Asset prices and the retirement revolution

Sometimes I have to remind myself that the sort of short run macro I do doesn't really matter much. Things like the recent global recession don't make much difference in the big scheme of things. So I'm writing this as an antidote to my own narrow perspective. Or, maybe I'm just a typical boomer seeing everything through the lens of my own age-group.

The first big macro shock was the invention of agriculture. Productivity rose, then fell again for Malthusian reasons. The second big macro shock was the agricultural/industrial revolution. Productivity started growing so quickly it outran those Malthusian reasons.

I think the third big macro shock will be the retirement revolution. Poor people, on the Malthusian margin, retire when they die (or die when they retire). Rich people retire before they die. The world population is ageing. But age per se has no macroeconomic implications. Retirement does have macroeconomic implications.  The fact that there will be a greater percentage of old people doesn't matter. The fact that there will be a greater percentage of retired people does matter.

Let's start with some simple accounting. The formula for the price of a life annuity P, where the annuitants have a constant risk of death d, and want a constant consumption stream C, with a constant rate of interest r, is:

P = C/(r+d)

People with a probability of death d per year will live on average for 1/d years. If people retire just before they die, 1/d will be a small number and d will be a big number, so the price of a life annuity for someone retiring will be a small number. If people retire a long time before they die, 1/d will be big, d will be small, and P will be big.

That's the first thing the arithmetic tells you. Here's the second thing:

P is the assets that pension plans will need per retired person. If R is the ratio of retired people to total population, and A is the assets that pension plans will need per head of total population, then:

A = R.P = R.C/(r+d)

Rearranging that formula, and assuming that retired people have the same level of consumption as the population average, we can solve for the ratio between total assets to total consumption as:

A/C = R/(r+d)

The retirement revolution will cause an increase in R as well as a reduction in d. Both will cause the ratio A/C to rise. For example, if r were near 0%, then if the percentage of retired people doubled, and retired people lived twice as long, then aggregate pension plan assets would need to nearly quadruple as a ratio of aggregate consumption. [Update: Damn! Am I double-counting here? My math-brain has stopped working.]. [Update 2: Yep. This quadrupling bit is wrong. As Alex notes in comments, I'm ignoring the assets penion plans hold for people who are saving for retirement but are not yet retired.]

Now suppose that land were the only asset, and that land is in perfectly inelastic supply. It is not possible for pension plans to quadruple the amount of land they hold. But a quadrupling of the price of land would have (almost) the same effect. The quadrupling of the demand for assets by pension plans would cause the price of land to quadruple.

But it's not exactly the same. Because there's a negative relationship between the price of land and the rate of interest, and a negative relationship between the rate of interest and the assets that pension plans need to hold. The rate of interest will equal the annual rents on land as a ratio of the price of land, plus the expected rate of appreciation in the price of land. Ignoring expected appreciation, a quadrupling in the price of land would mean interest rates fall to one quarter of their previous level. And if interest rates fall when pension plans demand more assets, that increases their demand for assets still further. Because a lower interest rate means higher annuity prices. See the equations above.

This does not mean there will be an explosively unstable spiral in land prices (because a halving of r will cause A to less than double if d>0), but it does create a "multiplier" effect. If the percentage of retired people doubled, and retired people lived twice as long, then aggregate pension plan assets might need to more than quadruple as a ratio of aggregate consumption.

Now land is not the only asset that pension plans can hold. They can also hold physical capital. Physical capital is exactly like land, except it doesn't have a perfectly inelastic supply curve. When the price of physical capital rises, more will be produced, and the stock will rise over time. But as the stocks of physical capital rise, relative to the stock of land and working population, annual rents on physical capital will fall. So there is a limit on the amount of physical capital that can be produced that can offer a rate of return at least equal to that of holding land. Investing in physical capital alleviates the effects somewhat, but it will not eliminate the effects.

