5 ms·

Tontines don't solve the elephant in the room, which is that people are substantially undersaving for retirement. There exists no financial innovation which wi

by patio11 11y ago

Tontines don't solve the elephant in the room, which is that people are substantially undersaving for retirement. There exists no financial innovation which will provide for fully-funded retirements for 100 retirees each having $100k to invest. (Sourced below.) There is no way to slice that pool of $10 million in such a way that it increases the NPV of it to more than $10 million. It's underfunded by a factor of 10. >> The agency found the median amount of those savings is about $104,000 for households with members between 55 and 64 years old[.] http://www.cnbc.com/2015/06/03/most-older-americans-fall-short-on-retirement-savings.html http://www.cnbc.com/2015/06/03/most-older-americans-fall-sho...

aianus 11y ago
> There exists no financial innovation which will provide for fully-funded retirements for 100 retirees each having $100k to invest. You could start a retirement community in a third world African country where costs are lower. $100k is stretching it but $250k and they'd be fine for the rest of their lives.
- Apofis 11y ago
  Ship old people to Cuba, now that we're removing restrictions. Cuba will be the new Florida.
  - tsotha 11y ago
    Why not? Florida was the new Cuba after the revolution.
- joshuaheard 11y ago
  Isn't that the plot of The Best Exotic Marigold Hotel?
zeveb 11y ago
> Tontines don't solve the elephant in the room, which is that people are substantially undersaving for retirement. If they encourage people to save more, then they'll reduce the problem. They won't, however, solve the problem that people are simply spending too much. I don't know if anything can.
nostrademons 11y ago
Sure there is: deflation. Increase the value of money by 10x and suddenly that $100K is plenty. Only problem is that anyone holding debt will end up bankrupt...which will just drive further deflation.
ForHackernews 11y ago
> There exists no financial innovation which will provide for fully-funded retirements for 100 retirees each having $100k to invest. (Sourced below.) Sure there is! Nationalized sovereign wealth funds. Norway's has over $1.6 million available per citizen: https://en.wikipedia.org/wiki/Sovereign_wealth_fund#Largest_sovereign_wealth_funds https://en.wikipedia.org/wiki/Sovereign_wealth_fund#Largest_...
- aianus 11y ago
  Striking oil is hardly a financial innovation. Norway just happened to hit the lotto and manage the wealth responsibly, they don't have a real economy.
  - ForHackernews 11y ago
    Managing the wealth responsibly is the innovative part. Most countries with oil wealth piss it away or use it to enrich a tiny elite. American has loads of money (including a not insignificant amount from fossil fuels). If we chose to do so, we could manage that wealth in trust for our citizens. Instead, we choose to make a few executives and hedge fund managers mind-boggling rich.
    - aianus 11y ago
      Well, I see your point. But you can at least argue that the executives and hedge fund managers 'earned' their wealth and shouldn't have it taken away from them. Nobody can argue that there was any kind of personal merit in the fact that oil happened to be found within their national boundaries. It's much easier politically to create a national wealth fund from a windfall like that.
    - tsotha 11y ago
      America doesn't have loads of money. Individuals living here have money. There's a big difference.
Gibbon1 11y ago
This is basically social security. Less well known as Old-Age, Survivors, and Disability Insurance. Which is funded by the Federal Insurance Contributions Act tax. Careful readers will note the word 'Insurance' because that's what social security is. Insurance against living longer than your savings hold out. Economists are funny. Soon as something is a government run program they're dead set against it.
mikeash 11y ago
I personally find the whole question of savings to be a bit misdirected. Very little economic activity can be bottled up and saved for years. Money fools us into thinking in this way because you can save money for a long time and then use it, but that's really just a promise from the rest of society that they will eventually do something for you in exchange for what you previously did for them. A certain amount of economic activity has to go towards supporting people in their old age, in order to supply them with food and housing and medical care and whatever else. Money is just how you convince working people to do all these things for retirees. It matters less where the money comes from, and more how much of the overall economy that encompasses, and what that means for non-retired people. First-world countries are seeing massive demographic shifts towards old age, which means vastly more economic activity must go towards sustaining the retired, which means less resources available for other activities like building airliners, mining coal, or filing TPS reports. Either the economy needs to grow a lot, or some group is going to have to get by with less.
- lisa_henderson 11y ago
  About this: "Very little economic activity can be bottled up and saved for years." That might have been true for hunter-gatherer societies, 10,000 years ago, but since the advent of agriculture, and especially irrigation, human societies have been increasingly dependent on the build up of capital to support an ever more sophisticated civilization. 2,000 years ago, that capital took the form of roads, canals, breakwaters for ports, dykes, walls, structures and, especially, large scale irrigation projects. Modern societies rely on the build up of capital to a much greater extent -- certainly more than I can list in a comment. The capital has been accrued over many decades -- I once read an article in Scientific American that the housing stock of modern Western societies runs on a cycle of about 80 years. The modern build up of capital, on which we depend, would include every form of infrastructure that you could think of, including space-age items such as communication satellites, plus many types that may not be immediately obvious. Somewhere in the world, each generation must suppress some of its consumption so as to contribute to the accumulation of long-term capital. It used to be that savings were mostly confined to the nation in which they were originated, but of course, over the last 50 years we've seen the globalization of savings, and we've seen vast distortions to the global system, thanks to some countries, such as China, whose government engaged in the systematic suppression of consumption, leading to what Ben Bernanke described as a "global savings glut". Contrary to what you said, a great deal of economic activity can be bottled up and saved for years. Just because we live in an era in which there was too much saving and too little consumption does not mean that, in the long term, saving is unimportant. If by "economic activity" you mean activity that supports current consumption, then this is exactly backwards: "First-world countries are seeing massive demographic shifts towards old age, which means vastly more economic activity must go towards sustaining the retired" The opposite is true: First-world countries are seeing massive demographic shifts towards old age, therefore the need to raise productivity is more urgent than ever. In the USA, 70 years ago, there were 10 workers for every 1 retired person. In 20 years, there will be 2 workers for every 1 retired person. There we need to see a 500% increase in productivity, over 90 years (measured from 70 years ago), to ensure that everyone can continue to enjoy the same quality of life. In the past, the accumulation of capital played a large role in raising productivity, and therefore in the future capital might again play a large role in raising productivity. A vast campaign of investment is necessary, to raise productivity. Such a campaign is made easy in the current era thanks to the the low interest rates that were made possible via the global savings glut.

