right. Due process is another basic human right—a modern courtroom or a council of tribal elders hearing evidence and then rendering justice can serve this purpose. The “cost” of human rights is not money; the cost is allowing other people to have these rights, as well, especially those who you despise.
A Social Security check or other form of pension is a wonderful thing if the redeemable wealth has been set aside to pay for it, but there exists no human right to it. Likewise, there is no right to a decreed maximum student to teacher ratio in a K-12 classroom; we prefer our children attend uncrowded schools, and hopefully possess the means to make this the case, but there is no right to this. Demanding as a right a good or service which costs money, especially money borrowed or printed, is fiscal childishness, a condition afflicting many adults in our society, especially our so-called leaders.
Should a society find itself dumb enough to codify every expenditure as a “right,” and the aggregate cost is less than available revenue, then what? Does a judge order tax increases or further borrowing? Does the judge decree a priority list, and leave some of these rights more rightful than others, and thus paid for first? At that point, the judge is performing the duties the legislative and executive branches are supposed to do, but too often shirk for want of courageous leadership. Making difficult spending choices is a primary responsibility of the leaders in any economic system. Voters have the responsibility of recognizing the importance of this task. Borrowing and printing money abrogates these responsibilities—at least until the ultimate reconciliation of accounts comes due. I think you see the problem.
My opening question of this treatise is not without real-world precedent. There are societies which took a harsher position and did away with their old people who were no longer productive. Ironically, these were primitive cultures, too. Honest as hell in their practices, but deemed horrific by Western standards.
The Eskimo technique of abandoning their old folks on an ice floe is one example. Cruel? Yes. Justified by the realities of the brutal environment in which they live? Probably. A model for use today? I hope not, but science fiction writers have warned of the possibility (e.g., Soylent Green, Logan’s Run).
Hyperbole? No. We’ve plenty of latent camp guards among our Woke fellows, so don’t find yourself surprised if the day comes when the clickety-clack of the trains is revived, and then we are glibly assured by our betters that it’s “for our own good.” The slogan, “Woke shall set you free,” might greet the new arrivals at the “retirement” camps…let’s pray such a dystopia doesn’t come to pass.
Nevertheless, the unfunded promises we’ve made for the care of our retired folks in the United States are based on “science fiction economics” which shall, at the very least, result in discontent, resentment, and economic disruption, whether or not we chose to honor or renege on these commitments. An inter-generational civil war made more bitter due to the political exploitation sure to result. A Woke politician’s genetics make it unlikely he ignores the chance to play up the juicy, exploitable demographic of a younger, “less-white” workforce subsidizing the idleness of older, predominately white retirees, particularly since nowadays older Americans represent a wealthier demographic.
Class and race. It doesn’t get any better than this for the Woke (unless you toss in gender confusion, to boot). You can wager big bucks that those preaching loudest for tolerance and diversity shall reveal themselves viciously intolerant and ruthlessly exploitative of our differences. Probably win yourself enough money to fund a comfortable retirement.
Mumbo-jumbo accounting
The Eskimo’s ice floe or the American Social Security System. Honest accounting is a must for both.
In the American system, money forcibly taken from employers and current workers as payroll taxes is used to fund the Social Security checks sent to current retirees. This system is essentially a Ponzi Scheme in the sense that workers are led (or want) to believe the payroll tax collected is invested or saved to fund their own future retirement, rather than sent off today to complete strangers who once believed the very same thing. Essentially…hell, it is a Ponzi scheme, decades in the making.
I’ll state the oft-ignored obvious: The money collected as payroll taxes has never been saved, nor has it been invested in a meaningful way that could reliably provide a future income stream. But in all fairness, such investment is problematic. Even in a large economy like the United States, the amount of money collected is so huge, that a flood of payroll taxes dumped into private sector investments would be extremely disruptive, no less so than the impact 401(k) plans have also had. Not that it matters, since the money collected is indeed spent, either as welfare checks sent to senior citizens, or “borrowed” by the government and spent on other goodies. This diffuse, non-investment spending throughout the general economy has its own consequences—and it’s not to ensure a future retirement which is actually funded.
But let’s say the money was “invested” by the government on our behalf—Uncle Sam acting as an investment manager. Throwing money at investments doesn’t necessarily make them more fruitful investments that generate real wealth now and in the future. Indiscriminately shoveling money into the stock market raises share prices irrespective of the actual value of the companies bought. For a while, that is. This money does not guarantee the companies become more efficient, more innovative, more clever, more profitable.
In fact, the opposite could occur. There’s no need for productive efforts when the share prices are going up without such, well, efforts. Shareholders and holders of stock options are happy as hell, without lifting a finger. Why mess up a good thing with actual work or long-term thinking which could upset the apple cart or bring scrutiny upon one’s company. A sanely run company with a realistic growth rate and actual profits may come up short in the minds of investors when compared to a profitless company whose business plan is based on contrived hoopla and deliberate financial prestidigitation. The share price in the short-term, irrespective of it accurately reflecting the underlying value of the company, is all the matters. Our economy is largely one of phantom equity, i.e., it doesn’t exist. Much of its stated aggregate value is not redeemable now—or ever.
Imagine if the idea proposed for investing Social Security money in the stock market during the glory days of the Dotcom Bubble had been implemented…it seemed like easy money, insanely low-hanging fruit, criminal not to pick.
Good God, the stock market bubble would have been inflated much, much larger, and the blowup would’ve been even more shattering to the economy. Not to mention the political machinations that would’ve occurred. We readily envisage the meddling regarding where the money is invested if the government gets directly involved in the stock market. Such meddling already occurs with government pension funds, where dunderheaded do-gooders virtue-signal rather than exercise the fiduciarily required goal of responsibly maximizing gains. There is nothing more dangerous than a smug do-gooder who measures his success, not by his own personal sacrifices or setting a good example, but by the sacrifices or harm—or inane inconveniences—he forcibly imposes on others.