Perhaps pension plans don't need to hold only land, or physical assets. They could also hold chain letters or other Ponzi assets, by operating as Pay As You Go plans. They tax the working young and make transfers to the retired old, and hold purely fictitious assets that would have no value if the next cohort of young refused to play the game and broke the chain.

Such Ponzi schemes can under some circumstances be sustainable, and make all generations better off forever. If alternative investment opportunities are bad, so that interest rates are less than the growth rate of the economy, such Ponzi schemes can be sustainable. But could such Ponzi schemes ever beat land as an investment opportunity? If land rents rise in proportion to GDP, land would always beat Ponzi schemes. Because land prices would grow at the same rate as GDP, giving a rate of capital gains equal to owning a Ponzi asset, plus land will yield rents in addition to that. And some land rents will rise in proportion to GDP, or more. All we need is a type of land that produces a service the demand for which is sufficiently price inelastic and income elastic. Cobb-Douglas preferences for the services of one type of land (so we spend a constant share of income on those services) would be sufficient to eliminate PAYGO pension plans as a sustainable competitive alternative. The prices of land like that would look like a bubble (which is another word for Ponzi scheme), and it would be very close to being a bubble. In the limit, as the rate of interest fell, relative to the growth rate of rents on such land, and the price/rental ratio rose, it would approach being a pure bubble asset. P=rents/(r-g).

Maybe, just maybe, recent short run macro events aren't just a blip on the long run big picture, but are a symptom of the difficult transition to that long run big picture. When I read about the price of agricultural land, it seems to be actually doing what prices of building land have been trying to do.

Maybe, when people a century from now look back on today, they will wonder why macroeconomists didn't pay much attention to the really important stuff. Will it be robots, or retirement?

Comments

[Benoit Essiambre]

As a millennial, it sure feel like these types of intergenerational transfers through unfair pricing is happening. In certain regions of Canada, baby boomers are selling houses to us at prices they could never have afforded themselves when they started. The government also raised old age pension eligibility to 67 but only for us, not for boomers, explicitly deciding to drain the pool to pay for the older generation and reduce payment when it's our turn!

And all this against a economic backdrop for us of high unemployment, underemployment, student debt and low returns making it all that much more difficult to save for our own retirements and the low returns making the CPP and OAS and other pension plans even more uncertain. It would be a much easier pill to swallow if monetary policy was aggressive enough to at least give us good jobs.

Plus, as Nick has shown recently, if inflation expectation was high enough, houses prices might go down and older savers might save in things that are more concrete than bubble based IOUs from the younger generation.

Making physical capital more attractive should be a goal of current monetary policy. Otherwise, at some point the forced IOUs might end up not being worth much if the bubble bursts. If retirees decide to sell or downgrade their houses all at the same time, there might be a surplus and prices may fall quickly.

If instead, boomers were holding more capital, more means of production or even stockpiles of the physical goods they expect to need in retirement, they would be less vulnerable to bubbles bursting. Now is the time to upgrade the number of hospital beds. The need for hospital beds is expected to explode in the next fifteen years and it will be much costlier to build once boomers are retired and labor is tight. Otherwise boomers may have to spend their last year of life jammed in busy hospital hallways (which already happens more than you would think).

Boomers could also fill their basement with the household supplies and durable goods they will need in the next five to ten years. There are lots of things with long shelf life that can be stored and gives you a 0% real return, higher if you buy in discounted bulk! The extra consumption would create jobs.

Something like this would tend happen automatically if central banks did their jobs correctly.

[Lord]

We are seeing an increase in the retirement ratio and will for some time, but eventually, assuming we don't solve old age, this will flatten or even reverse. The return will fall, and even become zero or negative, and rather than looking for investments we will look at which ones are slowest to depreciate and which to consume rather than replace. It must have felt very similar to this during the Great Depression as birth rates plunged. There may still be a spring ahead for the economy though, whether it be robots, inexpensive energy, or a series of other innovations.

[Min]

"Will it be robots, or retirement?"

