Trying the Impossible - Financing 30-Year Retirements with 40-Year Careers

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bobcat2
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Re: Trying the Impossible - Financing 30-Year Retirements with 40-Year Careers

Post by bobcat2 »

Merton is simply stating a hard fact. If I work for 40 years to age 65 followed by being retired for 10 years, I will have a higher standard of living over my lifetime than if I work for 40 years to age 65 followed by being retired for 30 years. This seems pretty obvious to me. The good news is that I live longer. The bad news is that if I don't work longer my living standard is lower.

BobK
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Re: Trying the Impossible - Financing 30-Year Retirements with 40-Year Careers

Post by marcopolo »

bobcat2 wrote: Fri Apr 06, 2018 10:07 am but your relative standard of living will be lower both before and during retirement than that of your parents. That's because of lower consumption both before and during retirement due to higher saving prior to retirement.

BobK
Can you explain what you mean by relative standard of living? Perhaps you have a different interpretation of what that means than some of us that are questioning the premise of the topic.
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Re: Trying the Impossible - Financing 30-Year Retirements with 40-Year Careers

Post by bb »

Of all the things to worry about in the universe - worrying about your typical
American saving too much money?

I have not read any stories suggesting consumers are not doing anything but
consuming with consumer debt at record levels.
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Re: Trying the Impossible - Financing 30-Year Retirements with 40-Year Careers

Post by bobcat2 »

bb wrote: Fri Apr 06, 2018 11:49 am Of all the things to worry about in the universe - worrying about your typical American saving too much money?
No. The worry is that people are not working long enough, given longer life expectancy at age 65.

BobK
In finance risk is defined as uncertainty that is consequential (nontrivial). | The two main methods of dealing with financial risk are the matching of assets to goals & diversifying.
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Re: Trying the Impossible - Financing 30-Year Retirements with 40-Year Careers

Post by frugalecon »

bobcat2 wrote: Fri Apr 06, 2018 11:57 am
bb wrote: Fri Apr 06, 2018 11:49 am Of all the things to worry about in the universe - worrying about your typical American saving too much money?
No. The worry is that people are not working long enough, given longer life expectancy at age 65.

BobK
Not working long enough, or not being able to work long enough. As I have mentioned elsewhere, I have a friend who is 66, broke (saved way, way, way too little), and unable to secure stable employment. He has gotten several jobs, but he has been let go before the end of the initial probationary period. He is just no longer well-matched to what employers are looking for now. His consumption is going to be much lower in what will pass for retirement than it has been during his working years. (He is trying to eke by on modest Social Security in the SF Bay Area, living in cheap, rent-controlled housing that would be charitably called [(removed) --admin LadyGeek]. When that gets torn down to build fancy condos, he is going to be in a world of hurt.)

Upshot is that people can't really count on working much longer.
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Re: Trying the Impossible - Financing 30-Year Retirements with 40-Year Careers

Post by JimmyJammy »

Many in this thread are assuming retiring is a good thing. But, if you want to live as long as possible, that may not be the case.

"Researchers at Oregon State University warned that retiring early could be a risk factor for an early death.

They found healthy adults who retired one year past 65 had an 11 per cent lower risk of dying.

If continuing to work does not sound appealing, volunteering may be the answer instead.

A 2013 study by the University of Exeter discovered that helping others on a regular basis could reduce early mortality rates by 22 per cent."

https://www.express.co.uk/life-style/he ... rement-age
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Re: Trying the Impossible - Financing 30-Year Retirements with 40-Year Careers

Post by michaeljc70 »

Bill Bernstein wrote: Mon Jul 18, 2016 11:32 pm Excellent presentation, but there's an even simpler way to look at it, which is the paradigm of Arnott and Cascells, FAJ, 2003:

Imagine a desert island with 4 inhabitants, each of who performs a separate, vital economic task (growing food, building shelter, repairing equipment, etc.). The medium of exchange is coconuts. Further imagine that one has saved enough coconuts to retire.

We now have 3 workers supporting one retiree--a 1:3 dependency ratio.

Then, another retires; we now have a 1:1 dependency ratio, and the island's GDP has fallen by 33.3%. No matter how many coconuts that second retiree has saved, the aggregate GDP, and with it the standard of living, has also fallen by 33.3%.

In a closed system, stocks and bonds, like the island's coconuts, are just a medium of exchange. As our dependency ratio creeps towards 1:1 (a world in which everyone works from 25 to 60, retires from 60 to 95 is not unimaginable), per capita income must also fall.

I.e., we can't save our way out of this problem.

By definition, either the average person retires later, or the average person accepts a greatly reduced standard of living.