by patio11 11y ago

aianus 11y ago

> There exists no financial innovation which will provide for fully-funded retirements for 100 retirees each having $100k to invest. You could start a retirement community in a third world African country where costs are lower. $100k is stretching it but $250k and they'd be fine for the rest of their lives.

Apofis 11y ago
Ship old people to Cuba, now that we're removing restrictions. Cuba will be the new Florida.
- tsotha 11y ago
  Why not? Florida was the new Cuba after the revolution.
joshuaheard 11y ago
Isn't that the plot of The Best Exotic Marigold Hotel?

zeveb 11y ago

> Tontines don't solve the elephant in the room, which is that people are substantially undersaving for retirement. If they encourage people to save more, then they'll reduce the problem. They won't, however, solve the problem that people are simply spending too much. I don't know if anything can.

nostrademons 11y ago

Sure there is: deflation. Increase the value of money by 10x and suddenly that $100K is plenty. Only problem is that anyone holding debt will end up bankrupt...which will just drive further deflation.

ForHackernews 11y ago

> There exists no financial innovation which will provide for fully-funded retirements for 100 retirees each having $100k to invest. (Sourced below.) Sure there is! Nationalized sovereign wealth funds. Norway's has over $1.6 million available per citizen: https://en.wikipedia.org/wiki/Sovereign_wealth_fund#Largest_sovereign_wealth_funds https://en.wikipedia.org/wiki/Sovereign_wealth_fund#Largest_...

