Over the last 150 years or so, numerous innovations have radically changed the way people live. You can tick off the list: electricity, the automobile, refrigeration, television, the Internet. Yet one innovation rarely makes those lists, even though it is just as significant if not more so: retirement.
The idea that people can stop working in their fifties or sixties and then enjoy 20+ years of relative leisure is actually quite new. For most of human history, the vast majority of people worked as long as they were physically able to – and died soon after. Retirement is possible now only because those other 20th-century innovations accelerated the division of labor and lifted us out of subsistence farming and living.
Our inventions often have a dark side that can come to haunt us. They may be applied to wage war… or to create reality TV. Are we going over to the dark side with retirement? Maybe not, but we’re certainly heading in that direction. And there’s nothing wrong with the idea of retirement, of course – the concept is a fabulous invention, helping to extend life and happiness. But retirement is made possible by a prior life of hard work and careful saving and investment. And the very funds that make retirement possible are dependent on growth of the economy. Without growth, retirement as we have come to know and love it will not work. Retirement will still be possible, of course – just not under the same conditions.
The zero interest rate and now negative interest rate policies of our central banks are gumming up the global retirement machinery. The Federal Reserve and other central banks have spent so many years subsidizing debt and punishing savings that it is now extremely difficult to guarantee future income streams at a reasonable present cost. And future income streams are the very heart and soul of retirement. Without adequate future income streams, retirement as we know it today is off the table.
Whether this sad fact is what the central bankers intended or not, it is indeed a fact, whether you are an individual saver or a trillion-dollar pension fund. Today we’ll examine how we have come to this unhappy point.
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