Surely they go together. :) At the start of the Industrial Revolution some intellectuals foresaw a future of general prosperity and leisure, through the use of new, labor-saving devices. Well, that has not happened. Instead of saving labor, we produce more. But we could shift gears and work less. One way to do that is through longer retirement.

To judge by modern tribal people, humans could work about half as much as we do in industrialized societies, and may have done so for most of human existence. Suppose that in the future we have life expectancies of 100 years and work at the same pace as we do now in advanced economies, but for 50 years (from 20 to 70). That would be feasible, would it not? And that is without robots! With robots we might manage to have even more leisure. :)

OC, the barriers to such a way of life are social and political. Besides, we may not want to live that way.

[Alex Godofsky]

Nick, your model has been really rubbing me the wrong way and I finally figured out why. Your initial equation is wrong:

A = R.P = R.C/(r+d)

That's the assets the pension funds (in aggregate) need to pay for the current retired population. But pension funds also need to hold assets to pay for the current working population! The workers should be making contributions that will purchase their pension by the time they retire. You've left that out of the capital stock.

Consider the slightly simplified model:

Each person produces 1 unit of the consumption good each year that they work. The good is storeable with no depreciation. Everyone retires at a fixed age N, lives to age 100, and has a constant consumption (with no taxes or transfers) in each year. There is no investment other than storing the consumption good.

Therefore per capita consumption in each year is equal to N/100. The per capita asset stock is (1 - N/100)*N/2. The ratio of the two (which is the same as the ratio of the aggregates) is (100 - N)/2.

Note that in this model, doubling the fraction of retirees is the same as doubling retired lifetimes, and it also only doubles A/C, rather than quadrupling A/C.

[Alex Godofsky]

Sorry, my per capita asset stock should have been (1 - N/100)*N/200 and the A/C should have been (100 - N)/200.

[Too Much Fed]

Min said: "Well, that has not happened. Instead of saving labor, we produce more. But we could shift gears and work less. One way to do that is through longer retirement."

And, "That would be feasible, would it not? And that is without robots! With robots we might manage to have even more leisure. :)

OC, the barriers to such a way of life are social and political. Besides, we may not want to live that way."

The barriers are also economic because that would violate the most common definition of economics, unlimited wants/needs and limited resources (real AD is unlimited).

[Min]

"The barriers are also economic because that would violate the most common definition of economics, unlimited wants/needs and limited resources (real AD is unlimited)."

No, they are not. Yes, we have limited resources. We humans have always had limited resources. We do not need to work twice as much as our ancestors did, especially as we are much more productive than they were. If some people barely scrape by working 60 hours per week, the reasons are social and political, not the result of scarce resources.

[Min]

FWIW, if Nick is right about the coming revolution, my bet is that it will be a power grab by the millenial middle class, whose grievances Benoit Essiambre has articulated so well. They are educated and will be willing to exercise the vote.

[Fran R Woolley]

Nick, I looked at a related question a couple of years ago in this post: You can't escape demographics. Quit whining and deal with it.. Re-reading it, I notice I reached a different conclusion, because I was thinking about it a different way. My story was that everyone buys gold (or a house) that they intend sell and exchange for bread when they get old. Your story is everyone buys land with the intention of renting out the land using the rent to buy bread when they get old.

One point that people raised in the comment to my earlier post was "what about international capital markets - can't you escape demographics by investing in a place with more favourable demographics." I think your response could be "but the retirement revolution is happening all over - China, Europe, Latin America,..."

B.t.w., I'm wondering if in a few decades we'll look back at retirement the way we look back at 1950s and 60s dad-at-work-mom-at-home-with-the-2.3-kids suburban families - something that was there for a minute and then gone...

[Herbert]

Nick: "Because land prices would grow at the same rate as GDP, giving a rate of capital gains equal to owning a Ponzi asset, plus land will yield rents in addition to that."

What you describe here is Turgot's theory of fructification, as Bohm-Bawerk called it. Turgot considered the special case of a stationary GDP. Using your argument he showed that the interest rate must be strictly positive in a stationary state. Otherwise, he argued, the use of land would be costless (and its price infinite).

