[morecoffee]

> The whole western world is in for a rude awakening in the coming years with regards to retirement.

No kidding. Who will pay for all the people who didn't save? The people who did. I have very little expectation of keeping most of my money as I get older.

[icelancer]

>Who will pay for all the people who didn't save? The people who did.

Correct. It is generally a good idea to consider all of the money being paid into Social Security to be completely wasted. I am in my early-mid 30s and I do not expect to see a dime of it. I think it will either be insolvent or subject to some ridiculous tax structure if people have earned X dollars in their lifetimes or spent too many years in high tax brackets (which I expect to in my late 30s and 40s).

Taxes will also go up dramatically as the years go by. I have a maxed-yearly Roth IRA but I also don't expect the government to keep their promise on letting me take out 100% of it tax-free despite all my contributions being post-tax. I expect to be double taxed on that, because, well, why not?

Retirement is ridiculous. It's just generally safe to assume all of your money is going to be taxed at a much higher rate and through loopholes/broken promises by the government. We face a really huge shortfall in the next few decades in public welfare programs, Social Security, and other tax-advantaged vehicles that I doubt will be honored down the line.

[marvin]

Just out of curiosity, what's preventing the US from implementing changes to Social Security that are sustainable? I read up on this for Norway a few months ago, and was actually pleasantly surprised at the thought that's gone into the sytem.

Norway's public pension system is now funded by every employee having 8% of their salary taxed away and earmarked to retirement. The money is placed in a broad stock and bond fund. In retirement, the earmarked amount of money for each employee is paid out in a monthly amount that matches the life expectancy of the retiree.

E.g. if the employee has paid $150.000 to the system over a lifetime of work, retires at 65 and the life expectancy for this age cohort is 10 years, the annual payment will be $15.000. The state covers for retirees that live longer, keep the money for retires that live shorter and provide a guaranteed minimum for people who reach 67 without saving up a minimum amount. To offset this, the possible monthly payment is capped with a maximum for high earners. There is also some inflation adjustment built in.

In effect, this provides a living wage for all retirees, with additional private savings required if you want to maintain a higher standard of living. The system is self-contained and is not based on younger workers paying the pensions of older workers.

[tonyedgecombe]

"Just out of curiosity, what's preventing the US from implementing changes to Social Security that are sustainable?"

Politics, in particular the "tax is theft" brigade.

[icelancer]

>Norway's public pension system is now funded by every employee having 8% of their salary taxed away and earmarked to retirement.

Social Security payroll taxes are ~15% of salary per employee, so assuming Norway doubles the 8% (employee responsible for half, employer responsible for the other half) that's not much higher than the United States' system.

>The money is placed in a broad stock and bond fund.

Social Security is not privatized in the United States and efforts to do that by Republicans are regularly shot down. Social Security is an annuity that is tax-free and inflation-adjusted. The average ROI is about 2-4% for single, average salary employees who work full-time.

EDIT: Forgot to add, the United States excess funds in Social Security are loaned to the government for use for non-SS purposes. The government owes the Social Security program something on the order of $5+ trillion right now, which makes up over 25% of the national debt. Yes, you are reading this right. No, it is not a good thing.

You could argue that Social Security could do a lot better if citizens were allowed to control that money or if it was simply invested in a total stock/bond market index fund, but then you'd be incurring significant risk as well.

>In retirement, the earmarked amount of money for each employee is paid out in a monthly amount that matches the life expectancy of the retiree... The state covers for retirees that live longer, keep the money for retires that live shorter and provide a guaranteed minimum for people who reach 67 without saving up a minimum amount.

This is basically how it works in the United States, except:

> To offset this, the possible monthly payment is capped with a maximum for high earners.

This is likely to happen in the United States as the country moves more economically liberal (current administration excluded, but even Trump has some economic policies that old-timer conservatives would never agree to). We currently don't have this. But taxes and fees and other such efforts will be successful against the rich soon enough here.

>The system is self-contained and is not based on younger workers paying the pensions of older workers.

This doesn't really make sense. Your example describes this to a T.

Tell me: What happens when the "broad stock and bond fund" collapses in a thirty-year low for a period of six years and pension promises far outpace receipts? Who will pay for this? The state will cover, correct? Well, that's younger people paying for older people no matter how you slice it.

[votepaunchy]

> Social Security is an annuity that is tax-free and inflation-adjusted.

This used to be true but Social Security is fully taxed on the way in and now partially taxed when payed out.

[kamaal]

>>Norway's public pension system is now funded by every employee having 8% of their salary taxed away and earmarked to retirement.

