Can You Afford to Reach 100?
“I often joke that 100 years from now I hope people are saying,
‘Dang, she looks good for her age!’”
– Dolly Parton
“Just because you live 20 years or 100 years doesn’t make it less
meaningful. They’re both short amounts of time. So all we can do is just live
in that time, whatever time we’re given.”
– Ansel Elgort
“If I had more time, I would have written a shorter letter.”
– Blaise Pascal, 1657 (and a few score other later
attributions)
Welcome to the new, improved, faster-to-read, better yet
still-free Thoughts from the
Frontline. My team and I have been doing a lot of research on what
my readers want. The reality is that my newsletter writing has experienced a
sort of “mission creep” over the years. Bluntly, the letter is just a lot
longer today than it was five or ten years ago. And when I’m out talking to
readers and friends, especially those who give me their honest opinions, they
tell me it’s just too much. There are some of you who love the length and wish
it were even longer, but you are not the majority. Not even close. We all have
time constraints, and I wish to honor those. So I am going to cut my letter
back to its former size, which was about 50% of the length of more recent
letters.
(Note: this paragraph is going to open the letter for the next month
or so, since not everybody clicks on every letter. Sigh. Surveys showed us it’s
not because you don’t love me but because of demands on your time. I want you
to understand that I get it.) Now to your letter…
This week I have good news and bad news for you. The good news is
that you and your children will probably have much longer lives than you
currently imagine. The bad news is that you’ll have to pay the bill for them.
I’ll explain what that means in a minute. First, let me thank
everyone who helped produce this year’s Strategic Investment Conference, as
well as all who attended. I know it sounds trite to say that this one was the
best ever, but it really was. Every speaker brought a unique and valuable
perspective, which the panels then mixed into new and even more interesting
blends. Attendees asked probing and sometimes uncomfortable questions. I think
everyone left Orlando bearing loads of new ideas.
If you missed SIC, you can still get our Virtual Pass. It gives
you audio recordings of all sessions, all the slides that accompanied them, and written transcripts.
It’s the next best thing to being there. Click
here for more information and to place your order. We will close this offer
in early June, so don’t wait too long.
I’m also pleased to announce that next year we’re taking SIC back
to our old home at San Diego’s Manchester Hyatt. The dates are March 6–9, 2018.
That’s just a little more than nine months away, so now is the time to start
planning your trip. We’ll let you know when early bird registration opens in
the fall.
Now, on to this week’s main course.
One of my team members pointed me to a World Economic Forum white
paper called “We’ll
Live to 100 – How Can We Afford It?” Regular readers know I’ve been saying
we’ll live that long – and asking how we’ll pay for it – for several years now.
It is good to see Davos Man finally catching up with me.
The WEF paper has some interesting data that I haven’t seen
elsewhere. To begin, it breaks down life expectancy by birth year, showing a
different picture than we see from simple averages. Here are the global
numbers.
As far as I can tell, these estimates don’t consider the kind of
major life-extending breakthroughs that Patrick Cox writes about for us and
that he and I both expect to be realized in the next few years. Rather, the
methodology of the WEF paper seems to depend on extending current trends. So I
believe the numbers above are conservative.
Note also, these are median
life expectancies, not simple averages. Half the people in each group will live
longer than the median. Most of today’s young children will live to see the
2100s. Some (many?) of the younger Millennials will see their lives span three
different centuries. That’s astonishing.
Here’s another table showing the differences among major countries
for those born in the year 2007.
Again, this is astounding if correct. A Japanese child born in
2007, who is 10 years old today, has a 50% chance of living to 107. That will
be the year 2114. Those in other developed countries are not far behind.
Better yet, the coming medical technologies will let us live to
those ages or more without the decades of physical and mental decline that are
now common. We’re not just increasing lifespans; we’re increasing “health
spans,” too.
The good news is that many of those antiaging breakthroughs are
going to be coming to a pharmacy near you in the near future – as in five to
ten years. It is likely that you will live much longer and healthier than you
are currently planning to. Most of us will be happy with that outcome. The bad
news is that you will have to make your money last those extra years.
We had a panel at SIC with Patrick Cox and leaders of three of the
biotechnology companies he follows. What they’re working on, from different
angles, is almost unbelievable. It is entirely possible that we will see cancer
wiped out in the next five years. Scientists are making huge strides with heart
disease, dementia, spinal cord injuries, and the other great enemies of life
and health. One by one, the dominoes are falling. Other companies we know about
are working on the “Fountain of Middle Age,” whereby they intend to either
delay or semi-reverse the aging process. It won’t take you back to your youth,
but for many of us 50 years old sounds pretty good.