You might argue that with free international capital flows, we don't live in a closed system. True enough. The problem is that among the world's developed nations, the U.S. has the most favorable demographics. I.e., the rest of the developed world is in no position to bail us out.

Bill
We have international trade and migration in the real world.
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Re: Trying the Impossible - Financing 30-Year Retirements with 40-Year Careers

Post by bb »

bobcat2 wrote: Fri Apr 06, 2018 11:57 am No. The worry is that people are not working long enough, given longer life expectancy at age 65.

BobK
I was just commenting based on a fair amount of discussion in this thread that if you have a high
savings rate you can't retire early if everyone else has a high savings rate.
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Re: Trying the Impossible - Financing 30-Year Retirements with 40-Year Careers

Post by wolf359 »

bobcat2 wrote: Sat Jul 23, 2016 10:56 am
longinvest wrote:
bobcat2 wrote:
Rethinking Retirement
Basically, Merton says it boils down to this: “You either have to work longer or accept a lower standard of living. What you can’t do is work the same number of years as your parents, live longer and enjoy the same standard of living. That’s not feasible.”
Link - http://www.reversereview.com/magazine/f ... erton.html
Maybe he means "enjoy the same relative standard of living". Think about the difference in standard of living between the average U.S. person in 1916 and 2016. So, maybe it's possible to achieve the same absolute standard of living, but one would not be as happy, because others, around him, would generally achieve a higher standard of living. What do you think?
Yes that's what he means. If you are going to keep the same standard of living you had obtained in the years leading up to retirement during retirement, you, and your children, are going to have to work longer than your parents did. If you save a much higher percentage of your income than your parents, you will be able to keep that standard of living during retirement, but that relative standard of living will be lower both before and during retirement than that of your parents. That's because of lower consumption both before and during retirement due to higher saving prior to retirement.

Simply put, you can't work the same number of years, but finance a longer retirement while at the same time keeping the same standard of living in retirement. That defies mathematics. :)

BobK
I get what you're saying, but there are ways around the math. There are generational differences. We had fewer kids, and had them later. We had college degrees and no debt (thanks to our parents -- that's where some of their spending went). We have a much higher savings rate, backed by a much higher income. We invest in the stock market; they grew up post-Depression and WWII and were very wary of stocks.

With higher income, lower costs, higher savings rate, better investing vehicles, and technological advantages, this statement is not true for me and my parents. The kids had the capability and the opportunity to improve our paths over the parents. We will not need to work as long as my parents and will be able to afford a longer retirement.

OUR kids, of course, will have a much more difficult time beating US. Unless they become billionaires, or they start earlier.
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Re: Trying the Impossible - Financing 30-Year Retirements with 40-Year Careers

Post by willthrill81 »

bb wrote: Fri Apr 06, 2018 1:38 pm
bobcat2 wrote: Fri Apr 06, 2018 11:57 am No. The worry is that people are not working long enough, given longer life expectancy at age 65.

BobK
I was just commenting based on a fair amount of discussion in this thread that if you have a high
savings rate you can't retire early if everyone else has a high savings rate.
Similar arguments have been laid in many areas, including index funds. But in reality, it's irrelevant because everyone isn't going to have a high savings rate. Americans, in general, can't even get their savings rate up to 10%.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Re: Trying the Impossible - Financing 30-Year Retirements with 40-Year Careers

Post by Walkure »

bobcat2 wrote: Sat Jul 23, 2016 10:56 am
Yes that's what he means. If you are going to keep the same standard of living you had obtained in the years leading up to retirement during retirement, you, and your children, are going to have to work longer than your parents did. If you save a much higher percentage of your income than your parents, you will be able to keep that standard of living during retirement, but that relative standard of living will be lower both before and during retirement than that of your parents. That's because of lower consumption both before and during retirement due to higher saving prior to retirement.

Simply put, you can't work the same number of years, but finance a longer retirement while at the same time keeping the same standard of living in retirement. That defies mathematics. :)

BobK
I think that the idea of length of retirement having any correlation to length of working is simply a historical artifact of one very short window of the recent past. A few centuries ago all but the very wealthiest worked up until the day they died, or were invalided and totally dependent on family support/charity. Now we have retirements in the one to two decade range on average. But as the combined effects of longer life expectancy and less jobs per capita (automation, efficiency, etc.) take hold, that time frame will balloon. What you're assuming, though, is that the cost across that time frame balloons in a direct linear relationship, which ignores the exponential magic of compound interest. The SWR for a 30 year drawdown is a legendary topic in the BH world. What the FI folks have discovered, however, is that once you start socking away enough to extend the window beyond 30 years, that safe withdrawal rate quickly collapses into a perpetual withdrawal rate. At that point, a thirty year career with the right savings rate could fund an eternal retirement. So the idea that each year of added life expectancy adds approximately another half a year of working to fund is simply false.
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Re: Trying the Impossible - Financing 30-Year Retirements with 40-Year Careers

Post by michaeljc70 »

JimmyJammy wrote: Fri Apr 06, 2018 12:31 pm Many in this thread are assuming retiring is a good thing. But, if you want to live as long as possible, that may not be the case.

