No. of Recommendations: 8
...it's how much you save in relation to everyone else that counts.

I had been meaning to post this for several days, but just never got around to it. I heard Alan Greenspan's testimony before the Special Committee on Aging (U.S. Senate) on March 15th on the radio and one thing he said left an impression on me.

The bottom line in the success of all retirement programs is the availability of real resources at retirement. The financial systems associated with retirement plans facilitate the allocation of resources that supply retirement consumption of goods and services; they do not produce goods and services. A useful test of a retirement system for a society is whether it sets up realistic expectations as to the future availability of real resources and, hence, the capacity to deliver postwork consumption without overly burdening the standard of living of the working-age population.

You can read the rest of his testimony here:

http://www.federalreserve.gov/boarddocs/testimony/2005/20050315/default.htm

His basic point is that it doesn't really matter how much you save for retirement in absolute terms. What matters is how much you save in relation to your peers and how many real resources (food, clothing, shelter, luxury items) are available to distribute. The money you have in retirement determines what portion of those resources are available to you.

Perhaps to someone trained in economics, this would be common sense, but to me, trained in science/medicine, this is a revelation. All of this talk about "raising the standard of living in retirement" is really just rhetoric. How can anyone increase the amount of real resources by letting people save more money. If everyone has more money in retirement, the price of items will rise according to supply and demand and no one will benefit (isn't that the definition of inflation?).

Demographics suggest that the baby boomers are in for a tough time. Those who try to get by on social security alone will have to compete for limited resources with others who have saved money and can increase their personal allocation. Even those who have saved a modest amount will still have trouble as resource levels fall when large numbers of older workers begin to retire from productive work, either by choice or health reasons.

It seems that the only solution here is to be selfish. Survival of the fittest. Those that save the most, live the best. Almost makes you want to stop "spreading the word" about saving for retirement. What if everyone got the idea to save 1 million dollars for retirement and actually did it? That million that you scrimped and saved and invested carefully over the years would be worth essentially nothing as everyone else could bid up the prices of things that you want/need.

It's a conundrum.

Adenovir
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