Extreme risks matter and they deserve more attention than given thus far. As a consequence, retirement for the masses is at serious risk, at least in terms of current expectations regarding length, quality of life, and degree of financial freedom. Alternatively, retirement as currently configured probably was never affordable, but this fact was obscured by demographic and debt trends over the past half century.
The paper questions whether retirement in the modern sense is sustainable or a passing anomaly. Our review of extreme risks casts doubt on society’s ability to defer sufficient current consumption to fund future consumption. A simple model of a retirement system where individuals work for 45 years, set aside 10% of earnings, and earn a real return of 3.5% each year, implies that they could live 21 years without working (Towers Watson 2012). But all the assumptions embedded in this model require the household to build up a pension or assets worth just over 10 times annual earnings, by the retirement date. If the population were distributed evenly by age, this would mean the economy would need to accumulate steady state pension wealth equal to 4.7 times total earnings, or around 235% of GDP.