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Friday, 24 August 2012

PSB Latticework: On Demographics and Retirement

An updated, reorganized Latticework is now available, which in technical speak provides access to the deep structure of the blog and which, for us laymen, is a way of recycling old content. 

One of the more immediately relevant sections is On Demographics and Retirement, a ramble around the less than salubrious environs of our dangerously lax attitude to our later years.

The demographic trends, particularly in the developed world, lie towards an aging population: we're none of us getting any younger.  The original old age pension was set to ensure most people died before receiving it, as described in The End of the Age of Retirement.  Now most people live way past the state retirement age and are particularly active in protecting their rights.  Overall, as we saw in Looking for a Demographic Dividend, the swelling elderly aren't good for stockmarkets: it rather looks like falls in markets in Japan, the US and elsewhere are tied to the swelling elderly population who are mainly extracting their savings from the markets in order to do the things that old people do: plastic surgery and drinking too much (allegedly).  

One solution to this, and a potential investment target for those of us interested in emerging trends that will make us money (the majority, presumably) was discussed in A Yen for Yield and A Yen for Yield Redux.  The experiences of Japan's aging population showed a remarkable quest for yield, in order to bolster cash-strapped retirement pots leading to the widespread phenomena known as the yen carry trade, where elderly Japanese started investing in countries they couldn't even pronounce, much yet identify on a map.  This also showed that the falls in developed world markets do appear to be connected to demographic aging, and that we shouldn't expect a stockmarket recovery until 2025.

Of course, the answer to these problems is to save more, but there our behavioral biases come to the fore. In Retirees, Procrastinate at Your Peril we saw how various psychological problems lead to people failing to invest adequately for their futures: in many cases they fail to invest at all, partly because it's all too confusing and a lot easy to buy a new iPad now for immediate  gratification, than invest in a pension for the future.  Part of the reason for this was covered in Be Kind to an Old Person, Start With Yourself: many people can't relate their future selves to their current ones, so don't bother saving for those strangers.  Know thyself, indeed.

In fact you can predict, somewhat, who will behave responsibly when they get older through a test at three years old as described in The Secret of a Healthy Wealthy Life.  Meanwhile one solution to these mental problems was covered in Save More ... Tomorrow: but this comes at a price, namely the overriding of personal freedom in the name of a greater cause.  You may think this right, but it's not something to be accepted without debate.  Which, of course, it is.

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