[NickRowe]

Benoit: I think we need to distinguish politics and economics of the boomers. In politics, being part of a large cohort helps you get the votes to enact policies in your own interest. Like the 67 pension for people younger than you. In economics, being part of a large cohort means you want to buy when everyone else is buying, pushing prices up; and you want to sell when everyone else is selling, pushing prices down, so it hurts to be part of a large cohort. IIRC the peak population cohort in Canada was born in the early 1960's, so they are now around 50.

But there are two processes at work: the baby boom; and the retirement revolution. The first causes a wave in asset prices. The second will cause a permanent increase in asset prices.

Lord: you have a point there. Like Frances' point at the end of her comment. I have assumed retirement age is exogenous wrt the rate of interest. But a lower rate of interest makes it harder to save for retirement, and creates an incentive to postpone retirement. A negative feedback process, that mitigates the effects.

Min: yep. I remember Tyler Cowan making a similar point. Robots and retirement solve each other's problems.

Alex: I fear you may be right. I put that update thing in the post a couple of hours after publishing it. There's something wrong with my math, on the quadrupling thing. But my brain isn't working, and I can't get my head clear on it yet.

Frances: my head isn't totally clear on our different results. But it might be because we are asking different questions: you were talking about the effects of a *temporary* demographic wave -- the boomers. I am talking here about the effects of a *permanent* shift in the ratio of retired to working population. In my model there is a big demand for the land that the retired people are selling, because the next generation is equally numerous and wants to save for retirement too. In your model the next generation is much smaller, so their demand for land is less. I think that explains the difference in our results, but I'm not sure. What complicates it is that I think both are happening at the same time.

Herbert: that is really interesting. I didn't know about Turgot. I really should explore that question more in a new post. Turgot vs Samuelson 1958.

[Min]

"I remember Tyler Cowan making a similar point. Robots and retirement solve each other's problems."

I think that I have mentioned before how, when I first got a personal computer, I thought that it would save me work. Instead, it made me more productive. But when I got my first robot, it did actually save me work, even though it did more than I would have on my own. :) With mechanization and automation, the tradeoff between leisure and productivity is far from obvious.

[Kathleen]

I don't think this is right:

People with a probability of death d per year will live on average for 1/d years.

Or this:

The retirement revolution will cause an increase in R as well as a reduction in d.

If I have a probability of dying of 50% then I will live on average for 1/0.5 Years? The variable d does not look properly defined to me.

[Fran R Woolley]

Nick, I think you're right. Another difference between your approach and mine is that we're thinking about things over different time periods. Your question is: "what's going to happen to the price of assets as we go into this retirement revolution?" My question is: "Once the baby boomers are all retired, what kind of standard of living can they expect to have?"

Your answer to that latter question is much the same as mine. Since you're predicting the ratio of rents to prices to fall, people won't be able to achieve the standard of living they expect, given their level of assets. The person who owns the $500K condo will find that it rents for $1500 per month instead of $3000, for example.

As my current and your former boss would say "Does this make sense?"

[Larry Willmore]

Nick, as usual a good post - and this time on a topic on which I am currently working! I must say, though, that compared to Mexico (a country I am researching in considerable depth) a rich country like Canada should have no problem providing all the elderly with a dignified life in old age. In a pay-as-you-go scheme, per capita income is everything. After all, the denominator ('per person') includes everyone: children, wage workers, non-wage workers (including caregivers), the disabled and the unemployed (including retirees). If per capita GDP is rising, those who produce it can share some of it with those who do not, and will have enough left over to increase their own standard of living. Problems come when per capita income is low and/or falling.

