One must save on retirement because savings transfer purchasing power from now to future savings, and in order to stop working, a claim must be made for future goods. This is obvious (if not, read this post). Since such claims are denominated in US dollars, purchasing power is determined by the supply and demand of US dollars and the supply and demand of goods. That should be obvious, too.
Therefore, a person's ability to retire will depend on his relative wealth
. In other words, how much money the person has relative to others and how much money the person has spent relative to others.
Wealth is defined by having enough purchasing power to pay the current bill.
Today, a very popular retirement solution can be summarized with the following word list: “15%, (Roth) IRA or (Roth) 401K, Index Fund and Compound Benefit”.
The reason for the popularity is that the simplified assumptions behind the concept are easy to understand, which makes it possible for Nobel Prize winners to write academic papers on the topic. Investing requires little effort; it provides Wall Street with a new product that can be sold to the streets. Who am I, cynical?
Therefore, many people are believed to have little effort to achieve quality rewards except for hypnosis waving the “magic of compound interest”, waving their hands and possibly showing the form according to historical results.
Well, these results are history. And this particular history may not be repeated.
In the 19th century, a 4% return was once a great deal. In the 20th century, we estimate 10%. This is achieved through a large transfer of wealth from the biosphere to the human realm. In other words, humans have been invading the biosphere, and in the process it has become furniture, sidewalks, clothes, stadiums, etc. It is estimated that humans (humans and everything) are now weighted as the sum of all other life on Earth. Ouch! This means the remaining “other life” is to be consumed and turned into valuable GDP or valuable stock market growth.
Nevertheless, GDP only grows about 4% per year, so several factors must be played in order to achieve a return of 8-12%. The Neolithic people who lived in the United States had a much smaller population density. Therefore, colonial Europeans can get a lot of land for free because it has not been inhabited by someone's children. Despite this, the United States is less than half the population density today, but due to the “magic” of more than two children, population density will reach equality in a period of 1-2 times twice. At this point, wild squirrels are rarely seen in Americans. (I grew up in Europe and I was only 18 years old before I first encountered a squirrel in local Forrest).
The ultimate advantage is that the magic of compound interest is especially magical when it transfers wealth from consumers to capitalists to a few aspects. If everyone becomes a capitalist, this will not work. For example, when bond demand increases, interest rates drop because prices rise. So if everyone buys bonds, interest rates will drop and returns will drop. Similarly, if everyone buys stocks, the price level will increase and reduce further appreciation potential. Blindly buying index funds only ensures misunderstandings about stocks in the aggregate – despite their internal diversification, diversification does not eliminate systemic risks, which is exactly the risk that index fund investment is currently creating (see more information here).
Also, if everyone gets 8-12% magic (choose your optimistic level), the overall price level will increase. This may be due to the requirement of large quantities of paper assets, thus reducing actual commodities
From a systematic perspective, if everyone starts saving more (it can create false effects by borrowing money from outside the economy or in a more evil way to get the government to do so), we will have huge productivity growth. Sooner or later, this can lead to bubbles in certain sectors of the economy, such as laying too many fiber optic cables in the late 1990s, or building too many houses that people can’t live in five years.
So how do we solve this problem?
In my opinion, industrialism is close to death. If the Earth was a room, we now have 75% of the expansion potential, paint ourselves into a corner. Since the world is not enough to expand the industrial footprint of the Western world (1 billion people) to the rest of the world (“other” 5.5 billion), it is simply impossible to continue this path along the current path. [baby] Continue, regardless of turning human interaction into a zero-sum game, where wealth is usually transferred from Nots to haves (general rules in complex social structures). We have seen the first attempt to acquire resources through military and economic means.
If the vote (what people do, not what they say) is to continue along the path now, the best way to ensure happiness is to have more than everyone else. He won with the most retired funds. Currently, this is easy to pass larger than the commonly recommended one
The steps towards financial independence are best to do this before others find out. If wealth is balanced, the world can meet the living standards of 6 billion people, corresponding to the average in Mexico, which is not bad, although this is less than what the blog may have fewer readers. However, wealth is likely not to be equilibrium and therefore better beat the average.
Alternatively, humans may choose to pull their combined heads out of the beach. This will be very difficult. First, developing countries want to put their own industrialization into operation, even if it is impossible. Secondly, the entire West must transition from a higher mindset to a sufficient mindset is a sufficient mindset.
If this work is done, what we know of as traditional retirement will no longer be an option, as there is no superproductive/superconsumer society to pursue. So the idea of saving a million dollars and living a good life in retirement will be ineffective. The reason is that there is no million dollars worth of one million dollars. Things will be more expensive. The good news is that people will have more time to do everything else. For example, there is no limit to information
One solution to these two problems is to accumulate over averages (this is not difficult given the average is so low) and learn a small footprint.
I hope this doesn't mean that everyone will suddenly fall into Twitter Frenzy
😉
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