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You Will Never Retire, Here's Why... - How Money Works

Mar 22, 2024
You pay attention in school, you study hard, you get a good job, you work diligently throughout your career, all so that one day you can relax and enjoy a nice, enjoyable

retire

ment. That's the story anyway. But it's not one that always lives up to reality. T

here

are countless stories of people with good jobs and diligent savings patterns who still need to work well into their twilight years. This is not to mention the people who unfortunately

never

have the privileges of a higher education or a stable career. Recent reports have found that less than 30% of American workers are on track to

retire

, and even fewer think they

will

have a comfortable retirement, and they might be right.
you will never retire here s why   how money works
I know you didn't want to hear this, but t

here

are some BIG factors at play in the world today that are going to act to keep most of the younger generations in the workforce indefinitely. All this is before considering the great setback that the covid 19 pandemic has caused. A global event that has actually contributed to widening the gap between younger generations with fewer assets and more precarious jobs, compared to older generations who tend to be safer. Now you might think you're different, you contribute to your 401k, save diligently, subscribe to How Money Works, and even invest regularly in the stock market.
you will never retire here s why   how money works

More Interesting Facts About,

you will never retire here s why how money works...

Well, that's all great, but I might still have bad news for you. There are a lot of issues at play here... housing, the stock market, and a host of broader economic conditions that could threaten the general assumptions we make about indefinite growth. So it's time to learn how

money

works

and find out why we'll all be in that rut until we're 120. So the first obvious culprit is housing. Acquiring a home has become a great challenge for most workers in the United States. I know this problem is nothing new, but there ARE still some very important factors that people don't consider.
you will never retire here s why   how money works
Even very high-income people who graduate from top universities and go into fields like banking or big tech tend to move to areas with similarly high costs of living like New York, Chicago, or San Francisco. Pew research recently reported that the majority of young adults between the ages of 18 and 30 now live at home with their parents. The average age of a first-time home buyer in 2019 was 34 years old and experts agree that it is almost inevitable that the pandemic

will

increase the number even further. What's more, younger buyers tend to purchase smaller homes, such as apartments and townhouses, rather than traditional detached family homes.
you will never retire here s why   how money works
Not because they don't want to, but because they can't afford it. This is a real problem because, as most financially secure people will tell you, your home is your greatest asset. This doesn't just mean that it is the asset they own that is worth the most

money

. Owning a home means you have no rental expenses, and even if you're paying a mortgage, those payments will at least partially help build equity in the home itself. What's more, once the mortgage is paid off, you'll have a place to live with very few ongoing costs. Retiring with a home means that even modest retirement savings or a pension can go a long way compared to someone who will have to stretch those payments to cover rent.
If a homeowner is running out of cash in retirement, it could be something as simple as downsizing their family home, a luxury that isn't possible for someone who hasn't paid off their home or doesn't own one. Now let's be generous and take this average age of 34 to buy a first home, add a 30-year mortgage and suddenly even this generous assumption that a normal young worker is around 60 and still paying off a loan mortgage. This assumes that this person

never

improves his house, renovates it, or does anything to increase his mortgage over the original one he took out for thirty years.
The particularly morbid among you might think, well, boomers have to die and eventually leave us their homes, right? And… well… yes, I guess as unpleasant as it is, it is a reality. The problem is that this will probably only exacerbate the problem. We saw this in our video on why family fortunes disappear: inheritances that could actually fund a retirement tend to go to people who are already quite old and wealthy. Now again the issue of unaffordable housing is a debate as old as modern capitalism, but maybe this isn't a problem anyway, maybe you don't worry just yet because you plan to have fun in your retirement even without a house of your own Well, okay, let's put those plans to the test...
The stock market is the other important vehicle by which witches finance their retirement. Even fixed income pension funds ultimately rely on the growth of these markets to provide income to their members when they retire, but this assumption of infinite returns may be under threat. To understand why consider a simple example. Ten lumberjacks work in a sawmill that makes structures for homes. At the moment the loggers only use basic hand tools, but if everyone