It’s not difficult to imagine senators and congressmen scheming to steer investment toward their constituents and cronies and pet projects; all the while seeking to block investment in businesses and constituencies they don’t like. Close your eyes and visualize the debate over the Federal government investing in companies manufacturing firearms, birth control devices, cigarettes, solar panels, plastic grocery bags, trans fats, fossil fuels, junk food, alcohol, or pornography—or firms doing business with foreign governments we either like or don’t rather care for. “The company failed to donate to LGBTQ+ charities…the CEO is anti-abortion…the CEO is pro-choice…they use corn syrup…”
The craziness at the time would’ve been more insane if the government had been an active player—a role they saved for a few years further down the road. Just look at the damage they did merely by promoting home ownership and ginning down interest rates in support of the “Greenspan put.” Rather than a natural equilibrium related to stocks and real estate and interest rates, our betters insist on a bubble economy, fueled by absurdly low interest rates, borrowing and printing money, and tax code machinations, all of which disproportionately benefits these same betters. Never forget what comedian George Carlin said: “It’s a big club, and you ain’t in it.”
Would this flood of investment cash have made companies more productive, more efficient, more innovative? Would real wealth have been created? Most importantly, in years hence, would we have been able to tap into this “new” wealth for the care and feeding of our old folks, while at the same time allowing current workers the means to live a comfortable lifestyle?
More likely—hell, guaranteed—the Social Security dollars poured into the stock market would’ve disappeared into a void of economic entropy, where money is misappropriated and inefficiently used, the cash dissipated into the murky mists of financial folly, not unlike the forlorn situation by which the vast amount of a sun’s warmth radiates fruitlessly into the frigid vacuum of space.
Now, you may protest that money for our government-subsidized retirement is saved, and lots of it. What about the Social Security Trust Fund? Ah, your economic naiveté is as endearing as it is dangerous. You must also believe that in every direction a glowing sun gives rise to planets rife with life, rather than the odd miraculous pinpricks here and there.
Since its inception, the Social Security System collected as payroll taxes more money than it paid out in retirement and disability benefits—though this changed around the time of the Great Recession due to a profound demographic shift, which resulted in more money paid out than collected (a date that received little notice despite the profound implications).
Of course, over the years, this excess money was not going to remain unmolested, either as savings or a direct investment intended for future wealth production. No, instead the excess was “borrowed” by the Treasury Department and then splurged on other government spending—entropic spending no less. This borrowed money is now represented by Treasury Department issued securities which pay interest (laughter). The amount ostensibly residing in the Trust Fund is huge, trillions of dollars (though the concept of “trillions” ain’t quite as big as it once was), but this mythical trust fund is expected to be exhausted sometime in the 2030s (an exorcism of its phantom equity). By exhausted, we mean fully exchanged for borrowed and printed dollars—and a smattering of ongoing tax receipts—at which point, we at least close out this fiscal sleight-of-hand.
The securities in the trust fund can be cashed in, right? Used to fund those checks sent out each month to millions of retirees (more laughter). I think you already know the answer—and have known all along. These “funds” are no more extant than if you’d wrote yourself IOUs years ago, specified an arbitrary interest rate, and then stuffed them under your mattress with the intention of using these pieces of paper to fund your own retirement someday.
The tragic fact is restated, thusly: Trust Fund securities are only redeemable from current taxes, borrowing, or the printing press. These IOUs are literally nothing but pieces of paper (or digital equivalent) and represent wealth which doesn’t exist and never did. Anybody who claims otherwise is a lunatic, a liar, or worse: a Woke economist. As with any investment intended to provide a future income stream, the key factor is its redeemability, which is to say, does actual wealth, in the form of goods and services, exist to cover the redemption, perhaps decades from the present—and at the same time provide goods and services for the working population who provide these goods and services for both themselves and the retirees.
The powers-that-be knew all along it was a sham. Ignored the hell out of it because they didn’t think you’d re-elect them if they told you the truth. And you wouldn’t have. The fact is, dear readers, that you, me, each of us, would not have booked passage on the financial H.M.S. Titanic known as the American Economy were not the ship deliberately steered toward that fateful iceberg. In a society that democratically elects its ship’s master, we would’ve cycled through as many captains as necessary until we found the one compliant enough to validate our complicity and make certain our doom. In other words, we demanded a skipper who indulged or childish demands and moronic shortsightedness—i.e., spent far more money than is collected in taxes. We demanded an expansive, inefficient-as-hell socialist government at capitalistic prices. Thus, we insisted on a captain who deliberately aimed the ship at the iceberg, full-steam-ahead. Any passenger or crewman who fancied himself a Cassandra was not just ignored, but long ago tossed into the icy, shark-infested waters.
I must offer up two caveats, since economics is a complex organism for study, an elephant rather than an amoeba. Firstly, over the decades, the government “borrowed” and then spent the excess revenue collected by the Social Security System, not unlike a drunken sailor on shore leave: booze, gambling, tattoos, whores. Good stuff, certainly, but the throbbing hangover, fiery urination, and empty wallet might—at least until the next payday—lead to remorse; perhaps promises of better behavior after a visit to the mariners’ chapel.
But there are crucial differences between Uncle Sam and the poor seaman. Some government spending may indeed increase wealth, albeit haphazardly and unpredictably. For example, some of the billions squandered went toward education. It’s likely a portion of this education cash resulted in some students developing their intellect. Some of these students went on to make scientific discoveries which improved our lives and increased wealth and, hence, our standard of living. The geniuses who invented vaccines against polio and vastly improved agricultural yields are examples. They made the world far wealthier in regard to our food supply and longer lives. A similar argument could be made for some infrastructure projects, as well. Some bridges actually are to somewhere.
The more specific question of importance is, “Was there a net increase in real wealth when you consider the trillions spent on all things (useful and wasteful)?” And is that wealth both redeemable and useful for retired folks decades from now? Coming up with a definitive answer to such questions is difficult, if not impossible. But I suspect the answer is no. We’d have to produce hundreds, if not thousands, of Einsteins to make up for the fiscal squandering that went on. There are not enough somewheres for all the bridges to go.
The second caveat is the concept of custodial banking: For many years, the government received much more money from employers and current workers via their Social Security and Medicare tax payments than was paid out to retirees. Rather than spending this excess money, the government could’ve placed it in a vault, and left it unmolested until used to fund future pension and healthcare payments. This money would not have earned the magical interest rate paid by the government to itself. It would not have been dumped into the economy by the government using it to buy goods and services. Placing saved money under a mattress at home or in a vault at a custodial bank has its own consequences for the larger economy. Such consequences in a larger economy are beyond the scope of this experiment but come fully into play on our desert island.
Should we study retirement?
The problems associated with retirement are difficult and complex. Economic. Political. Sociological. Psychological. Ethical. Demographic. Actuarial. Short and long-term implications swell each area of investigation into an unfathomable mess. The demographic implications alone are the stuff of fiscal nightmares. It’s long been said that “demography is destiny.” Actuaries are our Cassandras, ones who attempt to quantify and warn of this destiny.
