wolf359 wrote:I re-read Bernstein's full article, and I agree with him to a point. There is, in fact, a big demographic shift going on with all the Baby Boomers retiring. A lot of them don't have enough savings to match their old lifestyles. However, this does not put them in the catfood stage. The unprepared have to move in with family, or keep working if they can. In general, social security is still working, and keeping the elderly out of poverty.
That may change in 2030, as the last boomers retire and the SS trust fund is depleted.
That latter, btw is a mirage. The key issue is the cost of SS payments to GDP. At the worst moment, it does not look too bad (4.5% of GDP from memory-- well less than some countries are at *now*- -think Brazil, Germany, Italy). The Baby Booomers also exit out the other side by dying, which is very helpful.
By then, Gen Xers and Millennials will have either saved, or not. It would almost be too late for GenXers to start.
Again, macroeconomics, it won't matter. If they have saved, but there are fewer workers in the next generation, then the value of those financial assets will simply fall.
All that matters is the ratio of workers to non-workers in a society. Good news for the US: a relatively high fertility rate (until very recently), immigration (ditto) and a workforce that works to a relatively old age. The Baby Boomer generation is not larger than those that follow it.
We are never going to be a world where everyone saves like they're going to retire at 55 or 65. The Pareto Rule applies. 20% will be disciplined and have outstanding outcomes. 80% will muddle through.
We're going to be hit by a demographic shift with all the Boomers retiring, but the effect will be low rates of return for at least 10 years, caused by lower Boomer demand for equities caused by the drawdown in their assets.
You nail the problem with that below. We live in global markets. We can get worried about the Boomers selling their houses (given the next generation doesn't look like it will have the money to pay those prices for homes-- larger student debts, lower incomes etc.), but it's very unlikely that the US equity markets could get radically cheaper just because American boomers were selling stocks.
It's a greater issue what's happening to the whole developed world (aging). So much depends on the economic growth of emerging markets, particularly Africa and the Middle East and the former 'stans- -where the populations are relatively young.
That drawdown could be offset by increased demand for US assets from international sources, or from other generations finally investing more.
Hard to imagine a world where Google say becomes radically cheaper because US fund managers are selling. It would be a no-brainer arbitrage for someone else-- $1.00 per share of Google (I mean Alphabet's) earnings is going to be on sale compared to some Korean company, say. That assumes capital mobility remains.
This is like a societal level marshmallow test, where you're asking the population in general to defer gratification.. When tested at the individual level (as toddlers), 80% of those tested can't wait for 15 minutes to consume a marshmallow. As adults, I don't believe they'd be able to wait 30-40 years to consume their savings. (Like the commercial says, "It's MY money, and I want it NOW!")
Couple of things. One is the Thaler/ Laibson work, if you make "opt in" the default choice you increase compliance in pension schemes from 35% to over 65%. And something similar for subsequent pay rises. So "nudges" work.
Since (roughly speaking) 80% of non housing equity financial assets are held by less than 20% of households, it all becomes somewhat academic- -we are really talking about the savings behaviour of a relatively small proportion of the population.
As I have said, in macroeconomic terms none of it matters for the *average* person. It's all driven by the ratio of workers to non workers (dependency ratio).
Productivity matters (as per johno) in the sense that higher productivity in theory allows more people to be supported by one worker (if that worker can be made to give up some or all of the upside from their more productive work--ie they don't change jobs to an employer who is less profitable, but pays better).
Whilst I am sure that "progress" improves our general standard of living (better medical treatments, safer cars, more entertainment gadgets etc.) I am less certain that it gets us out of our pensions jam.