World's Best-Run Pension Funds Say It's Time to Start Worrying
The fundamental issue is that saving <i>financial assets</i> today has essentially zero impact on the total consumption of future retirees. Instead, what matters is 1) the amount of real goods and services future workers generate, 2) how much of this production they give up in tax transfers to retirees or sold for financial assets owned by retirees, and 3) how many workers there are per retiree.<p>As a society, we <i>cannot</i> collectively save our way out of the coming pension crisis. Already economic growth is basically not capital-constrained - if an extra billion dollars starts sloshing around the system, it simply raises the market capitalization of existing bonds, businesses, and real estate by a billion dollars. Public companies, on net, <i>return</i> cash each year to investors. Saving doesn&#x27;t make future retirees as a class wealthier, it simply rearranges the rank ordering of future retiree wealth while allowing current retirees to spend more via higher asset prices.<p>So, what can future retirees collectively do? Have more children, allow more immigrant workers, increase future tax transfers, force higher savings rates on future workers (eg, student loan debt, mortgage repayments, land rents), retire later, or accept a lower standard of living. What individual options are there? Basically all you can do is save more and wind up in a more privileged tranche of future retirees, and hope that society winds up rich enough to support your retirement dreams. There&#x27;s <i>some</i> room for optimizing your investment strategy so that it minimizes costs and risks, via tax-advantaged accounts owning broad-market index funds, but there&#x27;s only so much juice to squeeze there.