AQUATER PAPER 1.4 THE GRADUAL USING UP OF OUR RETIREMENT FUNDS

The Problem

Because we are living longer and longer, we (or our employers) are not making enough retirement payments during our working lifetimes to cover our retirement incomes after we retire until we die. Until recently, this problem was not important, because there were many workers for each retiree, so the shortfall in one generation’s retirement fund usage could be made up by the excess in the next generation’s payments from these excess workers. Now, however, the number of workers for each retiree is dropping toward 2 to 1, and that ratio is not enough to cover the retiree’s retirement payments. In addition, new advances in medicine are extending life and making this problem even worse. Some researchers are even talking about extending life to 120 years. If this is accomplished, we must begin to discuss how we can provide purpose and meaning to such a long life as well as providing retirement income. In this paper, a possible solution to these problems will be discussed.

The Evidence

This problem is not controversial. All observers in the field agree that the problem is real. There are a number of retirement funds (both public and private and including Social Security) that either are in trouble now, or will go bankrupt within the next few decades. Also, more and more people are living beyond the age of 100 years, and many of these are complaining about what to do with their time. One recently summarized the problem by saying “you can only play so many rounds of golf without getting bored”.

 Is Action Required?

There is no question that something must be done. All recent analyses indicate that current practices cannot continue. Most retirement funds will go bankrupt within a few decades. Also, most people are counting on these funds for support when they retire, and they can expect to live into their 80’s, 90’s and 100’s. Very few save enough to support their retirement.

 The Solution

There are three possible solutions to this problem.

  • Increase the contributions of the current, working generation to provide support for the older generation, or reduce the retirement payments (For example, raise the Social Security tax, or reduce the payments.)
  • Increase the retirement age, so a smaller number of retirees are being supported, and a greater number are still working. (For example, increase the retirement age for Social Security.)
  • Reduce the size of the retired group entitled to receive benefits without reducing the number contributing to the fund. (For example, find attractive jobs for the retired.)

There are limits to our ability to use each of these remedies. Specifically:

  • There is a limit to how much tax and retirement contribution people are willing to pay. Experience has taught that if taxes are too high, people stop working and exit the normal, taxable economic system. There is too little incentive to work. Current evidence shows that a tax of ~60% or more causes a significant number of people to stop working and either retire or find a way to live without showing income that can be taxed. In Manhattan, for example, this edge was probed, with a resultant reduction in the work force. Many locations are gradually approaching the 50% mark. As an example, in California, the sum of the top federal and state income tax levels, social security tax, and sales tax exceeds 50% for a typical middle class couple. Thus we are perilously close to the limit of tax people will pay. Also, there is a bottom limit to the retirement payment people can live on. This is called the poverty level. Thus, payments cannot be reduced too much.
  • There is a limit to how much the retirement age can be raised, or people will opt out of the retirement system. People have to believe that they can retire early enough to be able to enjoy 5 to 10 years of retirement while still in good health. On average, we die sometime between 79 years old (men) and 83 years old (women). We begin to lose our health, on average, about 5 years before that (74-78). Thus, if we want 5 to 10 years of retirement while in good health (which most do), we must retire at age 65 to 70. Right now, most expect to be able to retire between 65 and 67. Thus we are close to the maximum retirement age people will accept.
  • Thus we come down to the last alternative. Is there a way to reduce the size of the group entitled to retirement pay without reducing the number paying into the retirement fund? The answer is yes. There is a life style just now coming on line that provides a means of inexpensive travel and entertainment, pays for food and housing and gives a modest cash profit that can be taxed, and this life style is well suited to people getting ready to retire. It also provides a means of participating actively in life and thus providing a new purpose for the retirement years. It is life on the sea operating a vessel called a SEMAN (see AP1.0 ). This vessel allows one to make fresh water, grow food and harvest energy for sale on land. One can travel to any place near the ocean for free, and enjoy all the electronic entertainment a land dweller enjoys. These SEMAN can travel in groups (pods) to allow contact with friends. In addition, the SEMAN can sequester carbon dioxide and thus provide a service to civilization and a purpose to the life of the SEMAN owner and operator. A potential retiree could choose to have this life rather than retire on Social Security, and thus enjoy a good life without tapping the retirement fund if Social Security would provide aid in obtaining the SEMAN mortgage or obtaining a lease. In return, a portion of the profits from the SEMAN would come back to the Social Security fund as lease or mortgage payments. If the owner wishes to move off the ocean, or if the owner loses his or her health and must move to land, the SEMAN would revert back to the Social Security fund to be leased or sold to a new retiree. Social Security payments can then be relegated to a backup to be used when health fails for those who choose this life.

 It is not necessary for all or even a majority of people eligible for Social Security to choose life on the sea to make the Social Security fund solvent. It would be acceptable to start with a few percent choosing the life by 2025, and then gradually increasing the percentage over time as the fraction of retirees to workers increases. As the lifespan increases, the need for a purposeful retirement will become more evident, and a life that provides environmental improvement, green energy, food and clean water for mankind will be more appealing. It is believed that eventually a significant number of potential retirees (~10-20%) will choose the lifestyle obtained on a SEMAN rather than immediate retirement inactivity and thus reduce the pressure on the Social Security and other retirement funds. Even if the potential retiree started out as a SEMAN owner, he or she may choose to remain on the SEMAN until his or her health fails and thus not require Social Security until then. If enough people choose this life, the Social Security fund would remain solvent for another 30 to 50 years, and, with some adjustment in the rules of retirement, the fund could be made solvent for the foreseeable future.

 Conclusions

Our retirement funds (including Social Security) cannot support the people who expect to use it. There are three ways to save these retirement funds, increase retirement payments, increase the retirement age, or reduce the size of the group entitled to retirement pay. The first two options have serious economic and political limitations. A way to implement the third is just now becoming available. A vessel called the SEMAN that harvests energy and grows food on the ocean will soon be available for potential retirees. It can operate for a profit and allow retirees to travel and vacation at the same time, and thus not need the retirement payments they would normally use. Since the SEMAN can provide a means of sequestering carbon dioxide to prevent global warming, it provides an essential service to mankind and a new purpose to the senior’s life. A potential retiree could choose to operate a SEMAN until his or her health fails rather than go on Social Security. Thus, for some, Social Security can be relegated to a back up to be used only when health fails later in life. 

 

Note

  1. The prototype SEMAN is about 90% complete. To see progress on the prototype, click on “SEMAN Prototype Update” on the home page of this site.
  2. To donate to help complete this prototype, click on “Add To Cart” on the home page.