On pay-as-you-go (PAYGO) pensions, unless I am mistaken, you miss an important point that has not come up in the comments. PAYGO is a Ponzi scheme, but, like all Ponzi schemes, those who enter early receive fantastic returns on their 'investment'. The first generation is already old, so contributes little or nothing, and essentially receives free pensions paid by existing workers. If there is an immediate shift to pre-funded pensions, existing workers will be forced to pay simultaneously for their own retirement and the retirement of existing old folks - or the public debt will rise, to cover the costs of promised pensions that are no longer funded by contributions of current workers. In the literature, this is known as 'transition costs', and they can be huge. One way to postpone the problem is to force the new pension scheme to purchase government bonds to back their pension promises. How does this differ from PAYGO? It doesn't except that, with individual retirement savings accounts, benefits are linked tightly to contributions. The same result can be reached more transparently with 'notional defined contribution' (NDC) accounts, known also as 'non-financial defined contribution' accounts. Sweden has taken this route in their pension reform.

Anyway, that's my two cents worth. The 'pension crisis' in my opinion has little to do with demography. The crisis is political in wealthy countries, and economic in countries with low per capita incomes.

PS: There is no reason, I believe, to assume that old folks should enjoy the same average incomes as young workers. Government should be concerned primarily with minimum incomes, not average incomes. Warren Buffett and I have a very high average income, but the average doesn't tell you anything about my own income!

[Kathleen]

Ok, I see how d works.... sorry

[Herbert]

@Nick "Herbert: that is really interesting. I didn't know about Turgot. I really should explore that question more in a new post. Turgot vs Samuelson 1958."

Hint for your new post, beside Turgot and Samuelson: Homburg (1991) Canadian Journal of Economics, pp. 450 ff.

[NickRowe]

Kathleen: you might be right. My brain has shut down, and won't do math any more!

In a discrete time model, it might depend on whether people die on January 1st or on December 31st. I *think* that "expected life = 1/d" works OK if we assume they die December 31st (otherwise it won't work for example with d=1). But given all deaths happen December 31, it *looks* to me like the formula for the Keynesian multiplier, where d is the marginal propensity to save.

Expected life = 1 + (1-d) + (1-d)^2 + (1-d)^3 etc. (everybody lives through the first year, (1-d) live through the second year, (1-d)^2 live through the third year, etc.)

Multiply both sides by (1-d), to get

(1-d)Expected life = (1-d) + (1-d)^2 + etc.

Subtract the second from the first to get:

(1-1+d)Expected life = 1

Therefore Expected life = 1/d.

Yep. It does work if we assume people only die December 31st (I think).

But I can't get my intuition around the "quadrupling" bit, if there are twice as many retired people as a percentage of the population, all living twice as long. I might have screwed up there.

HELP!

Frances: I think it all makes sense. Still trying to think of a simple clear way to explain the difference. But in the boomer experiment, boomers will find that both the rents and the price/rent ratio will drop, when they all sell at once.

Larry: Some Ponzi schemes are unsustainable, and those who get in early gain at the expense of those who get in later, just before it busts. But there can be Ponzi schemes which are sustainable and where all gain. All you need is that the rate of interest is permanently less than the growth rate of GDP. Because the Ponzi grows at the same rate as GDP (so it's sustainable), and pays a rate of return equal to the growth rate of GDP (so it's a better rate of return than other investments).

But I'm saying that some types of land will always beat a Ponzi scheme.

[Alex Godofsky]

Nick, again, the problem is that you've ignored accumulated contributions for the working population. That's a big chunk of the capital stock you left out. I recommend that rather than a constant mortality rate d, you use my model, with fixed ages of death and retirement. I also recommend you try working without interest first, and only add in interest after.

[Larry Willmore]

Nick: To beat the existing PAYGO scheme, the rate of return on a pre-funded scheme has to be high enough to pay for existing pension promises as well as future pensions. Sure, if land prices increase fast enough, this is possible. But is it probable? I think not. It is a matter of empirics, not theory. All I am cautioning is: Don't forget the transition costs of moving from PAYGO to a pre-funded scheme (with or without individual accounts).

[Jacques René Giguère]

Don't have the time to elaborate but in a money-using economy where retirement assets are IOU on current production instead of an accumulation of walkers and pablum boxes, there is no difference between "fully-funded" and PAYGO. There is adifference at the micro and administrative level,not at the macro one...