Should we, nevertheless, “study” retirement?
I don’t see how we can’t. The topic is a worthwhile subject. We understandably hope for comfort and security when our working lives are over. We hope to have the resources to meet our daily living expenses without worry. We might travel, take up a hobby, do volunteer work, spend more time with the grandchildren, perhaps get a part-time job or start a second career free from the pressure of “having” to work. I’m confident we’d like to avoid the ice floe if possible.
I’m sure we want enough money, so we’re not a burden on our families; an honorable goal. But I bet far fewer of us would openly express a sincere desire to not burden the government—which is to say not burden everyone else who are not family members.
Here’s where it gets dicey…because if a person says he or she doesn’t want to burden his or her own family, and not include an equally sincere desire toward the families of complete strangers, is to essentially say you don’t give a damn if you burden your own family either. Everyone pays the costs in one form or another, though a cogent case can be made that our betters are somehow immune from this.
For the obvious—but always ignored—reason that we’re all of us the government. A fact we conveniently forget every darn day. A fact that is the fountainhead of moral hazard and thus allows us to shirk personal responsibility and avoid accepting the possibility of meaningful consequences. This is why we have huge unfunded liabilities in Social Security and Medicare—it’s someone else’s problem, not ours. This is why angry old white folks feel entitled to their Social Security checks (and associated mandatory COLAs) and Medicare benefits. This is why we do not make retirement plans based on realistic economics.
Moral hazard is a huge factor in the study of retirement—it is a malignant cancer caused by collectivism, and results in our individual sense of entitlement, an expectation drummed into our thick skulls by everyone, from our parents up to and including the President of the United States, and it is this entitlement pathology that undermines a society’s ability to make realistic retirement plans. Is there a way to eliminate this silly variable in our study of retirement? There indeed is, as we’ll see shortly.
Adding to the complexity is the age at which people retire differs markedly. Some people work until they die (God bless them from an economic point-of-view); others may retire but get a part-time job; some do volunteer work in a capacity that provides society a useful good or service; a few get to idle in luxury; and for some of us there is no option but to leave the workforce due to disability or infirmity or job loss.
Changing demographics means increasing numbers of retired folks and a workforce that is itself getting older. Retired folks themselves are increasing in average age, life expectancy, and in both absolute numbers and as a percentage of the total population. For a retirement system of any type, these facts are an actuary’s nightmare—absolutely unsustainable under the current (or perhaps any) retirement system.
Not that we’ve ever paid any damn attention to actuaries. Actuaries predict a distant future that might as well be a far-off foreign land; a dirty, brutish place we have no intention of ever visiting, populated by cannibals running around with bones through their noses. Actuaries are the one oracle we consistently ignore, while embracing every other manner of charlatan and fraudster. This is particularly unfortunate because actuaries are the only oracles making an honest stab at prophecy. Perhaps if actuaries revealed their omens on early-morning business television or divined from warm entrails…
Nevertheless, there is general agreement that providing a comfortable and secure retirement for our elders is a worthwhile goal. It’s the specifics associated with this goal where problems arise. Goddamn specifics. What level of comfort should be provided? How is it funded? How is this adjusted as demographic shifts occur? Should the government be the provider in whole or part, or is it better left entirely to the private sector? These are critical public policy issues, which you can bet your retirement check won’t be discussed until it’s too late to do anything about them. Too bad we can’t fit specifics onto a billboard, a bumper-sticker, or cram them into a vapid television soundbite. A TikTok video? Perhaps then we’d take notice.
How about these questions: Is retirement a good thing for a society, for an economy, for individual well-being? Is it better for a nation if its people work until the day they die, at least in some capacity?
The problem with our childish entitlement mentality is that such questions are taboo. We have a right to retirement, whether we can afford it. To even debate such things is to imply these aren’t, well, rights, and they might be taken away or reduced, not handed out as fully expected. As far as the hysterical reaction which would result of such public deliberation, we might as well convene a town hall meeting on whether we should bayonet babies or bring back chattel slavery.
A goal, no matter how worthwhile or widely desired, which lacks a means of funding, free of debt and unfunded liabilities, is a fool’s delusion. It’s a goddamned lie. The fact is, we are entitled to Jack Shit. Oh, I know, we pass laws up the ying-yang about all the crap we have a “right” to, including such goodies as education, medical care, retirement income, police protection, fire protection, self-esteem, safe toys, maximum student to teacher ratios, blah…blah. A law—also true with any uncodified good intention—costing money, and enacted without a reliable means for funding, is worse than a goddamned lie; it’s a double-dog, dirty, lowdown, dishonest lie.
Conversely, an example of a double-dog, dirty, lowdown truth is this: Retired people are an idle segment of the population. The idle segment does not produce goods or services. The non-idle population must work in order to provide the idlers their goods and services—and their own. Disclaimer: I retired in 2022 and joined their ranks.
We can embrace a Pollyannaish view of the situation and say it’s a well-deserved retirement offered the old folks. “Well-deserved” is another term that is bullshit unless there’s a means to pay for it. The fact is we can accurately describe these people from an economic perspective as idlers, non-producers, leeches, parasites, or drones. Let the indignant whining commence.
An idle segment of the population is not inherently bad if it does not unduly impact the working population and if over the years real investments resulted in actual wealth that can be used to provide for them. The wealth which is consumed by retirees must be the result of excess productivity in the past which is realized in the future, i.e., a staggeringly large cache of productivity gains over the years that is ultimately redeemable by the retired people whose years of prior work made this so.
Actual wealth does not include the increase in “dollar value” caused by inflation or other fiscal fudgery. If over a forty-year period, your savings for retirement increased in value from zero to a million dollars, but inflation over that same period is an aggregate of 100 percent, your net retirement savings in the context of real wealth is far less than a million dollars. Were inflation zero percent over those forty years—something our betters cannot tolerate, since it undermines their fiscal follies—but you managed to save several hundred thousand dollars, your net redeemability for an equivalent amount of goods and services might be similar. Do not be fooled by our betters: Inflation is a destroyer of wealth, an insidious drag on efforts to save and plan for retirement. Inflation is not a good thing—and this particularly includes housing prices (appreciation, my ass!). Furthermore, whenever our betters bring up the boogeyman of “deflation,” which is to say lower prices for goods and services, this is a devious smokescreen for their desire to keep inflation as high as they can get away with, but without causing a revolution among the proles.
