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.
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.
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.
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.
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[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...
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.
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.
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.