Can Everyone Spend the Last Third of their Lives on Vacation?

Megan McArdle says no:

Once you get to a 2:1 ratio of workers to retirees — which is where we’re rapidly headed — 33% of your income is going to support someone in retirement… It’s important to note that this is true no matter how retirement is funded.  Whether you collect a dividend check, get a corporate pension, or live off your social security, your retirement is funded by real claims on the output of people in the workforce… There is no conceivable system that is going to allow the vast majority of the population to spend a full third of their adult life in retirement, at anything like the same standard of living they had when they were working.

Comments (9)

Trackback URL | Comments RSS Feed

  1. Joe S. says:

    Good point, and it is exactly why we need to move to a funded system where each generation saves and invests and pays its own way.

  2. Tom H. says:

    This issue is on the verge of becoming partisan. Almost every Republican in Congress admits it is a huge problem. But only a few Democrats do. All the Congressional leadership is in complete denial.

  3. Stephen C. says:

    I agree with Tom, but even the Republicans are too timid to say much of anything.

  4. Don Levit says:

    Megan wrote:
    In the long term, though, it seems like we should be looking for ways to make sure that all workers have a decent living and stable retirement. But that’s a conversation about shared vulnerability and shared prosperity – a conversation we don’t seem to be having right now.
    I wonder how people feel about her comment, especially the part about shared vulnerability and shared prosperity.
    There seem to be too many “pull yourself by your own bootstraps” people on this blog to talk about such an important subject.
    Don Levit

  5. Paul H. says:

    I think the answer is “yes.” Everyone can spend a third of their life on vacation if they save enough over the first two thirds of their life.

  6. John Eley says:

    The idea of forced savings has been one of the standard refrains in favor of Social Security, albeit in hidden discourse. In an economy geared to consumption the idea of forced savings may be politically and economically dead on arrival, even though it may make perfect sense in the long run. The core question for all of us concerns the extent to which we can compel individuals to act in their own self interest and the greater good if they are making sacrifices in the short run without expectation of some sort of return in the long run. In the case of Obamacare the Congress and the President could not offer a compelling narrative on this subject. Given the current climate of distrust in government, much of which is fully rational, how does the political leadership begin the discourse that we need to have on this subject? We cannot replicate the original social security approach and the government cannot command the legitimacy that is required. Does this mean that we will muddle through until we face total collapse of the welfare state?

  7. Virginia says:

    Megan is right. We can’t spend 1/3 of our lives on vacation. However, I’m still looking for my own personal exemption ; ) Anyone up for a trip to the beach?

  8. Kevin Morrill says:

    This is ridiculous. It’s predicated on the notion that the only way to fund retirement is publicly. Leave it up the individual like virtually all other spending, and people can choose on their own how much they want to save.

    Unfunded entitlements like this are destroying our country. We are $300 trillion in debt, mostly in off balance sheet liabilities like social security. It’s time to dismantle them.

  9. Bart Ingles says:

    Joe S., Kevin M.: The point McArdle was making was that it doesn’t matter if retirement is funded publicly or privately. With a 2:1 ratio, 1/3 of the GDP will be consumed by people who are no longer productive. If everyone’s retirement were funded exclusively by cashing in stock holdings in a 401K, how long would those stocks continue to hold value?

    But of course the Social Security’s solvency is a separate issue. I think I’d rather see the default scenario– where it goes bankrupt and begins paying out reduced benefits equal to revenues– than to allow the program to continue to grow by increasing payroll taxes, or to turn it into a means-tested welfare program. At least the bankruptcy scenario is self-limiting, and people have plenty of time to plan for it.

    Better would be to simply freeze cost of living adjustments until the system returns to actuarial balance.