Upcoming Issues with Providing Adequate Retirement Income in the West
Over the years, on a previous blog, I wrote many articles about how the West has no worthwhile future. While some might see this as wishful thinking, my analysis was based on multiple converging trends from very low fertility rates and technological stagnation to deindustrialization and concurrent financialization of their economies. My point was, and still is, that the large number of adverse trends is beyond coping ability of any society, let alone one which was already on a long-term downward path. While many of my previous posts on this area focused on certain specific issues such the widespread loss of institutional competence, extensive social atomization, rise of secular doomsday cults such as environmentalism, spread of neoliberalism etc, I have yet to address one specific issue (at least directly) and this post will fix that issue.
So.. let us talk about ability of the system to provide for adequate retirement income and its many adverse consequences. But before we go there, let me make one thing clear- this problem will be far more severe in the anglophone West than in countries such as France, Germany or Japan. But what caused this problem in the first place? Didn’t older people through most of human history and prehistory get along without the state or some company providing them? Well.. yes, because for most of human history and even today (outside the West) most older people live with their children and grand-children. In fact, the concept of older adults universally living with their offspring predates the emergence of modern humans as a species. There is a good amount of archeological evidence for Humans and Neanderthals caring for their chronically sick and older people tens of thousands of years ago.
I hope you are now starting to understand how the existing status quo in West, which mostly came into being during past century, is highly unusual. And this brings us the next issue- why did the current status quo in West appear to work reasonably well for decades, but will almost certainly fail in near future with unpleasant consequences- especially in the Anglosphere. To understand what I talking about, let us consider the life trajectory of people in Western countries who reached working age between 1946 and the late 1980s. For the majority of people in this cohort, life was good and kept getting better. They had a combination of decent and stable jobs along with low cost housing and education etc. More relevantly, even jobs in American corporations came with good defined-benefit pensions. In certain sectors of the economy, such as big pharma, generous pensions were the norm for those who joined as late as the 1990s.
We also cannot forget that a lot of people in this age cohort benefited from massive increases in the value of their main asset- namely, housing. While this is especially obvious for those born between the early-1930s to mid-1950s, a second and third wave of housing price increases benefited those who had bought houses prior to the mid 1990s. To be blunt, those born between early-1930s and mid-1950s (entered workforce between 1950 and mid-1970s) have two large sources of retirement income beyond their meagre social security benefits in the form of housing and good pensions. There is a reason why the older generations in West have been doing much better than their children and grand-children for the past two decades. Even those without generous pension plans were able to pay off their houses decades ago and between that equity and social security, they seem to be doing just fine.
Even the cohort born between mid-1950s and 1970 have done OK. Sure.. they did not do as well as the previous one, but between the rise in housing prices since mid-1990s and residual effects of job and career security which lasted till the late 1990s and early 2000s in addition to stock market-linked 401ks, they are in an acceptable if somewhat precarious position. However for most people born after 1970 in the West, things are screwed. For starters, they have not benefited from the two or three large waves of housing price increases which occurred between 1970 and mid- to late-1990s. Most of them do not have stable jobs, let alone ones which pay a proper guaranteed pension. This is especially the case in Anglosphere countries such as USA, in contrast to other such as Japan, Germany, France etc where most employers still have to offer decent job security and benefits. Also, some of them have significantly higher basic universal pensions than countries such as USA, UK etc.
To make matters worse in this country, there is also the issue of student debt- which cannot be discharged during bankruptcy. We cannot also forget medical debt, high rentals costs in coastal cities and other related cost-of-living issues. To make a long story short- unless you have a well-paid job in a license-restricted field (Medicine, Law etc) or some government job, your chances of enjoying an adequate retirement income are close to zero. Let me remind you that the median 401k of somebody between 45-55 contains less than 100k. And yes, I am aware that average for those in that age cohort can be as high as 160k, but this just validates my view that there is a massive amount of inequality with maybe 20% of people having 401ks containing up to 500k. In other words, most people who will retirement age in next two decades will have less than 150k in savings. And it get’s worse.
In previous eras, couples often stayed together and could pool their social security benefits in their old age. Do you think most people born after 1970 in West are going to be in long-term relationships when they reach that age? Which brings us the issue discussed near the beginning of this post- human society has worked, and can work, only because there if there is an implicit understanding that people who are older or chronically sick will be taken care of when they need it. In the past, this understanding was based on familial bonds, tradition and social pressures. In the West during past eight decades, this was based on the understanding that some combination of the government, employers and luck would provide the resources for achieving the same after traditional family and social structures had been dismantled. To be fair, this did work for many decades and some age cohorts, but is now clear that a combination of financialization and general decay of infrastructure, institutions and government in West makes it unviable at any point beyond next decade.
Will write more about this issue, especially as it relates to situation in USA and rest of Anglosphere in a future post.
What do you think? Comments?