I must add that the numbers of retired cannot be overly large, just as the number of idle rich of any age must be limited: “Excuse me, more ice tea over here…hello…hello…anybody there?” Regardless of previous savings or other productivity gains, there must be people to do the work. There is no retirement system or savings plan that can endure the absence of a sufficient number of workers to provide our goods and services. An IRA worth millions of dollars is meaningless if there are no worker bees and the requisite raw materials to provide us our goods and services. The experiment below, a retirement system comprised of exactly one person, exemplifies this.
Perhaps an “ice floe lottery” would suffice to keep the number of oldsters in check if we find ourselves short on workers.
A far-off carrot meets a present stick
Present involuntary sacrifice (in the form of mandatory Social Security taxes) or voluntarily sacrifice (e.g., IRAs) are the crux of retirement planning. You’re giving up current spending for later spending. The prospect of a secure retirement is a significant carrot. Growth in one’s personal investments beyond inflation is a larger carrot. Unfortunately, the government’s borrowing and printing money circumvents this by fueling inflation. The inevitable bubbles—also encouraged by our government—which are essentially inflation involving real estate or stocks, does its part to undermine our efforts to reliably plan for retirement. Accounting shenanigans does not erase the fact that retirement must be based on real wealth set aside—and possibly expanded due to meaningful investment—and redeemable in the future.
Retirement is not an inherently bad concept. In an efficient economy, the prospect of a comfortable retirement might enhance a worker’s motivation and result in a net gain in productivity and wealth creation over the person’s working life. The reward of a nice retirement may spur a person to work harder, more efficiently, more innovatively, and this results in a net increase in a society’s wealth compared to the situation where the person had not had the carrot of retirement providing an incentive. That’s one theory.
A closer inspection reveals problems. Assume the motivation of a comfortable retirement has the desired effect of making workers much better, well, workers. How is a portion of an employee’s current economic output reliably set aside for use decades hence, and is it best done individually or collectively, invested or saved? In other words, how is a portion of the wealth created today cached and made redeemable years from now?
Don’t forget the conundrum of determining the portion of person’s wages which is sufficient to provide for later retirement—once again, either individually or collectively—while leaving remaining wages sufficient to meet current living expenses. Public pensions are prime examples where insufficient amounts of money are set aside based on the promises made—and, yes, I personally benefit from this as a retired public employee.
The old-school Eskimos—apocryphal or not—concluded these issues were insurmountable (no unfunded liabilities on their balance sheet, that’s for sure). The Chinese came to believe the cost invested in rearing a son is the most practical retirement investment when considering the circumstances inherent in their culture. Each year a hypothetical squirrel stocks extra nuts in his nest in preparation for the day when he can no longer gather his own food supply. The nuts must keep somehow (not spoil)—and he must somehow be able to climb the tree to access the stash, despite age or infirmity. (What if the squirrel chooses a lower hole in the tree, which is more “accessible” for an elderly squirrel? Such a hole is also more accessible to potential predators.)
In the United States we decided to rely on funny accounting practices rather than ice floes or Number One Son or squirreled-away acorns. Each year American workers put a tremendous amount of money toward retirement in the form of Social Security taxes, Medicare taxes, public and private pensions (employer and employee contributions), 401(k) plans, Roth IRAs, and individual savings.
I must pause for a moment to bring up an ugly point about 401(k) plans, since these are an increasingly prevalent retirement fund and often planned as the primary source of retirement income: The retirement income available in your plan is not equal to the balance. Please read the previous sentence one more time before continuing. The balance represents tax-deferred income and will be taxed at the prevailing tax rate at the time of withdrawal. And the way things are going, the rate in the future is going to be a doozey.
I bring this up because a lot of folks see an IRA balance of, say $250,000, and think they have a quarter-of-a-million dollars in the bank. They don’t. They have $250,000 minus any applicable federal, state, and local taxes—and ongoing account management fees. Additionally, ongoing inflation is a like a termite attacking this money’s value. To plan properly we must use accurate accounting, and this means an honest reckoning of our true net assets. Honest accounting must occur in the context of low inflation, preferably zero.
Here comes the Roth IRA protest: “But my Roth is growing tax-free. What’s in there is mine to spend, every penny of it. They promised.”
Three things, my naively earnest friends. Firstly, the elected confiscators can change the tax laws at any time and subject your Roth “profits” to taxation. Secondly, they’re probably not quite so audacious, so they’ll attack it indirectly; for example, by instituting a value-added tax which hits your profits when you get around to spending them. Thirdly, they can ravage your money through inflation. Trust me, nothing is sacrosanct when it comes to our betters screwing us over.
At present, a lot of money is paid out to current retirees from public and private retirement programs—and we’re not close to reaching the full demographic impact ahead of us, at which point we crank open the spigot full blast. For individual retirement programs (e.g., 401(k)s), the accounting is sort of honest, at least at first glance—you know what you have (less taxes) and you spend accordingly or not.
Sorry, but I must pause again for another killjoyish caveat: Due to bullshit corporate accounting practices that are rife in our economy, nobody has any idea what these investments are worth today, tomorrow, or years from now. Toss future inflation and tax rates into the cauldron, and we haven’t a clue about the true value of what’ll be pulled out of the pot at any point in the years ahead. These accounts have no tangible value until cashed out—at that time, the real value is determined.
Similarly, for collectivized programs (e.g., private and public pensions), there is the huge issue that these aren’t fully funded for current and future retirees. A retirement program not having the money to fulfill future promises is an actuarial time bomb; though the ticking is loud as hell over the years, it is ignored. Simply put, it’s much more psychologically and politically devastating to not get what you thought you were going to get, especially if you made plans on using the chickens before they were hatched, than it is to be promised (or expect) nothing in the first place. Or to put it another way—we hate Santa Claus more if he doesn’t show up with our toys as anticipated, compared to his absence if he wasn’t expected down our chimney in the first place.
Another problem, which manifested itself in 2007-2009, is that a lot of folks were foolishly counting on the increasing value of their homes to fund the Golden Years—which is not unlike an Eskimo adrift on a small ice floe who plans on the bobbing block of ice as his long-term source of drinking water. This compels me to state another obvious tenet: A necessity of life (i.e., a place to live) cannot be an investment for its owner, and it sure as hell is not a retirement plan. A necessity of life is by definition an illiquid asset, or more accurately, it is not an asset. So don’t treat it as such. Do not place the value of a paid-off house in your asset column. At best it’s a possible savings in rent…less the cost of insurance and maintenance and property taxes. The increase in price of a necessity of life—and this includes a place to live—is inflation, not appreciation.