works

hard and no one slacks off, they will reach their quotas. A particularly clever lumberjack takes a portion of her salary and eventually uses it to fund research into power tools.
His money was well spent because he finally invented the table saw. He then saves some more of his money to buy the materials needed to build 9 copies of his new gadget. He then hands these 9 table saws to his colleagues who had previously been using those hand tools. This increases his productivity enough that he can meet his quota even if the first lumberjack doesn't show up for work. This is what we call capital investment and this is how (at least in theory) we can sustainably fund people's retirements. The same number of frames are made, the other 9 lumberjacks do not need to work longer and harder, and the first lumberjack has been adequately rewarded for his creation with a nice, comfortable retirement.
Of course, this is a very crude example, but in reality most people do the same thing through the stock market. Businesses raise money and then use it to purchase capital goods that will allow their workers to produce goods and services for the economy effectively and efficiently. But let's go back to our oversimplified example. Problems start to arise when more of these lumberjacks have the same bright idea. One could invest in a forklift to make the work of nine men possible with only eight, and then another could do the same with nail guns to make the work of the remaining 8 men possible with only seven and so on and so forth...
But each time If this happens, it becomes a little more difficult to find the next thing. Eventually you will need an almost completely automated production line and even then you will probably want at least one worker to supervise this operation. Every human being taken out of the equation and replaced with a piece of capital becomes increasingly more expensive, especially compared to other alternative investments. Let's say lumberjack 5 will need to invest millions of dollars in a robotic arm in order to effectively retire while ensuring the sawmill quota is met. I could just say it: What I'll do instead is buy the factory and require the four remaining workers to work an extra 10 hours a week to compensate for my work while I retire.
Now this guy sounds like a____, but think about it, how many hours a week do you work at your job just to cover the rent? This investment in non-productive assets (as in assets that don't actually help add value) is a major obstacle. Now, the classic example of a non-productive asset is something like gold, bitcoins, Pokémon cards, and of course real estate. Now, real estate is strange because, unlike other non-productive assets, it does produce income without having to sell it. It does this through rent. Investing in real estate has been a particularly attractive investment for many people because it does two things: it increases the price of real estate, which causes more problems like we saw in the first part of this video, but it detracts from the value of the investments. on the types of productive assets that CAN sustainably finance retirements.
There is also another problem beyond this...overinflation of ALL asset markets. Let's look at our original example of those table saws. They were machines that made cut pieces of wood, let's say they can cut 20 pieces each per day. Now let's replace those table saws with stocks, which are effectively machines for making money in the form of dividends. Let's say each share generates $20 a day. In both examples, the lumberjack would need to own 9 of each to fund his retirement, 180 pieces of wood would replace his job at the sawmill, and $180 a day would replace his income, so either works fine.
Now, counterintuitively, problems arise when these assets become more expensive. Most people think that rising stock prices are a good thing, and it is... for the people who already own them... Imagine each stock is trading at $10,000... Saving $90,000 is a pretty difficult task. for a lumberjack on $180 a day, but it is certainly possible over the course of a working career. Now imagine that same stock is trading at $100,000 and at the same time paying the same daily dividend of $20. If you already owned this stock, you would feel great because your paper net worth has grown tremendously, but our lumberjack now has to buy $900,000 worth of stock to fund his retirement, which is not realistically possible within his career. labor.
Now this may seem like a far-fetched example, but it's not! It is exactly what is happening today. To see this, let's look at the price-earnings ratio of the S&P 500 (a collection of the 500 largest public companies in the United States). It has historically hovered around a multiple of 15, meaning that on average it would take 15 years for earnings from these stocks to pay for the stock itself. Today, that multiple sits just below 50 years, which is the second highest in history, trailing only the end of 2008, which as everyone knows was a time of widespread economic prosperity. In layman's terms, this means that people are going to need to invest 3 times as much to fund their retirement or rely on the next biggest idiot to buy their shares in retirement for a multiple of 100 times, a multiple of 200 times, a multiple of 1000 times... which, by the way, certain investors are already doing with some stocks.
