Your Retirement Plan Is Doomed

A blog about business and economics.
Feb. 8 2013 2:02 PM

Immigration Is The Only Viable Retirement Plan

158994345
Elderly Syrian womem chat by the heater in the living room of the St Elie Rest Home, founded in 1863, in Aleppo on January 02, 2013.

Photo by JM LOPEZ/AFP/Getty Images

One view about retirement in America says that population aging means we need to cut Social Security benefits. One view about retirement in America says that defined benefit pension programs are systematically underfunded and doomed. One view about retirement in America says the 401(k) experiment has failed and individuals don't have nearly enough money. Roughly speaking, I would say that these things are all true. And in fact, while there are pros and cons to all three ways of sustaining elderly people in their retired years, they're also facing the exact same underlying crisis: demographic shifts doom all retirement schemes.

We know the basic idea of savings from the fable of the grasshopper and the ant. The virtuous ant spends all summer stocking food away so he can eat in the winter. And good for him.

Advertisement

The problem a retired person faces is that while you can stockpile food, you can't stockpile human labor. And yet every modern person's consumption bundle consists primarily of services, and that's especially true for elderly people who need a lot of health care services and other assistance. So you can't just stockpile stuff for yourself, you need to stockpile a bunch of extra stuff that you can trade for labor in the future. For example, you might work and save and buy two houses. Then, when you're old, you can live in one house and let someone else live in the second house in exchange for taking care of you. That strategy works great as long as the population is rising rapidly, in which case the ratio of able-bodied workers to houses will be high so you'll be able to trade your spare house for lots of labor. But if the population is stagnant, your house isn't so valuable. If the population is actually shrinking, then one house is only going to be tradeable for a little labor. You, personally, can ameliorate this by saving enough to have two or three spare houses, but if society attempted to do that systematically the problem would only get worse.

In the real world, of course, people save through more sophisticated instruments. But the same problem arises. Stockpiling financial assets only helps if future people are going to want to buy a lot of financial assets. If the rate of population growth slows, your private savings plan faces the exact same problem as a pay-as-you-go public pension scheme like Social Security. Fewer people around to pay payroll taxes means fewer people around to sell your financial assets to. You're doomed.

What if people start having more children? It's too late for that. Even if it happens, it'll take decades for those babies to get through school and start earning enough money to want to buy financial assets. The only viable option, then, is to import adult human beings—immigrants—who'll want houses to live in, who will expand the labor supply, and who will expand the demand for capital goods. This solution won't work forever, since the trend toward population aging is global, but in the short term at least there are plenty of able-bodied adults who are eager to move here and work. Some of those able-bodied adults even have specialized skills in health care professions, and can directly increase the supply of the kind of labor that an aging America will need.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

TODAY IN SLATE

Foreigners

The World’s Politest Protesters

The Occupy Central demonstrators are courteous. That’s actually what makes them so dangerous.

The Religious Right Is Not Happy With Republicans  

The XX Factor
Oct. 1 2014 4:58 PM The Religious Right Is Not Happy With Republicans  

How Did the Royals Win Despite Bunting So Many Times? Bunting Is a Terrible Strategy.

Catacombs Where You Can Stroll Down Hallways Lined With Corpses

Homeland Is Good Again! For Now.

Crime

Operation Backbone

How White Boy Rick, a legendary Detroit cocaine dealer, helped the FBI uncover brazen police corruption.

Music

How Even an Old Hipster Can Age Gracefully

On their new albums, Leonard Cohen, Robert Plant, and Loudon Wainwright III show three ways.

The One Fact About Ebola That Should Calm You: It Spreads Slowly

Piper Kerman on Why She Dressed Like a Hitchcock Heroine for Her Prison Sentencing

Trending News Channel
Oct. 1 2014 1:25 PM Japanese Cheerleader Robots Balance and Roll Around on Balls
  News & Politics
Foreigners
Oct. 1 2014 6:41 PM The World’s Politest Protesters The Occupy Central demonstrators are courteous. That’s actually what makes them so dangerous.
  Business
Moneybox
Oct. 1 2014 2:16 PM Wall Street Tackles Chat Services, Shies Away From Diversity Issues 
  Life
Outward
Oct. 1 2014 6:02 PM Facebook Relaxes Its “Real Name” Policy; Drag Queens Celebrate
  Double X
The XX Factor
Oct. 1 2014 5:11 PM Celebrity Feminist Identification Has Reached Peak Meaninglessness
  Slate Plus
Behind the Scenes
Oct. 1 2014 3:24 PM Revelry (and Business) at Mohonk Photos and highlights from Slate’s annual retreat.
  Arts
Brow Beat
Oct. 1 2014 6:39 PM Spoiler Special: Transparent
  Technology
Future Tense
Oct. 1 2014 6:59 PM EU’s Next Digital Commissioner Thinks Keeping Nude Celeb Photos in the Cloud Is “Stupid”
  Health & Science
Science
Oct. 1 2014 4:03 PM Does the Earth Really Have a “Hum”? Yes, but probably not the one you’re thinking.
  Sports
Sports Nut
Oct. 1 2014 5:19 PM Bunt-a-Palooza! How bad was the Kansas City Royals’ bunt-all-the-time strategy in the American League wild-card game?