Unfortunately, the huge amount of money dumped into retirement plans each year doesn’t necessarily mean the challenge of providing for retirement is solved; quite the contrary…it’s just as likely this money attracts charlatans and thieves—and I don’t just mean politicians. The vultures misappropriate the money with impunity, since the results of the crime won’t be evident for years. This money is misspent in myriad ways, not the least of which are stock buybacks and excessive compensation for the corporate muckety-mucks.
Which brings up two critical questions: (1) If a retirement system is structured like a legalized Ponzi Scheme (i.e., the Social Security System) and headed to a demographically driven train wreck (e.g., ditto), what happens when we can no longer sustain the fraud? (2) If a retirement plan is based on direct investments (e.g., pension funds or IRAs), how do we determine both the ability to redeem and the value of the redemption decades in the future? Especially since relentless demographic changes are going to result in huge destabilizing withdrawals from these accounts.
This is some serious shit. Complicated as hell. Full of landmines and booby-traps and quicksand. Good luck with all that, since we’re going to tackle this issue form a more simplified perspective.
The concept of studying a problem
How do we study retirement?
Any process subject to the scrutiny of science is much too complex to understand if we insist on considering every variable which might come into play. This includes the myriad of processes studied in chemistry, physics, medicine, engineering, biology, and, of course, economics, and which includes chemical reactions, exploding stars, drug clinical trials, bridge design, biological evolution, and why consumers make the purchases they make.
The challenge for scientists and engineers and economists is to identify the variables having the greatest influence and cull the ones not so crucial. This results in a necessarily acceptable degree of error. Hopefully, the resultant knowledge is enlightening, useful, and advances human knowledge.
Consider, for example, a hypothetical research project in search of a silly equation which tells us the probability of kicking a game winning field goal during the last few seconds of the fourth quarter in a championship football game. There are a seemingly infinite number of variables which could comprise the equation. The casual football fan recognizes the kicker’s leg strength, coaching, and years of practice play an important role in success or failure at this critical moment in time—a scientist would certainly have to consider these factors in a formal study of field goal kicking, and ultimately determine their role in an equation that might culminate from this research.
But a scientist must dig deeper than is required of a beer-swilling sports fan. There is, in fact, a vast array of possible factors to consider when examining the kicking of a field goal. Some of these factors are obvious and lend themselves to scientific inquiry: wind speed and direction, stadium design, elevation above sea level, temperature, humidity. Other variables, though real, are difficult, if not impossible, to subject to the rigors of scientific investigation. The kicker’s physiological functioning at that moment; likewise, the physiology of the ball snapper, holder, and the offensive line that must block the opposing team’s rushers (don’t forget variables effecting the defensive team, too). At another level, we could study how much rest the player had prior to the game, what he ate, and subjective psychological factors such as fear, excitement, motivation, whether a fight with a girlfriend the night before the game proved fatal to getting the pigskin through the uprights. Drug and alcohol use, nutrition, injury, footwear, placement of the ball on various types of grass or synthetic surfaces could play their part. Perhaps luck and fate have their role—a macroscopic quantum mechanical variable, if you will.
We could get really crazy and extrapolate this investigation to include various sources of gravity and their effect on the flight and height of the football: the moon, our solar system’s sun and planets, nearby galaxies and ones far, far away. Hell, what the pig ate, whose skin later became the football, might influence the matter at hand.
At some point though—and I think much sooner than a neighboring planet’s gravitational pull—we must say, “Enough!” We approximate the influence of these “trivial” or indeterminable variables as equal to either zero or to an unchanging constant we can freeze in place and work around. These approximations are necessary; otherwise, we’d find ourselves burdened with unwieldy equations that are as unworkable as they are useless.
In the physical sciences, many useful equations are the result of discounting lesser variables in order to come up with the best practical theories, while recognizing their applications and limitations. Economics is no different—nor should it be.
The economy is a staggeringly complex organism, as are any of its components broken out for individual study. The “Dismal Science” does not readily reveal its secrets. Any part of an economy is nothing but a gigantic equation with at least as many variables as there are human beings a part of it. The complexity of the interactions is made much more convoluted and impenetrable by the psychology involved because, ultimately, people make choices, and these can confound the most prudent scientist studying the affairs of human beings. A fact people too smart for their own good refuse to accept but must face time and time again. Atoms aren’t—to the best of our knowledge—conniving amongst themselves to game the system in their favor. Atoms don’t hire lobbyists. We can ignore an atom’s greed, foolishness, and other uniquely human factors when we study chemistry or physics.
We try to make sense of economics because it’s that important. Economics is no less vital to our lives than is the gravity which affixes our feet to planet Earth or the chemical reactions that digest our food. This must be true because each year the folks in Sweden award a Nobel Prize for economics to go along with the ones handed out for physics, chemistry, and medicine. (The economics award is from a different organization than the others and technically is not a Nobel Prize.)
Using another football analogy: The basic tenet of scientific inquiry is you do the best you can with the data you got and hopefully advance the ball farther each time.
The desert island
With this in mind, we take a crack at retirement. The subject is real, impacts every one of us, and comes with a staggering monetary cost. We can’t neglect the psychological factors, of which denial and delusional expectations are a damn big part, and are amplified by two pernicious influences, time and the aforementioned moral hazard:
Time – A person prepares for retirement by direct savings, building up a pension, or paying into the Social Security System. Ideally, this begins at an age far removed from the date at which the benefits are first received. Time is seemingly on the side of the early saver. But this delay, commonly as long as thirty, forty, or fifty years, allows for all sorts of financial mischief or man-made fiscal disaster. There is no way to know the true value of the private retirement account, the solvency of the employee pension fund, or the health of the Social Security System until the time for retirement arrives, and even then, the subsequent financial situation can oscillate from good to bad, and back again, during a person’s retirement years.
This inherent “insecurity” contradicts the essential goal of planning for retirement, which is safety and predictability. If the money is subject to human beings and all their foibles, this remains an intractable problem. It doesn’t matter if the money is skimmed off from a union pension fund by the mafia or the revenue collected as Social Security payroll taxes is squandered by politicians. This delay between investment and redemption is a Ponzi schemer’s dream. At least mafia thievery is an honest crime without pretensions of integrity.
