<retirement ages are not moving up as fast as longevity. not too many generations ago there was no such thing as "golden years". many people now retiring will be alive for another 30 or 40 years--an unheard-of length of retirement time just two decades ago.
and medical costs are rising so it is actually more expensive than ever to be old. hence people will need more retirement funds. >
Mucho, I retired at 40, [due to quitting a job to move back to Auckland] but worked for a couple of years in the 1993/1994 because I wasn't sure how things would go with investments.
Once investment returns exceed living expenses, the retired gain ground, even with increasing medical expenses in later years. 3% return on investment is quite a turbo boost over a few decades.
People used to retire at 65, had an overseas trip, showed everyone their slides when they came back, then died a couple of years later.
Now, people are all over the map in lifestyle, incomes and retirement ages, but living another dozen years. So, if they wish, the $10,000 they saved in their 20s, having earned returns for 3 more decades, can now sit there for another decade earning even more, compounding. The geriatric will still have years to spend it.
The risk of dying before spending money has gone way down over the past 50 years. As you said, most people prefer not to save, preferring to spend that money on fun stuff now [or more usually, simply waste it on making their equator a greater diameter and getting more chrome on their car - though they no doubt see that as fun in the absence of a rainy day].
I'm now 53. If I thought my actuarial risk of demise was that of the 1950s, or 1910s, I'd be increasing my spending rate dramatically and I'd need a return on investment much higher than the derisory 1.6% I'm currently getting on my US$.
I'd buy an annuity in case I was a lucky longevity type and get spending, fast.
But I believe that my probable time in cyberspace is another 30 years, not 17, so I'm looking for less return. If I'd been getting rotten low returns on investment over the decades, [Japanese rates for example], I'd have spent my money on things years earlier, [namely some holidays, a year or two off work with the family], and gone back to work later when the money ran down to 'rainy day' levels.
Because I knew that if I worked and saved, I'd be able to accumulate enough capital to take the rest of my life as vacation, it was worth working to achieve that because returns on investment were high.
If my life expectancy and return on investment was lower, I'd have put less emphasis on capital accumulation and more on living for the day. With accumulated capital, there is always the risk of losing it due to Chairman Mao coming along or any number of other issues. The greatest individual risk is dying without spending it. But fiat currency collapse is another major one. Holding cash for 30 years at 0.2% return is risky. Politicians will at least evaporate it by dilution and possibly destroy it.
Since everyone [statistically] is living longer, the effect is to make lower returns on investment acceptable in preference to living for the day and spending now.
Which is one reason I think historic P:Es are not a good guide to current NPVs and P:E "correct" levels.
Certainly, the historic P:Es are a good guide, so a P:E of 40 when the historic ratio is 15 seems excessive. It would take a LOT of years to make up that lost ground, even with other variables such as globalisation taken into account.
The feathers floating down to the ground is a good analogy, but misleading in the sense that the ground is not really fixed. Human lives are changing and what happens to us and what we choose to make happen is what determines the level of the ground which the feathers float to.
There was obviously a huge updraft in early Y2K and the feathers had been blown way up high and were going to come back to earth. The question is just where is the surface of the earth? It is NOT a British Standard P:E of 10. There is no Gravitational P:E Constant. It is as changeable as human lives and expectations. Which have changed a LOT! Especially in the wealthy investing world of the Dow, Nasdaq, Nikkei, Hang Seng and Shanghai exchanges. Bombay is coming.
There are 2 or 3 billion people still to enter the realm of P:Es and modern economies and ways of life instead of rural penury. China has made a dramatic start. Japan has had 50 years of dramatic progress which continue to now [despite the obvious glitches in the Nikkei and financial structure]. Singapore has gone from a hothouse dump to a wealthy country.
Once they've run out of suicide bombers, even the world of Mad Moslem Mullahs might enter the peace, light and harmony of CDMA and longevity-based P:E 30.
Mqurice |
