[YWall39]

European pensions are predominantly unfunded, and promises typically amount to 3.5 times GDP. The prevailing view among those who have looked at this is that nobody under the age of 40 will get anything close to what is promised. The only exception is Netherlands, and maybe Sweden. Leaving private pensions the only option.

[dachris]

The real exception is Norway with its https://en.wikipedia.org/wiki/Government_Pension_Fund_of_Nor...

[YWall39]

Yes, their government should be able to honor their promises.

[vkou]

Basic demographic analysis will point out that in a world with a declining and aging population, private investments are probably not going to be doing so hot, either.

Wealth creation requires work. Retirees don't work, but still require a portion of the wealth that workers create to live.

It doesn't matter if it's a government pension or a 401K investment, a declining worker population will mean that you'll have the exact same retirement problem. Government pension require people working and being productive and paying taxes. Your investments will only produce returns if people are working and being productive (in which case they are also probably paying taxes).

Unless, you know, you do some wealth redistribution, away from people who own all the means of production, to the people who don't. Then they former will be the ones with a problem. It won't generate more net wealth, but it would certainly prevent a large portion of it from being locked up in the hands of a small elite.

Or, alternatively, more automation and high taxes on robots.

Privatizing the problem of pensions is just an accounting trick. It doesn't actually solve the problem.

[dsheets]

It depends on how the problem is defined.

Do private pensions solve the “I hope I have money in old-age” problem better in a fundamental way? No.

Do they solve the “I want to pay more now to have more later” problem better? Probably in most systems.

Do they solve the “what is the fair value of grandpa’s pension this month” problem? Definitely yes.

If you want guarantees, the state can pull tricks to make you believe that the world is static… for a while. Eventually, reality will force the state to price pensions in line with demographics or suffer increasingly severe budget crises.

In the past, your children were your pension. This is a private system. When responsibility for old-age is distributed without accounting for monetary or demographic contribution, politicians can promise the moon. Stop eating the young.

[datadrivenangel]

You're mostly right, but production can only be stored for so long. If a young farmer produces more food than they consume, they can't save that specific food to eat when they retire. Likewise, investing in machinery to increase production later only goes so far without further reinvestment in the form of maintenance.

[dsheets]

This time displacement of value service is exactly why the industry is financialized. Of course, the financialization creates a huge moral hazard and introduces middlemen that take more than they supply in many cases but the near universal demand for wealth preservation for old age is one of the few truly noble pursuits of finance. Now if only pension systems didn’t treat their beneficiaries as contemptible idiots who cannot be allowed to manage their own finances, the rampant corruption might stop.

[potato3732842]

There's no fundamental reason that we can't save for retirement in a world with a roughly static population.

What we can't do is continue to use pyramid scheme math. Everyone more or less needs to set aside their own surplus for retirement over the course of their lives. Of course this gets financialized away such that the current workers pay the current retirees and whatnot but the math still holds. Basically at scale average people's entire lives can no longer be run based on net neutral or net debt with reliance upon market growth to have surplus available to spend at the end of it. We'll have to run a surplus and set some aside.

[ahmeneeroe-v2]

You are exactly right.

Put another way, retirees who are no longer actively building/operating society, require that someone else does actively build/operate society. If there are fewer people left to do that, retirement will necessitate a decrease in quality of life (for everyone, not just the retiree).

How to solve for this? Not sure but the west will need to figure this out.

[YWall39]

I am more optimistic. I always suggest automatically dropping x% of ones income into an index fund. At the least it will hedge against the very real chance governments will not be able to deliver on their promises.

[vkou]

> index fund

What wealth will your index fund produce when nobody is working, and nobody has the money to buy stuff?

However you answer that question, I'll retort with - 'And exactly what will stop the government from taxing that wealth, to keep pensions working?'

> At the least it will hedge against the very real chance governments will not be able to deliver on their promises.