Moral Hazard – A “shared” resource, such a pension fund, is treated with far more indifference (if not outright recklessness) by people than is a resource for which each person alone is responsible. It is assumed in the former case that any problems will be dealt with by a future someone else. A problem with Social Security and most pension systems is these are saddled with gigantic unfunded liabilities. As an actuary can show—and be largely ignored for his trouble—the funds are hugely short of the money needed in order to reliably pay for the projected outflows due at some point in the future. These liabilities are in many cases so large, there is no realistic means to address these other than ramping up the printing press, and hence destroying the value of this future money via catastrophic hyperinflation.
Politicians are fully aware of the unfunded liabilities associated with Social Security and Medicare and known this for decades—and done nothing about it. In fact, they’ve added to the problem with enhanced benefits and automatic COLAs. Likewise, there are monstrous inadequacy lurking in the pension funds of state and local government agencies and private employers. Little is being done about these shortfalls either.
The reason for this neglect is because, as a consequence of moral hazard, it is assumed that no matter what happens, the Federal government will come to the rescue, and people behave as if this is an assured outcome; oddly, the United States government acts as if it too believes it will somehow be rescued by…the United States government? Therefore, nobody addresses the unfunded liabilities or other problems, which as time goes by become that much more devastating in their ultimate effect.
This naive faith in the Federal government is particularly troubling because it is no secret that the government has no rainy-day monies set aside for any future economic rescue operations, nor is there any credible plan to create such a contingency fund. Nor any realistic plan to address these unfunded liabilities. Yet we insist on believing that financial salvation by a phantom savior is inevitable. No such knight-in-shining-armor exists—nor will exist at any time in the foreseeable future.
Moral hazard is the collective fallback position for our individual and aggregate denials. Moral hazard is what guarantees the disaster will be catastrophic. Moral hazard is the opiate of the people. Moral hazard is our assured doom. Moral hazard is our deserving every bit of it.
Nevertheless, determining if retirement is practical and possible, at what age is it realistic, and the level of comfort provided are considerations we must not shy away from. If we decide retirement is a worthy goal, then how best to provide for retirement individually and as a society are crucial public policy topics, and these require serious and thoughtful study. Silly short-sighted political motivations which stifle such inquiry by insisting the status quo must be maintained at all costs, no matter how unreasonable or unrealistic, does not serve us well, and the pernicious effect of this ignorance will not fully manifest itself until it’s too late to the prevent the disaster that results from an angry and unprepared electorate run headlong into a cruel realty that is contrary to impractical and long-held expectations of a secure, comfortable retirement. In other words, some serious shit hitting the fan.
Which leads to a basic problem vexing much of economics: You don’t get medals pinned to your chest for preventing bad stuff from happening—you are much, much more likely to be punished for trying. Once we accept this we can proceed with our studies.
Therefore, we take a complex issue like retirement and see if eliminating some variables—lots of variables—sheds light on the subject. We’ll do so in a manner that might make an interesting parlor game, perhaps when a social gathering should tire of charades, Twister, or shots of tequila.
To do this we consider the Desert Island Hypothesis. My hope is that this exercise provides insight into the concept of retirement, though I’ll be the first to admit the analogy is not perfect, but it does offer an opportunity to think of retirement from the perspective of a brutally concrete example.
Most of us have seen movies or television shows or read books about one or more people shipwrecked on a deserted island. Typically, these stories progress from initial shock at the seemingly hopeless plight, the initial struggle to survive, adaptation by necessity, various adventures and conflicts, admirable personal growth that would not have occurred in the absence of misfortune, and finally a heart-warming rescue to nicely conclude the story.
Forget the happy ending. We’re going to consider what happens if a shipwrecked man is never rescued.
The DIH is as follows…
A solitary man finds himself shipwrecked on a lonely beach. Once over his initial shock, he climbs the highest vantage point he can see, and once there he views an unbroken horizon of ocean surrounding an island. A subsequent search of the island shows he is alone. He’s screwed and knows it. Fortunately for the man, the small island contains sufficient resources for sustaining life, including food, fresh water, fuel, and shelter. The situation sucks, but at least he isn’t going to die of hunger or thirst or exposure to the elements.
One variable, which is difficult to quantify, is the person’s past life experiences and how these might contribute to his survival. Was he a carpenter or civil engineer or farmer? Did he have outdoors experience involving hunting or fishing? Was he in the military or Boy Scouts, and while there, did he learn any relevant survival techniques? He must make clothes from leather (assume there are wild pigs on the island) or plant fibers, so tailoring or tanning experience would be useful. These vocations involve skills of significant survival value.
But I, your humble experimenter, believe this variable over the long-term is overcome by considering the human spirit when its back is pushed up against the proverbial wall. We humans are a fabulously tenacious varmint. And we might be fools, but we’re certainly far smarter than any other creature on Earth.
Whatever his past experiences, it is expected this poor soul quickly learns to survive. He’s on his own and really has no choice—there’s no moral hazard infecting this island’s free-market paradise. The nearest Liberal or Conservative do-gooder is thousands of miles away across open, shark-infested waters. He survives or dies solely on his own merits. In this situation, obtaining the necessities of life represent a very real matter of life or death; it is reasonable to expect that any previous inexperience is quickly replaced with talents and courage he had no idea dwelt within him, and he manages to secure food and shelter, figures out how to start a fire, finds fresh water, fashions pig hides or plant fibers into crude clothing, etc.
We’ve steadied the impact of past life experiences. We’ve eliminated moral hazard as a variable. Obviously, we’ve also eliminated the influences of other people, whether they be politicians, financial gurus, short sellers, or bubble makers. In vitro we delve, but it’s a useful, island-size test tube experiment, nonetheless.
Initially, his efforts are no different from a prehistoric caveman. Sustenance hunting and gathering. Clunking birds on the head with rocks, digging for grubs, spearing fish. But the important point is he lives each day to see another tomorrow, and since he’s a modern man, each tomorrow builds on the previous days much quicker than did his forebears from thousands of years ago.
This is a critical advantage our stranded mariner has over a caveman: He’s come from a much more advanced civilization. What prehistoric society discovered over the course of tens of thousands of years, evolving painfully slow from a hunter and gatherer species to one based on agriculture, our mariner knows already, and may strive to replicate as best he can.