And there are groups like Mike West’s at BioTime, Inc., that are
working on technologies like induced tissue regeneration (ITR), which will
literally turn back your cellular clock. This was science fiction and a pipette dream 10 years ago.
Today it is simply science, and it’s coming out of the theoretical stage and
the petri dish and moving further up the experimental lab chain.
Some of you will object, “What will we do if everybody lives so long? Frankly, that’s
a first-world problem. I see very few people who ask that question offering to
die. If we live in a world that can figure out how to turn us young again, give
us automated cars, and all sorts of abundant resources, you think we’ll have
trouble figuring out how to feed everyone and keep them occupied? Malthus was
so wrong in so many ways.
While this is wonderful news for humanity, it will bring some
challenges, too. The world is not financially prepared to support as many
retirement-age people as it will have to sustain in coming decades. We have
some huge adjustments in store.
Specifically, we already have a huge retirement savings shortfall,
both public and private. I discussed that problem at length recently in Part
4 and Part
5 of my “Angst in America” series. Adding millions more person-years to the
equation will make the problem much worse.
The World Economic Forum’s white paper tries to quantify how much
worse the personal retirement shortfall will be if current practices continue.
The amounts presently earmarked for retirement income via government-provided
pension systems (i.e., Social Security), employer plans, and individual savings
fall far short of the mark.
Here is the bad news in graphic form.
The bumps you see there are the difference between what is
necessary to fulfill obligations (defined as 70% of pre-retirement income) and
what has actually been saved or set aside to do so. The darker blue is the 2015
gap, and light blue is a 2050 estimate.
WEF shows these eight countries, which are obviously not the whole
world, simply because the data was available. They also excluded assets held by
the wealthiest 10% of the population, in order to show the situation of
non-wealthy citizens. (Their full methodology is described on page 22 of this
PDF file, for those of you who want to take a deeper dive.)
By 2050, the total shortfall in these eight countries alone will
be $400 trillion. That
number is so absurd that I feel very confident we will never have to face it.
One way and another, some promises will be broken. The only questions are,
whose and to what degree.
Remember, this is just the personal
savings shortfall. This is not the government and unfunded
liability shortfall. Globally, that runs into the multiple hundreds of
trillions on top of the $400 trillion savings shortfall.
The present standard of retiring somewhere between ages 60 and 70
is not going to be sustainable when half the population lives to 80 or 90 –
which is already realistic today – let alone 100 or more. It’s just not
possible. If you’re like me, you don’t intend to retire at 70 or maybe not at
all, but it’s nice to know we have the option. Future generations won’t.
According to WEF, the global dependency ratio under current
policies will plummet from 8:1 today to 4:1 by 2050. That means just four
active workers for each retiree.
And that’s including developing and frontier
markets. Developed markets will see a global dependency ratio of about 2:1. I
see no way that can work. WEF doesn’t either.
Here is their advice to political
leaders.
Given the rise in longevity and the declining
dependency ratio, policy-makers must immediately consider how to foster a
functioning labour market for older workers to extend working careers as much
as possible.
There you have it, straight from Davos. We must “extend working
careers as much as possible.” Your dream of hanging up the work clothes at 65
and going on extended vacation will remain a dream until some later date. Early
retirement will survive only for the kind of people who go to Davos.
Again, for me this is fine. I’m 67 and I love my work. I plan to
keep at it for many years to come. But I understand many people don’t have that
option. They have health problems, or their professions are being automated, or
they spent their career doing physical work that is no longer possible. The
medical advances I foresee will help, but they’ll take time to become affordable
to everyone. Some people are going to fall through the cracks.
Moreover, simply saving more money probably isn’t an answer,
either. Interest rates are a function of supply and demand. You can’t invest
your savings in a high-yield bond unless someone out there can borrow at that
same yield. When so many of us want to lend and no new borrowers appear, supply
and demand will keep yields low. We already see this in today’s near-ZIRP
conditions, and they may not improve much.
Part of the justification for ZIRP was that it would force capital
into risk assets, thereby stimulating the economy. It now appears that the only
thing stimulated was asset prices, and by and by the risk is going to catch up
with those taking unwise amounts of it. That unhappy outcome will likely widen
the retirement shortfall even further.