[Alex Godofsky]

Aside: this post also demonstrates why actuaries discount using the rate of return on plan assets, and not the borrowing cost of the plan sponsor, when computing funding liabilities.

[Patrick]

"I'm wondering if in a few decades we'll look back at retirement the way we look back at 1950s and 60s dad-at-work-mom-at-home-with-the-2.3-kids suburban families - something that was there for a minute and then gone"

As a very late GenX'er I can say that I have no expectation of being able to retire. Looks like I miss the boomer gravy train and I'll be too old to take much advantage of the post boomer boom (or at least the post boomer lower prices predicted by Nick).

Stuck in the middle.

[Kathleen]

For what it is worth, in thinking about what happens to A when R and d change could you take the derivative of A wrt R plus derivative of A wrt to d (holding C constant) and add them together?

If you assume r is equal to zero you would get dA = (C/d)dR - (RCd)dd.

If dR=2R and dd=-0.5d you would get approximately RC((4+d^2)/2d). If starting d=0.5 then is it pretty close to 4RC. R is a ratio but is C greater than 1? If C is greater than one then the change in A could be pretty big.

If what you are interested in is d(A/C) then it is R((4+d^2)/2d).

In thinking about it, it seems unlikely that life expectancy would double. If I am 65 now and my life expectancy is 25 years then it is unlikely that it would be 105 in the future... don't you think? Are we all really going to live to be 105?

If someone else is better at taking derivatives than I am it would be great to know if this is correct.

[NickRowe]

Alex: Yep you are right. For the simple case where r=0%, and people live 1/d years after retirement, so need C/d assets when they retire, total assets per head of population will be C/2d. And if the percentage of retired people doubles, so d halves, total assets will double as a ratio of C. Now for when r > 0%?

[Larry Willmore]

Jacques: You are right. What happens in shift from PAYGO to pre-funded pensions is a shift from implicit to explicit public debt.

[Kathleen]

Ok so what I had is completely wrong. You can see that A/C quadruples if you just plug the numbers in.

[Alex Godofsky]

Nick, I don't know where you got C/2d, and I think you version of the model is insufficiently specified to give an answer. You can't ignore the working population. Retiree assets don't suddenly pop into existence at retirement, they are accumulated over a working lifetime. To get the (equilibrium) assets you have to integrate (% of population at age X).(accumulated assets at age X) over X = all ages.

[NickRowe]

Alex: Take a person with constant lifetime consumption C per year, and constant income while working, and r=0%. (Ignore kids who are too young to work.) He lives for (1/d) years after retirement, so needs C(1/d) assets on the day he retires. Over his lifetime, the level of his assets will look like an inverted V. It starts at 0, rises linearly to C/d, then declines linearly to 0 on the day he dies. So the average level of his assets, over his lifetime, will be 1/2 the maximum level.

[Majromax]

I think we can get somewhere if we start with pensions as a social problem, then work backwards from there to economics.

Assume a communist utopia, where each worker produces 1 unit/yr and there's no messy accounting. To support a retired fraction (R) of the population, the per-capita consumption must therefore be (1-R). A retired person receives a subsidy of (1-R), and a working person pays a tax of R. This is also effectively the case in purely PAYGO pensions.

Now, if pensions are fully funded, we have to reintroduce capital to the system. Our workers still produce 1 unit/yr; of that unit they receive W in wages and (1-W) profits go to the capital owners. Our pension is "fully funded" if its returns plus asset sales equal outlays. One person-unit of capital (per capita capital stock) returns (1-W) per anum in profits. (Note that, a priori, only (1-W)/W of the population can be retired.)

Price is as yet indeterminate, but we can solve for it. We can presume that a retired worker wishes to maintain consumption W in retirement, and based on asset price P we have an implied rate of interest r=(1-W)/P. With risk-of-death d, we can plug that all into the annuity-price formula to get P=(2W-1)/d. A worker who, upon retiring, purchases capital worth (2W-1)/d will have a statistically secure retirement.