That's a fair point, there's the very real possibility that governments will refuse to take the steps necessary to deliver on those promises.

A good way to ensure that they won't shirk from that is continuing to elect the kind of government that will. Don't vote for people who seek to destroy public systems.

[YWall39]

I think its worse, the governments will be unable to deliver (my perspective is Europe). Think one needs to consider many strategies to avoid starving when retired. But I fully expect my EU government to give me no pension, no matter what they say today.

[vkou]

Even in the worst case scenario, a 100% haircut sounds incredibly unlikely.

Unless you actively elect a government that pursues such a policy. Or unless someone somehow puts all that money in a large bag, and flies off to Cyprus (If that's a real concern in your society, there is no guarantee that your brokerage or bank won't do something similar). Bad governance and theft can ruin anything, just ask anyone who has lived in 90s Russia - where the government could not hold up it's end of the social contract, but neither could any of the thousands of thieves and fraudsters that spun up in the privatized financial sector.

As it turns out, when the economy collapses to the point that a government can't[1] pay it's bills, everything else goes to shit, too.

---

[1] The budget brinkmanship the Republican party practices every year isn't a matter of 'cant' - it's a matter of 'politically expedient to pretend that they wont'. But that cycles back to not electing people who govern poorly...

[Ekaros]

100% hair cut leads to violent revolutions. And 70 year old can still do some things that will hurt those in power.

[ben_w]

Only hedging to the extent that the corporations are not themselves dependent on the government. (Edit: or have a common risk factor).

Demographic shifts in particular are something that hurts both.

[nejsjsjsbsb]

The SP500 magic money machine may stop and then everyone is stuck with shitty subpar indexes that lose in real terms. You may need to pensionize 50% to save enough but if everyone does that it is austerity.

AI (the robot kind) may be our main hope.

[Terr_]

Tangentially, I'd also suggest that you consider your own career-sector as something to be hedged/diversified against. This is especially true for people getting stock-thingies as compensation, but it might also apply for some index funds.

The worst-case scenario that comes to mind are all the Enron employees who focused their 401ks onto their own employer's hot stock, and then the implosion wiped out both their regular earnings and their reserves.

[Ekaros]

I think I need to start looking into African index funds... Or just figure out the way out when I have run out of money...

[hakfoo]

We always forget that people actually consume services, not dollars. What if instead of a pension or Social Security delivered as a cheque, we provided a basket of highly subsidized services, essentially state-funded retirement homes?

These can be delivered on enormous government scale, potentially bringing unit costs down far below what individuals can achieve.

It could be an effective way to create an evergreen economic engine in regions that have had poor development-- dropping a community of 200,000 retirees into a Rust Belt city creates tens of thousands of infrastructure and support jobs.

Private retirement schemes could, of course, deliver additional luxuries, but it would be a huge stabilizing influence to know that nobody is going to have to try to drag themselves back into the workforce at 92 because their 401(k) ran out and they can no longer afford their rent.

[HWR_14]

Is 3.5 times GDP a high number? To pay out over the next 40-50 years?

[09thn34v]

why is that? why couldn't the private approach (withholding x amount per paycheck, adding to a pension fund) work at scale?

[equalsione]

People are living longer after retirement (over 10 years longer since the 1970s) and birth rates have fallen. Expenditure surpasses income eventually. There are other factors but that seems to be the main issue.

[wakawaka28]

Making the pension a public problem won't fix it. The money has to come from somewhere.

[rightbyte]

The money can come from tax. You can balance it such that payments don't exceed tax income if balance is of concern.

[wakawaka28]

No, it can't come from tax in general. The whole problem is a lack of productivity per capita. So any tax high enough to pay the shortfall will be oppressive. It's not a magic money machine that beats private investment earnings.

[rightbyte]

Your statement only makes sense if you assume growth. At steady state investments into e.g stocks and direct transfers is about the same thing.

And ye, if the economy shrinks so will pensions. But that would be the case for stock investments too.