aianus 11y ago
Striking oil is hardly a financial innovation. Norway just happened to hit the lotto and manage the wealth responsibly, they don't have a real economy.
- ForHackernews 11y ago
  Managing the wealth responsibly is the innovative part. Most countries with oil wealth piss it away or use it to enrich a tiny elite. American has loads of money (including a not insignificant amount from fossil fuels). If we chose to do so, we could manage that wealth in trust for our citizens. Instead, we choose to make a few executives and hedge fund managers mind-boggling rich.
  - aianus 11y ago
    Well, I see your point. But you can at least argue that the executives and hedge fund managers 'earned' their wealth and shouldn't have it taken away from them. Nobody can argue that there was any kind of personal merit in the fact that oil happened to be found within their national boundaries. It's much easier politically to create a national wealth fund from a windfall like that.
  - tsotha 11y ago
    America doesn't have loads of money. Individuals living here have money. There's a big difference.

Gibbon1 11y ago

This is basically social security. Less well known as Old-Age, Survivors, and Disability Insurance. Which is funded by the Federal Insurance Contributions Act tax. Careful readers will note the word 'Insurance' because that's what social security is. Insurance against living longer than your savings hold out. Economists are funny. Soon as something is a government run program they're dead set against it.

mikeash 11y ago

I personally find the whole question of savings to be a bit misdirected. Very little economic activity can be bottled up and saved for years. Money fools us into thinking in this way because you can save money for a long time and then use it, but that's really just a promise from the rest of society that they will eventually do something for you in exchange for what you previously did for them. A certain amount of economic activity has to go towards supporting people in their old age, in order to supply them with food and housing and medical care and whatever else. Money is just how you convince working people to do all these things for retirees. It matters less where the money comes from, and more how much of the overall economy that encompasses, and what that means for non-retired people. First-world countries are seeing massive demographic shifts towards old age, which means vastly more economic activity must go towards sustaining the retired, which means less resources available for other activities like building airliners, mining coal, or filing TPS reports. Either the economy needs to grow a lot, or some group is going to have to get by with less.

lisa_henderson 11y ago
About this: "Very little economic activity can be bottled up and saved for years." That might have been true for hunter-gatherer societies, 10,000 years ago, but since the advent of agriculture, and especially irrigation, human societies have been increasingly dependent on the build up of capital to support an ever more sophisticated civilization. 2,000 years ago, that capital took the form of roads, canals, breakwaters for ports, dykes, walls, structures and, especially, large scale irrigation projects. Modern societies rely on the build up of capital to a much greater extent -- certainly more than I can list in a comment. The capital has been accrued over many decades -- I once read an article in Scientific American that the housing stock of modern Western societies runs on a cycle of about 80 years. The modern build up of capital, on which we depend, would include every form of infrastructure that you could think of, including space-age items such as communication satellites, plus many types that may not be immediately obvious. Somewhere in the world, each generation must suppress some of its consumption so as to contribute to the accumulation of long-term capital. It used to be that savings were mostly confined to the nation in which they were originated, but of course, over the last 50 years we've seen the globalization of savings, and we've seen vast distortions to the global system, thanks to some countries, such as China, whose government engaged in the systematic suppression of consumption, leading to what Ben Bernanke described as a "global savings glut". Contrary to what you said, a great deal of economic activity can be bottled up and saved for years. Just because we live in an era in which there was too much saving and too little consumption does not mean that, in the long term, saving is unimportant. If by "economic activity" you mean activity that supports current consumption, then this is exactly backwards: "First-world countries are seeing massive demographic shifts towards old age, which means vastly more economic activity must go towards sustaining the retired" The opposite is true: First-world countries are seeing massive demographic shifts towards old age, therefore the need to raise productivity is more urgent than ever. In the USA, 70 years ago, there were 10 workers for every 1 retired person. In 20 years, there will be 2 workers for every 1 retired person. There we need to see a 500% increase in productivity, over 90 years (measured from 70 years ago), to ensure that everyone can continue to enjoy the same quality of life. In the past, the accumulation of capital played a large role in raising productivity, and therefore in the future capital might again play a large role in raising productivity. A vast campaign of investment is necessary, to raise productivity. Such a campaign is made easy in the current era thanks to the the low interest rates that were made possible via the global savings glut.