Knowing for a fact that life can be better, he figures out how to capture and raise pigs, improves his fishing gear, and cultivates native crops near his dwelling—he knows about fertilizer, and recounting from his elementary school days the stories about the American Indians, he uses fish for this purpose. He improves his abode and makes it more comfortable and practical. Rather than walking miles through the forest gathering fruit, he starts an orchard closer to his home. He knows the basics of nutrition and its role in health, so he eats a balanced diet. He channels a water supply to his home or moves his home nearer his water supply, an act which can free up tremendous amounts of time for other pursuits. He knows to defecate downstream of his water supply (or not anywhere near it)—though you can’t make yourself sick, it is assumed he’d rather not drink his own wastes. His clothes deteriorate but he makes new ones with skins or plant materials. He does his best and manages to survive, all the while praying for rescue. It ain’t fancy, but it keeps him alive.
Now we come to the retirement part.
After several years, the man realizes the possibility he may never see a rescue ship or search plane. We factor into the experiment that he won’t construct a raft in an attempt to escape the island. Perhaps he knows he’s too far from another inhabited island to make such an attempt. He thus plans for the time when he is no longer able to fully provide for himself because of age or infirmity. In essence, he is a self-managed retirement system consisting of exactly one member. The contribution to it is his present time and labor. It is a retirement system for which no bailout is expected. Therefore, in addition to providing his current daily needs, he must also now “contribute” additional work, which is intended for redemption during a future timeframe of unknown onset and indeterminate length when he needs to sustain himself based on preparations (work) already done years before. We’ll refer to this later period as his “retirement.”
The parlor game to play with family and friends is, using this scenario, devise a plan for the man’s retirement. How would you do it if you were this person?
As we can readily see, this is not simply a matter of picking four pieces of perishable fruit, when he normally would pick two, and saving the other two for retirement. Regarding fruit and many other of his dietary necessities, he must consider three options: (1) losing it as a component of his diet, (2) somehow maintaining access to it via advance planning, or (3) converting it to a foodstuff with a long “shelf life” and devising a means for long-term storage.
His predicament is the ultimate self-managed 401(k). No financial advisor. No fees. No ESG. No bailouts or financial machinations. No bullshit.
In old age he may be able to perform some tasks related to survival, but it is anticipated—and he should plan accordingly—these abilities diminish as he grows older. For example, he may find himself no longer able to climb a tree to get fruit, launch a raft to fish, gather wood from afar for his fire. Repairs to his house or water supply system might be physically impossible. Previously accessible areas of the island may become unreachable due to distance or topography.
His plight is like a person who finds he is gradually losing his eyesight. Not so fast that he doesn’t have time to prepare; not so slow that he tarries in these preparations.
We make some assumptions:
- Providing for his daily needs does not consume all his effort. There is sufficient “extra” time to invest in planning and preparing for the future. In the real world, a person faces this same dilemma. There are a limited number of years to plan for a retirement period of indeterminate length, and a person must balance preparations for the future with meeting present needs. This is a frightening task if one thinks about it—which is probably why we do much to avoid such thoughts. Collectivism helps reduce these fears, but perhaps it shouldn’t, since the moral hazard inherent to group efforts is apt to make these efforts wasteful and insufficient—and may in the end leave us sadly unprepared.
- If the stranded mariner becomes so frail he can no longer make use of his “retirement” preparations, he will die.
- If he makes insufficient retirement preparations, he will die.
- If he becomes blind or severely injured or develops a serious medical condition (e.g., stroke, diabetes, cataracts) he will die. This island has no Medicare other than the treatment he can give himself.
- The longer he remains “fully employed” serves two beneficial purposes: (1) provides more time to prepare for retirement and (2) reduces the number of years retirement “income” is needed. Unless he is a fool, fear ensures he delays retirement as long as possible. This island is not a mixed, faux-free market economy fashioned by Republican and Democratic socialists; it is a brutally Libertarian one.
- The island is at a latitude where the weather is relatively consistent, so food and fresh water are readily available throughout the year. This eliminates the variable regarding the seasons. (Compare this to the variability in the stock market or government revenue.)
- Likewise, there is more than enough food and fuel for an able-bodied person, so that one person could not exhaust the supply even if he tried. This eliminates the variable of sustainability. (Compare this to the mythical Social Security Trust Fund.)
- He doesn’t need to worry about inflation or a COLA. For example, the effort to gather two mangoes doesn’t vary over time. If the island were subject to “inflation,” it might require twice the effort in a few years to gather those two mangoes. Fortunately for him, the island supplies his needs unless he inadvertently brought blight or an animal disease to the island. After a few years of no disease outbreak among the flora or fauna, there is no worry about this.
- As mentioned, the deleterious effects of denial and moral hazard are not a factor. He doesn’t have the luxury of either.
The DIH analogy is not perfect, but few experiments are. A solitary person on a desert island loses the advantages of economy of scale and division of labor; which is not a trivial loss, since these concepts have led to tremendous increases in the standard of living for billions of people in the world. Our lonely mariner is on his own, which must be frightening for him, but I suspect it is also a spur to productive and satisfying efforts that would otherwise not occur were he to rely on a “safety net” provided by others.
An interesting further study would be the same DIH exercise, but add any number of additional people to the island and see how the division of labor influences the outcomes—particularly the impacts of actuarial factors on planning for retirement as the group becomes larger and larger. Division of labor is advantageous, but additional castaways—especially if they differ noticeably in work ethic, talent, or productivity—would certainly result in resentment and squabbling, which leads to the need for establishing some sort of governance structure. It is certainly true the more an individual expects to rely on the fruits of another’s labor, the less likely he is to conduct himself in a manner that would benefit both himself and others to the maximum amount possible. Adam Smith realized this hundreds of years ago, and yet we continue doing everything in our power to forget this lesson. (A real-world example of more than one person on a desert island is the original settlers of Pitcairn Island and how they managed to survive over many generations. It would be worth finding out how their culture dealt with its elderly and infirm over their history.)
Our unfortunate mariner is not going to have access to technologies which make “retirement” planning easier, including modern food preservation techniques (e.g., canning), preventive medical and dental care, textile manufacturing, metallurgy. A caveat here: He does recognize the need for a varied diet in order to get a minimum amount of necessary nutrients. This is a form of preventative care.