In general this how any pension scheme is supposed to work. Except that it doesn't. When you start to add things like exceptions whole scheme starts to come apart after a while.

Pensions are one of those things which are ripe for abuse. Also you need to start looking at other benefits that come along with it like health care. Then there are unions that graciously award over time work to employees to drive up their compensation in the last few years of work.

There are also other things going on like inflation adjusted pensions.

In India there was a recent drive to include One Rank One Pensions for armed forces, which demands pension revisions every single year based on last highest pension paid in that rank for that year.

[mattmanser]

It's not retirement that's ridiculous, it's that old people have a vote in this and because that vote is so overpowering, no-one will even try and fix the issue until it's too late.

[awinder]

Double taxation is extremely unlikely, and would likely have to be of the form of applying a tax to earnings in the Roth IRA or something like that. Which is how other investment-related income is taxed anyways so, I don’t know.

Additionally, SS pays out at 75% of projected levels at the height of the retiree crunch, so assuming the program will just vanish is not something a lot of financial advisors are going to consider. Given the universe of possibilities, the one that doesn’t result in people with pitchforks is probably the one that we will go with. We could also solve this problem today with a 1.8% addition to the payroll taxes, removing means testing, etc. It’s a problem to be solved but expecting the world to burn in the process of solving it, the magnitude just isn’t there. Makes for good fan fiction though :-).

[icelancer]

>>and would likely have to be of the form of applying a tax to earnings in the Roth IRA or something like that. Which is how other investment-related income is taxed anyways so, I don’t know.

Correct, this would be a huge breach of trust by the federal government. Which is nothing new, obviously, but....

[carbocation]

If you really expect your Roth to be double taxed, why not contribute to a traditional IRA instead?

[icelancer]

There's some business-related reasons why I don't (I don't yet make enough money in salary for it to matter wrt deductions) but also because I think taxes will be very high when I retire and that my Roth will be taxed at a relatively low rate, subject to some "fees" or something.

I think the Roth will still exceed the value of a traditional IRA (plus it's only $5500/year, hardly huge as I get older and my net worth increases), but I would be willing to bet that the Roth IRA will not exist in the form it does in 20-30 years, and that existing ones will be subject to a tax/fee to make it "fair."

[hkmurakami]

Because expectation is not certainty.

[nostrademons]

Depends how history plays out in the future. If people who save end up paying for people who didn't, it implies one of three things: 1) financial panic 2) inflation or 3) taxation.

All of these are fairly likely, but looking back at history, there are a number of other possible futures that would take care of the problem. Mass plague, where all the old people die off. Mandatory euthanasia, where the government kills all the old people. War or anarchy, where both young and old die indiscriminately. Colonizing other planets, which opens up vast new resources. Mass automation of health & elder care, so the robots pay for the people who don't save.

The depressing thing is that most of these are pretty horrible, and the two that aren't - automation and spaceflight - are probably the least likely. But then, history is filled with black swan events that open up human frontiers that nobody could've imagined. Maybe one of them will save us.

[kamaal]

Or like it worked in most socialist economies which gradually migrated to free market in the 90s.

Older people make painful sacrifices to merely survive. Younger population doesn't care, and largely thinks the old deserve it for not being serious about their retirements in young age.

Social security in that situation will largely depend on continuing to work in old age, and surviving on bare minimum money and at worst depending on kids and friends.

War and anarchy aren't feasible in old age, when you get knee pain for walking across the street. The whole thing will be bad, its just people have to deal with it and move on.

[sddfd]

Exactly and now tell anyone that it was ever a good idea to not provide basic pensions for everyone and make payments mandatory.

If that had been the case then at least everyone had paid at some point.

[nostrademons]

It wouldn't actually matter. The problem is demographic, not financial.

Ultimately, somebody has to produce the resources, goods, and services that every person on earth needs to survive. If people live an average of 5 years after retirement, work for 50 years, and the population is at a steady-state, then every elder is supported by 10 workers. If the population has doubled in the last generation, then it's 20 workers. If the population is still doubling but people are now living for 10 years after retirement, then it's still 10 workers/elder. If the population returns to a steady-state but people now live for 20 years after retirement, though, we're down to only 2.5 workers/elder. Suddenly everybody feels the pinch.

Pensions, 401ks, stock market growth, and all other forms of retirement savings are just different ways of lying to ourselves. Ultimately, goods have to be produced, services have to be rendered, and money is just a way to track who has done that and reward them appropriately. If you have fewer people doing the work and more people depending upon it, standards of living will fall.