Of course, now there's the problem of making that purchase, as until now we have had no savings -- either self-direct or via taxation. To build those in, we assume instead that a worker actually consumes W' < W (with the difference being savings or taxation), with the difference incrementally used to purchase capital. (This purchase will also, in a steady-state economy, match the asset sales of existing retirees). The same analysis gives P=(W'+W-1)/d and implied interest rate r=d(1-W)/(W'+W-1). (This also relaxes the maximum-retirement fraction to (1-W)/W', since retirees don't save.)

From there, with demographic assumptions it's possible to close the problem: a working person invests (W-W') at interest rate d(1-W)/(W'+W-1) for N years, to finance 1/d years of retirement. Giving values for N and 1/d should fix W' in terms of W.

[Too Much Fed]

Min said: "No, they are not. Yes, we have limited resources. We humans have always had limited resources. We do not need to work twice as much as our ancestors did, especially as we are much more productive than they were. If some people barely scrape by working 60 hours per week, the reasons are social and political, not the result of scarce resources."

If economists assume real AD is unlimited, then more productivity and more hours worked both mean more output. All that output is assumed to be sold. These economists will be "jumping for joy" thinking they have conquered price inflation.

[Too Much Fed]

"But age per se has no macroeconomic implications. Retirement does have macroeconomic implications. The fact that there will be a greater percentage of old people doesn't matter. The fact that there will be a greater percentage of retired people does matter."

Nick can correct this if it is wrong. It seems the assumption is real AD is unlimited. More retirees means fewer workers. That means fewer goods/services (less real AS) and more price inflation.

If real AD is not unlimited, then at some point productivity and other things can be used to reduce employment. Reduced employment can mean more retirement if funded correctly.

[Too Much Fed]

Retirement research:

Debt Savers in Defined Contribution (401-k) Plans

http://info.hellowallet.com/rs/hellowallet/images/debtsavers.pdf

[Too Much Fed]

Fran R Woolley said: "B.t.w., I'm wondering if in a few decades we'll look back at retirement the way we look back at 1950s and 60s dad-at-work-mom-at-home-with-the-2.3-kids suburban families - something that was there for a minute and then gone..."

Will central bankers call that "Mission Accomplished"?

[Lord]

While assets will not offer good returns, they will still offer considerable utility in consumption. As long as they don't crash, selling them over time and consuming the capital will last a long time.

[Too Much Fed]

test

[Too Much Fed]

"I think the third big macro shock will be the retirement revolution. Poor people, on the Malthusian margin, retire when they die (or die when they retire). Rich people retire before they die. The world population is ageing. But age per se has no macroeconomic implications. Retirement does have macroeconomic implications. The fact that there will be a greater percentage of old people doesn't matter. The fact that there will be a greater percentage of retired people does matter."

zyxzyxooxwo

[Too Much Fed]

test

[Too Much Fed]

http://globaleconomicanalysis.blogspot.com/2013/11/no-money-to-retire-new-american.html

"Call it the new American nightmare: Running out of money in retirement is scaring the **** out of record numbers of older workers, forcing them to stay in the workforce.

Now 80 is the new 60 when it comes to retirement. Many older workers who finally clock out have sharply underestimated their financial needs in retirement, raising the specter of personal financial disaster.

By putting off retirement the Baby Boomers are a large reason for the high levels of unemployment for those looking to enter the workforce. According to the latest Bureau of Labor Statistics the rate of joblessness in people 20- to 25-years old is 12.5 percent, twice the rate of people 25 and older."

And, "The percentage of older middle-class Americans who said their day-to-day financial concern is “paying the monthly bills” has climbed from 52 percent last year to 59 percent today, according to Wells Fargo. Saving for retirement comes in second. Four in 10 say saving and paying the bills is “not possible.”

Older adults are now the fastest-growing share of the US labor force. By 2020, workers 55 and older will comprise a stunning 25 percent of the civilian labor force."

Personal finance and monthly budgeting matter macroeconomically.