A prudent person in a larger society has years to save money for retirement. Money is much more convenient for purchasing goods and services in retirement—if not lost through greed or mismanagement or degraded by inflation—than is stockpiling tangible goods. We, in essence, stockpile money rather than salt pork or dried fruits. We must keep in mind that this “money” may represent, at least in part, phantom equity that does not really exist.
But on this island the man has no choice but to choose methods of stockpiling actual resources; there is no monetary system unless he were to go mad and implement one (perhaps wring IOUs to himself on palm leaves). His retirement account is his own wits and planning acumen—and the tangible assets which result. A benefit of his predicament is that he sees with his own eyes his retirement preparations and touches them with his own hands. The accounting here is as honest as it gets. There is no phantom equity here, though perhaps the anticipated fruit from a tree, years hence, is sort of like it.
Our shipwrecked person faces unique time issues. If he starts stockpiling foods with a limited “shelf-life” too soon, the effort is wasted. How long do nuts or dried fish and fruit last? How many years does a fruit tree take to grow and how long does it reliably bear fruit? He must conduct preservation experiments with his available foodstuffs, which requires an investment of valuable time. A recipe for salt pork may result from culinary trial and error. Perhaps he can stockpile a certain amount of these foods and eventually rotate the stock to use for his daily needs. For example, if dried fish lasts in this environment for five years, once he stockpiles a five-year supply, he can start using the older stock as he constantly replenishes it. That way if he were to suddenly find himself unable to work, he’d have on hand a five-year supply of this item. In essence, this man faces the terror that is a defined contribution retirement plan—with absolutely zero safety net.
What does this person need to do to prepare for retirement:
- Stockpile foodstuffs and/or prepare a readily available supply of food that does not require physical labor beyond that which an elderly person might reasonably perform. Perhaps he would plant fruit trees nearby, installing a scaffolding or other means of readily harvesting the fruit. The design of the scaffolding must be such that an elderly person can climb it (ADA writ huge!) and of such construction that ideally it doesn’t require further maintenance. Maybe he devises a type of fish trap that can be easily set and retrieved. Are there animals he can domesticate? Perhaps, feral pigs can be raised and slaughtered rather the physically demanding effort required to hunt these creatures. Keep in mind, raising pigs requires a food supply for them, as well.
- He must determine what types of food stuffs are readily cached or redeemable. Sugar from sugar cane, dried fruits, dried fish, pickled items (source of acetic acid?), salted items (extracting salt from ocean?). Utilizable orchard trees, nut trees, raised animals (assuming the care and feeding can be readily done by an elderly person), fishing (if it can be done by an old person). How long does salt pork last? If salting is a realistic method of food preservation, he needs to also stockpile a supply of salt.
- He’ll need containers to store food items. Perhaps hollowed-out coconuts. If island is free of rats, he’ll avoid mankind’s longtime enemy of food storage. Rats in this case, if present on the island, would serve as a stand-in for the factors which undermine retirement accounts (e.g., economic bubbles, financial fudgery).
- Build a dwelling that can last a long time with minimal maintenance. The shelter must accommodate the limitations of an elderly person and withstand severe storms. A cave would be ideal, assuming a suitable location in relation to water supply and food. A cave with a cool, dry interior is also a useful for food storage.
- Stockpile tools and other implements, particularly those are that are physically difficult to manufacture.
- Stockpile cloths, particularly those that are physically difficult to fashion. He must determine what kind of clothes can be stockpiled (e.g., leather, woven plant materials).
- He needs fuel for warmth, lighting, and cooking, and must stockpile it. What kind of fuel can be stockpiled? Wood or oils? A huge supply of dry firewood is likely one of his retirement goals, as chopping down trees and converting these to firewood is very physically demanding.
- Water supply. Ideally his dwelling is nearby a reliable supply of fresh water, but if not, then he’ll need to devise an equally reliable means to transport the water to his dwelling.
- He may “invest” in infrastructure. For example, the construction of steps, paths, small bridges may make resource-rich areas of the island accessible to an elderly person. Piping, aqueducts, ditches can bring water supply to where it’s needed or put to the most productive use. Infrastructure requires maintenance—how does he account for this need?
- A person in his situation would face a catastrophe if he misjudged his lifespan, so his goal should be a means of survival that is sure to outlast him.
- What if he loses his eyesight as he ages? No cataract surgery for him. Are there things he can do to prepare for this possibility?
Psychological issues are a potential factor and should not be ignored. Would he prepare for the possibility of suicide if he becomes physically unable to make use of his retirement plans? (If he happens to be Canadian, Justin Trudeau has already prepped his mindset for this mindset.) Could this person become so obsessed with preparing for survival in old age that it deleteriously effects his present lifestyle?
The key point in this exercise is his predicament forces him across a Rubicon that far too few of us dare to contemplate—from the false security of dependence on others to total reliance on himself. It is a crucial point in time at which he accepts he may never be rescued, and this makes all the difference. His current living conditions and plans for retirement depend entirely on him, and it is then, and only then, that he finds out from what stuff he’s made and whether it includes sufficient courage, innovation, prudence, and industriousness.
If he instead lived convinced a government rescue ship was coming someday, he wouldn’t act with the same diligence and earnestness; he certainly wouldn’t prepare as vigorously or efficiently. He might die when he’s too old to work. And he would deserve to.
How does this thought-experiment apply to our own retirement? The results, when scaled up, give us better insight into the reality that is our present collective retirement systems or individual preparations.
Most tellingly, we ask ourselves a key question: In any one year how many months of retirement living could our man prepare for, and, by extension, ourselves? Quite simply, we as citizens must be more engaged with our government’s budgeting and spending, and this includes the Social Security and Medicare systems. Financial shenanigans are a large part of these systems, and we must require our elected leaders to use honest accounting, even if the news is not to our liking. Likewise, such engagement and diligence should be applied to our public and private pensions systems and personal finances (e.g., IRAs). The goal is wealth that is real, cacheable, and redeemable. If during the intervening years it is invested in ways that increase real wealth, so much the better. Keeping inflation in check is an absolute requirement, though our betters connive against this to the largest extent they can get away with.
Unfortunately, the money collected from you by the government is used to pay current retirees and for other government spending. Not a dime of it is specifically saved for your retirement. Our contrived retirement plans of today—underfunded, mismanaged, unrealistic—are the shipwreck waiting to happen. Not if, but when. Yet full steam ahead toward the rocks. Hopefully, there’s a nearby island like this one where we can make another go at it.
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