If I had to bet on a (peaceful) solution, it would be automation. Do more with less and a given number of workers can support a much greater number of dependents; the only challenge then becomes redistribution in a way that people find adequately fair. But elder care has proven stubbornly resistant to automation: if you've ever had a family member in their 90s and tried to take care of them at home, you may be doubting that it's even possible for 2.5 workers to take care of one elder, even if their own needs were completely automated away and they had no children.

[RobertoG]

"It wouldn't actually matter. The problem is demographic, not financial."

It's interesting how many people don't understand (or don't want to understand) this.

Money is just a number, is real resource what is important.

Never mind how many savings the people have, if there are not enough people or resources to do the necessary jobs.

And, the other way works too, never mind how many old people there are without savings, if the productivity is enough to take care of them easily.

The obvious conclusion is that, instead of caring about money "saved", we should be caring about getting more productive. That would mean improve technology, increase knowledge and training.

[hedonistbot]

My problem with "getting more productive" is that the gains nowadays are achieved through automation (capital investment in general) which pretty much guarantees that the gains from the increased productivity are captured by the capital owners. So even if we double the productivity of the economy, there is no guarantee that this will improve the lives of most people who depend on salary or pension. There must be some form of redistribution to allow sharing the gains of productivity but this has been a taboo in the US (and many more places) since the 80s and I don't see this changing anytime soon.

[RobertoG]

Even if it were a problem or resources, the solution is invest now in creating more resources, not in "saving money".

I think that part of the reason it's a taboo, is because the officially pushed narrative is designed to hide that, in many instances, is a problem of redistribution more than a problem of resources.

For instance, in USA, the "public debt crisis problem", that it's mainly meaningless, distract from a honest debate of the real issues.

[sddfd]

We are past the point were the problem is resources scarcity, be it products or workforce.

We are discussing about resource allocation. Money is the accepted way of influencing resource allocation.

Telling people they should not save money is effectively telling them to give up their influence on resource allocation.

The consequences of not being able influence resource allocation can be dire: If you have no leverage, you may die of sickness or outright starvation.

[RobertoG]

We are discussing about resource allocation but frequently this is hidden with talk about money.

If we want to solve our problems, better we start to talk of them trying to clarify the problem, instead of obscure it.

This is obvious in countries with government backed pensions schemes, where the narrative is that we will have not "enough money".

[kamaal]

>>If you have fewer people doing the work and more people depending upon it, standards of living will fall.

This is already the case in the US.

Most social security money(Pensions, SS, State Pensions etc etc) comes from existing taxes that are collected.

>>If I had to bet on a (peaceful) solution, it would be automation.

That kind of runaway automation that could pay for this kind of a party isn't close, may not be even in the next few decades.

[sddfd]

> That kind of runaway automation that could pay for this kind of a party isn't close

Automation is already here, and has been for a long time. The whole point of the industrial revolution is about automation: Machines that support or replace human workforce.

The explosion in availability of computing power in the last two decades put automation into overdrive, and I don't see it slowing down.

Meanwhile, the gains of automation do not directly translate in inproved wealth for all members of society.

For example, if a company replaces 50% of its workforce with machines, they might make more money because they save on salaries, but effectively worsen the situation for the pensions of the layed off people.

[varjag]

This idea is not without drawbacks. Mandatory pension systems have a history of being wiped out by extinction events both governmental (USSR et al) and corporate (Kodak and other midcentury megacorps).

It's at least something I guess, but retirement planning is a really really long forecast horizon and is inherently risky.

[blubb-fish]

In Germany the retirement system is far from perfect - but it at least keeps (most) people from being homeless or starving.

The lack of universal health insurance in the USA is basically traceable to the same societal shortcomings. Why should a rich banker support with his premium health insurance for a woman who gets pregnant - as he's not getting pregnant anyway. That's a very egoistical way to look at communal cooperation but at the end of the day the reason for why ACA is being sabotaged by many politicians.

[jazzyk]

I am far from rich, and not a banker.

I assume by "woman" you meant someone who is at or below poverty line, if so, I (and most people) don't have a problem chipping in.

The point you are missing is that right now, 90% of the US population cannot afford to pay for child-birth (or any other medical procedure) themselves (out of pocket), as they typically cost $20K and up.

With a reasonable market- (or single-payer-) based health-care system, most people (except for the poor and almost-poor) would be able to pay for their own health care. The current "system" in the US is a scam of major proportions.

[frisco]

> I have very little expectation of keeping most of my money as I get older.

Welcome to the world of Bitcoin and Monero.

[googletazer]

Incredible that you are so heavily downvoted. Just shows the level of fear and disdain that even technical people have towards cryptocurrency.