"Researchers at Oregon State University warned that retiring early could be a risk factor for an early death.

They found healthy adults who retired one year past 65 had an 11 per cent lower risk of dying.

If continuing to work does not sound appealing, volunteering may be the answer instead.

A 2013 study by the University of Exeter discovered that helping others on a regular basis could reduce early mortality rates by 22 per cent."

https://www.express.co.uk/life-style/he ... rement-age
This brings up other questions. Like if people keep working longer, will there be enough jobs for younger people? Will companies pay higher wages to have more senior workers? Will companies even really want older workers (they tend to cost more, be sick more, and eventually do slow down generally)? A lot of people know someone who was laid off at age 55 and had a very hard time finding a job or couldn't find one commensurate to what they had.
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Re: Trying the Impossible - Financing 30-Year Retirements with 40-Year Careers

Post by willthrill81 »

michaeljc70 wrote: Fri Apr 06, 2018 6:35 pm
JimmyJammy wrote: Fri Apr 06, 2018 12:31 pm Many in this thread are assuming retiring is a good thing. But, if you want to live as long as possible, that may not be the case.

"Researchers at Oregon State University warned that retiring early could be a risk factor for an early death.

They found healthy adults who retired one year past 65 had an 11 per cent lower risk of dying.

If continuing to work does not sound appealing, volunteering may be the answer instead.

A 2013 study by the University of Exeter discovered that helping others on a regular basis could reduce early mortality rates by 22 per cent."

https://www.express.co.uk/life-style/he ... rement-age
This brings up other questions. Like if people keep working longer, will there be enough jobs for younger people? Will companies pay higher wages to have more senior workers? Will companies even really want older workers (they tend to cost more, be sick more, and eventually do slow down generally)? A lot of people know someone who was laid off at age 55 and had a very hard time finding a job or couldn't find one commensurate to what they had.
I think it may depend a lot on how tight the workforce is. In Japan, where life expectancy is very long by today's standards, many 70-somethings are still very much working and are encouraged to do so because there are insufficient numbers of younger workers to do all of the necessary tasks.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Re: Trying the Impossible - Financing 30-Year Retirements with 40-Year Careers

Post by JBTX »

Walkure wrote: Fri Apr 06, 2018 5:24 pm
bobcat2 wrote: Sat Jul 23, 2016 10:56 am
Yes that's what he means. If you are going to keep the same standard of living you had obtained in the years leading up to retirement during retirement, you, and your children, are going to have to work longer than your parents did. If you save a much higher percentage of your income than your parents, you will be able to keep that standard of living during retirement, but that relative standard of living will be lower both before and during retirement than that of your parents. That's because of lower consumption both before and during retirement due to higher saving prior to retirement.

Simply put, you can't work the same number of years, but finance a longer retirement while at the same time keeping the same standard of living in retirement. That defies mathematics. :)

BobK
I think that the idea of length of retirement having any correlation to length of working is simply a historical artifact of one very short window of the recent past. A few centuries ago all but the very wealthiest worked up until the day they died, or were invalided and totally dependent on family support/charity. Now we have retirements in the one to two decade range on average. But as the combined effects of longer life expectancy and less jobs per capita (automation, efficiency, etc.) take hold, that time frame will balloon. What you're assuming, though, is that the cost across that time frame balloons in a direct linear relationship, which ignores the exponential magic of compound interest. The SWR for a 30 year drawdown is a legendary topic in the BH world. What the FI folks have discovered, however, is that once you start socking away enough to extend the window beyond 30 years, that safe withdrawal rate quickly collapses into a perpetual withdrawal rate. At that point, a thirty year career with the right savings rate could fund an eternal retirement. So the idea that each year of added life expectancy adds approximately another half a year of working to fund is simply false.
I was thinking something similar to your first point above. There is no hard economic law that says a society can’t work 40 years and retire 30. As you indicate, people used to work lots of hours have little time off and mostly never retire. Many children worked and not many went to college. So the trend has been over time to work less and less percent over your life. As technology and automation progresses it may be very possible to work for 40 and retire 30.

