I was reading this article the other day: http://www.nzherald.co.nz/personal-finance/news/article.cfm?c_id=12&objectid=10828728  Its fairly humourous and makes interesting reading, but I started thinking… theres a fundamental flaw in the discussion surrounding the coming retirement crisis.

The potential crisis

For those not in the know, there has been a lot of discussion in the media and in politics in recent years about a demographic crisis which we will reach soon where we have a much larger number of older retirees and a much smaller group of working age people to support them.  The level of taxation to fund these retirees would be extremely high, so a lot of thought and analysis (and hand wringing and headshaking and arguing, but very little action) has gone into what western economies can do to deal with this potential crisis.

The fundamental flaw

A lot of this discussion (including that in the linked article above) revolves around the need for these retirees to save more so that they will be able to self fund their retirement, meaning that the government won’t have to support them through untenable levels of taxes on the smaller working population.  And this is where I think there is a fundamental flaw in the thinking.  What is it that these retirees are going to consume/need when they retire?  It will be things like food, clothing, housing, travel, medical care and so on right? How are these things going to be provided, or rather who is going to provide them?  Well one way or another it is the working population who is going to provide these things.  So regardless of how much these retirees save we end up with the same problem of a smaller working population supporting a too large retired group.  This will have to balance itself out one way or another.  The most likely way is that prices will simply rise due to supply and demand imbalance and the retirees savings will be devalued, so in the end they are no better off than if they had not saved.

At the heart of this flawed thinking is a common mistake that many people make in our society today, and that is to think of money as ‘real’ or a ‘thing’.  The hard truth of the matter is that you can’t eat money, it won’t keep you warm at night or dry from the rain and it certainly will not carry out any medical procedures on you.  Most money today isn’t even physical in the sense of a piece of paper or metal or plastic, it is merely an electronic blip stored on a computer somewhere.  Money is an abstraction of value within our economy.

What actually makes sense?

So what does make sense to prepare for this potential crisis?  Well in a certain sense, saving is effective for individuals, because if you have saved more than those around you then you will have more purchasing power for an easier retirement.  But this doesn’t do anything for the group and our society as a whole.  To deal with the wider societal issue we need to look at what we are doing with our resources now and how we can adapt our societal structures to deal with the changing situation in the future.

There is a kind of saving we can make now that will make a difference in the future.  That is building infrastructure.  If well planned this will make everyone’s lives easier in the future as it will allow things to be done more efficiently.  A smaller number of workers will be able to provide more goods and services for everyone in society if they have better infrastructure to work with.  Building infrastructure is a type of ‘real’ savings vs the abstract hypothetical savings of accumulating money.  If we build the housing, medical facilities and other productive assets now that will be needed by our population in the future, that is taking a load off those future workers (it would also stimulate our stagnant economies in the current economic environment).

The other thing that makes sense is to get rid of the idea of an expected retirement age. This is one idea that has been discussed to some degree in the mainstream political commentary, and while it clearly makes sense, it has not been a very popular idea politically.  I think this is due to the fact that many people see work as a hardship, something they only do because they have to, so they look forward to retiring as soon as they can and see it as ‘unfair’ to have to work longer than they expected.  But when you look at it objectively, people are living longer and healthier lives, why should they stop being productive, providing for themselves and contributing to society?  In nature if an animal does not ‘work’ the animal dies, there is no ‘retirement age’.  Why should it be any different for us?  This is in fact similar to the situation when retirement ages were introduced.  The average life expectancy wasn’t much past the age of retirement, but things have changed and our ideas need to change as well.

Work doesn’t need to be a hardship.  People who truly find fulfillment in what they do, do not want to quit or ‘retire’.  They want to keep doing it for as long as they can.  We may need to create ways to make it easier for people to move from physical labour (a much smaller part of our modern economy now anyway) to other types of work as they get older, and to work less hours and so on to fit with their capacity, but ideally work should be something that people enjoy doing and look forward to rather than something they want to get out of and ‘retire’ from.

I believe that the Give Freely, Receive Freely concept holds answers to how we can address these issues or resource allocation and intrinsic work motivation.  These answers would not only address future economic concerns but make for a happier more productive society for all of us right now.  It starts first with change inside the individual, and can then spread to influence how communities and eventually whole societies function.  I hope to flesh more of these ideas out in future blog posts.

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(I did think of one more idea of what makes sense to address the future retirement crisis – investment in developing artificial intelligent robots (I guess this is a subset of building infrastructure)…. if we have a smaller human working population we could supplement this with a robotic one.  Not something I think we should hold our breath about though, and then of course we would have to always be on the watch in case they try to take over the world :P)