Now you could say, well, stocks aren't like table saws with fixed outputs. These dividends can and probably will increase in the future, right? And sure, that's almost guaranteed, but it's still unlikely that we'll see a widespread PE ratio below 20 again for two reasons. 1. If a company DOES start paying a consistently high dividend relative to its market price, then investors will buy it, driving up the price, meaning it will no longer be a great business. Market forces are bullshit. The second reason is a little more complicated, but it genuinely worries some leading economists... Robert J. Gordan is an American economist who published this article in the National Bureau of Economic Research.
Is economic growth in the United States over? Faltering innovation faces six headwinds. This is a fantastic article that is surprisingly readable even for people without a strong economic background. But spoiler alert, Gordon basically argues that the last 200 years of innovation and economic growth were more of an exception than the rule that we should continue to expect indefinitely into the future. Unlimited growth in a finite world... you do the math. Gordon basically argues that this generation is the fifth lumberjack, that all the easy innovations that dramatically improve productivity have already been made, and even incremental improvements from now on will be very costly or simply rent-seeking in nature.
Working harder to change value in a new and creative way is more than working to create it. If this rather bleak outlook were not enough, Gordan argued that this would coincide with what he described as the six economic headwinds. These are forces that will act to slow the growth of economies around the world for at least the next 100 years. These headwinds are: The loss of the demographic dividend. Basically, the economy got a big boost when women began entering the workforce between the 1960s and 1990s. Now most women in developed countries work in a career.professional similar to that of their male counterparts, but that's simply the status quo now.
We'll never be able to double the workforce again, unless... you know... we make people work later and later in their lives. The second obstacle is the loss of educational achievements, especially in the United States. Education is becoming more expensive, less comprehensive, and increasingly irrelevant to the needs of the modern workforce. A three-year degree simply doesn't mean as much as it did 50 years ago, either to an individual or to the economy as a whole. The third hurdle is rising inequality, a sensitive topic at the best of times, but Gordan was surprisingly pragmatic in his approach to the issue.
The document indicates that income increases on average around 1.3 percent annually. But that growth was largely focused on the top 1%; the remaining 99 percent actually only saw revenue growth of about 0.75% year over year. Not even enough to keep pace with inflation. That means that if this trend continues, it will be inevitable that larger and larger groups of workers simply will not have the financial means to save for retirement. However, if you are in the top 1%, congratulations, you can say nananana, your video title is wrong in the comments section. The fourth obstacle is the impact of globalization. Now, in theory, globalization should make everyone richer, and on “average” it does, but averages have outliers, and those outliers in this case will be national workforces that have historically enjoyed high incomes. in relation to the rest of the world, as we will probably say.
You Watching. The other side of this equation is that it should match global wages, meaning it's great for people in countries that have typically had low incomes compared to the global average, oh, and of course, business owners who can benefit. of cheap labor along the way. The fifth headwind is energy and the environment. The growth of the last century was fueled by fossil fuels. An incredibly efficient, cheap and easily transportable source of energy that could power anything from cars to airplanes. But of course, they are a finite resource that has come at a cost. This cost will now be borne by younger generations, either in the form of environmental regulations that slow industrial production, or through total environmental collapse that will also slow production.
The last obstacle is debt. Household debt, government debt, corporate debt, all have been growing steadily over the years and eventually need to be paid off, which will ultimately result in the need for more income or less spending. . For the government, producing more income is easy, they simply charge more taxes, but for individuals and businesses the only option they might have is to spend less. If someone is already on a tight budget, then those regular contributions to a retirement account could be what ends up being sacrificed. Gordon presented a likely outcome to alleviate this sixth problem for all parties, and you may be able to guess what it is.
Yes, delaying the retirement age... Now if all of this has been a little bleak for you and you still think you're going to make millions overnight, then good for you, I'm going to have to work harder to crush your spirit next time. But until then, you should learn what to do with your overnight fortune by watching our video on what exactly you should do if you suddenly make a lot of money. Of course, the first step will always be to like and subscribe to continue learning how money works.

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