The key issue though is resource/income allocation. Everybody is not the same. There will be the “owners” (including agents of owners) who will have ample resources and “laborers” who will continue to dwindle in proportionate share and make less and less and accumulate less. So even though the resources in totality may exist for people to retire 30, they are not necessarily allocated such that all can do so.
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Re: Trying the Impossible - Financing 30-Year Retirements with 40-Year Careers

Post by michaeljc70 »

willthrill81 wrote: Fri Apr 06, 2018 6:45 pm
michaeljc70 wrote: Fri Apr 06, 2018 6:35 pm
JimmyJammy wrote: Fri Apr 06, 2018 12:31 pm Many in this thread are assuming retiring is a good thing. But, if you want to live as long as possible, that may not be the case.

"Researchers at Oregon State University warned that retiring early could be a risk factor for an early death.

They found healthy adults who retired one year past 65 had an 11 per cent lower risk of dying.

If continuing to work does not sound appealing, volunteering may be the answer instead.

A 2013 study by the University of Exeter discovered that helping others on a regular basis could reduce early mortality rates by 22 per cent."

https://www.express.co.uk/life-style/he ... rement-age
This brings up other questions. Like if people keep working longer, will there be enough jobs for younger people? Will companies pay higher wages to have more senior workers? Will companies even really want older workers (they tend to cost more, be sick more, and eventually do slow down generally)? A lot of people know someone who was laid off at age 55 and had a very hard time finding a job or couldn't find one commensurate to what they had.
I think it may depend a lot on how tight the workforce is. In Japan, where life expectancy is very long by today's standards, many 70-somethings are still very much working and are encouraged to do so because there are insufficient numbers of younger workers to do all of the necessary tasks.
Yes. I think the mindset may have to change. Someone with 40 years experience may not automatically make more than someone with 20 years experience in the same job. Many jobs give a raise that is higher than COL and that can add up over 40 years. Companies have to ask themselves how much experience a job requires and is any incremental experience beneficial?
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Re: Trying the Impossible - Financing 30-Year Retirements with 40-Year Careers

Post by stlutz »

I can't read this thread without thinking about Keynes' essay, "Economic Possibilities for our Grandchildren".

http://www.econ.yale.edu/smith/econ116a/keynes1.pdf
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Re: Trying the Impossible - Financing 30-Year Retirements with 40-Year Careers

Post by bobcat2 »

stlutz wrote: Fri Apr 06, 2018 8:46 pm I can't read this thread without thinking about Keynes' essay, "Economic Possibilities for our Grandchildren".
It would appear that Keynes was significantly over optimistic in his predictions.
What are the economic possibilities for our grandchildren? ...

All this means in the long run that mankind is solving its economic problem. I would predict that the standard of life in progressive countries one hundred years hence will be between four and eight times as high as it is to-day. There would be nothing surprising in this even in the light of our present knowledge. It would not be foolish to contemplate the possibility of afar greater progress still.

Let us, for the sake of argument, suppose that a hundred years hence we are all of us, on the average, eight times better off in the economic sense than we are to-day. Assuredly there need be nothing here to surprise us.

I draw the conclusion that, assuming no important wars and no important increase in population, the economic problem may be solved, or be at least within sight of solution, within a hundred years. This means that the economic problem is not-if we look into the future-the permanent problem of the human race.
Keynes wrote those words 88 years ago. We are his grandchildren and great-grandchildren. We are not 8 times better off than Americans were when those words were written. At best we might be about 4 times better off. And who among us believes the economic problem will be solved, or be within sight of solution, in the next decade or two? To make matters worse despite the fact that the Great Depression, WWII, and faster world population growth occurred between 1930-1970, overall economic progress was faster over those 40 years that it has been from 1970 to the present.

BobK
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Re: Trying the Impossible - Financing 30-Year Retirements with 40-Year Careers

Post by bobcat2 »

The basic point of this thread is the following.

One person works 40 years and finances 20 years of retirement. Another person works the same 40 years and finances 30 years of retirement. It should be clear that if their economic resources are the same, the person financing an additional 10 years of retirement, while working the same 40 years as the other person, will have a lower lifetime standard of living.

To put it another way, if you want to retire for 30 years and have the same standard of living as someone working 40 years and retiring for 20 years, you need to work more than 40 years.

BobK
In finance risk is defined as uncertainty that is consequential (nontrivial). | The two main methods of dealing with financial risk are the matching of assets to goals & diversifying.
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Re: Trying the Impossible - Financing 30-Year Retirements with 40-Year Careers

Post by grok87 »

AlohaJoe wrote: Tue Jul 19, 2016 2:06 am This appears to be the paper that William Bernstein mentioned above: http://www.cfapubs.org/doi/pdf/10.2469/faj.v59.n2.2511
Thanks
RIP Mr. Bogle.
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