And so the expectation of longevity is going to motivate people to
want to save more money, except they’ll have to have jobs that pay enough to
enable them to save money to flesh out the retirement plan. This headline
appeared a few weeks ago:
Oops. The Council of Economic Advisers now estimates that
artificial intelligence will replace 83% of low-wage jobs. I’m not certain how
they came up with that number – it seems high – but whatever is the figure
turns out to be, it’s alarming. And the jobs we are creating today are not the
high-paying manufacturing jobs that everybody wants to “bring back.” They’re
not there to be brought back. There is actually a quite large “re-shoring”
movement going on, but the companies that are coming back are doing so with
automated technology and far fewer workers than before. The advantage of using
inexpensive offshore labor has fallen before the advantage of being close to
your markets and “employing” robots and artificial intelligence.
The McKinsey Global Institute published a report last December
that said: “On a global scale, we calculated the adoption of currently
demonstrated automation technologies could affect 50% of the world economy’s
1.2 billion employees and $14.6 trillion in wages.” That is an astonishing
statistic.
By the way, one of the subheads in that screenshot above points
out that 61% of financial services positions are at high risk of being replaced.
If you are in the financial services industry, maybe you should be thinking
about how you can keep from being automated out of a job.
The jobs we are creating? Think 800,000 waiters and bartenders
versus 100,000 manufacturing jobs. I have children who work in the food service
industry, and I can tell you they are making barely enough to provide for
themselves, let alone raise a family or save for retirement.
Officially, the US unemployment rate is 4.3%. There are 200,000+
manufacturing jobs that employers can’t find suitable, highly skilled
candidates to fill. Last year, the labor force participation rate declined by
another 0.2% to 62.7%. The employment-to-population ratio fell to 60%. Fewer of
us are working and making enough to actually be able to save for retirement.
In other words, I don’t think we can invest our way out of this.
The obvious answer – extend the retirement age – has the unwelcome side effect
of reducing job opportunities for younger workers. At some point that might be
okay if low birth rates create widespread worker shortages, but the adjustment
will take time.
The solution may turn out to be something presently unimaginable.
We don’t know where technology will take us and what opportunities it will
create. We also don’t know what political alliances can create. What if the
next time around we got not just President Bernie Sanders but a Bernie
Sanders-compatible House and Senate? Could we see a wealth tax in addition to a
whole slew of other taxes? Would our dear leaders be willing to tax your
retirement plan so that people without adequate savings could enjoy a more
pleasant retirement? Forget fairness to you as an individual, because they will
be arguing about fairness to everyone in the country. Yet today the Republican
majority refuses to consider instituting a value-added tax and lowering income
taxes and corporate taxes to very low levels. They could do this, because they
now have a majority. They are simply afraid of a VAT and are going to find
themselves in far less sympathetic hands in a future crisis.
What we do know is this: An unsustainable situation will not be
sustained. Retirement as we know it is unsustainable. It will give way to
something else, and maybe soon. Frustration is building in America because of
the problems I highlighted above, and we could well see an administration and
Congress that will push through a much less friendly VAT plus income tax
increases, not cuts.
Think it can’t happen? When your back is against the wall and
you’re down to your last few bullets and the enemy just keeps coming, you start
to very quickly consider all sorts of options. Within 10 years we are not only
going to be thinking the unthinkable, we will be doing the unthinkable. And not
just in the US but all over the world. The unthinkable will be coming to a
country near you, along with unbelievable science-fiction-grade technology.
Count on it.
A Wedding and the Virgin
Islands
I’m not doing much traveling this month until Shane and I go to
the Virgin Islands the last week of June. On Monday, June 26, she celebrates
her birthday. Since I asked her to marry me on her birthday last year, we are
going to get married on her birthday this year. Just the two of us on the
beach, and the rest of the week relaxing and thinking of the future together.
While this approach does allow me to only have to remember one important day
rather than two, I am informed by many friends that it does not relieve me of
the responsibility to buy two presents.
Shane and I have lived together for four years now, and she has
pretty much figured out how I operate. She has amazing forbearance and patience
– she not only puts up with my peripatetic lifestyle; she even allows me to
withdraw into my chair to read or to sit in front of my computer all day
writing. Not exactly the most exciting of activities.
We will stay in the Virgin Islands for eight days and then come
home to a full schedule. And I’m fully committed to begin to bring together the
various chapters of my book, The Age of Transformation. That project will
hopefully benefit from my new commitment to write fewer words per letter. Maybe
I can do that for a chapter or two of the book as well. The reality is that
each chapter could almost be a book of its own. I have to make sure I don’t get
carried away. The book will not be a deep dive but rather a sweeping pass over
the transformations that are coming to our world, not just technologically but also
socially, demographically, politically, and especially geopolitically. The
economic world will be turned upside down as we make decisions to do previously
unthinkable things to get clear of the enormous debt burdens and bubbles we
created.
And with that I must hit the send button. You have a great week.
Your determined to be more succinct analyst,
John Mauldin
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