Err… can you explain in more detail how social security works in Poland, and how it is pyramidal, or at least multi-level?
Every employee in Germany is required to pay a share of about 20% of their income (1) into the retirement „fund“ — which isn’t one really as the money is not invested to gain interest but instead is immediately payed out to the current generation of retirees. On the other hand, employees are promised to receive a future pension based on the payments by the next generation of employees (i.e. their kids). In Germany, this is called „Generationenvertrag“ („contract between generations“).
This is almost like a Ponzi/pyramid scheme where obscene „profits“ are payed out purely based on the exponentially growing number of payees until the day the growth stops and the system collapses like a house of cards.
This breakdown has been happening for decades already albeit at a glacial rate in the German public pension system as the population has been shrinking and therefore the number of payees. It is artificially kept alive as the German federal government pumps 100 billions of tax money every year into it which is 30% of the whole federal budget …
Of course, a redistributive pension system can sustain itself as long as the population age distribution looks like a literal pyramid. But that’s not the case for most Western countries.
(1) Formally, the employee pays only 10% and the other 10% are taken from the employer. But, of course, the employer could as well pay his 10% share as salary instead. So, either way, it’s the employee paying everything.
Now if we think about it for a moment: social security need money for 3 major things: unemployment, retirement, and health care. At any given point in time, you can divide the population in 2 categories: those who are currently working, and those who are not. And those who are currently working pay those who are not (gross oversimplification). The question is whether the workers pay enough money to sustain the idle.
Now health care and unemployment ought to be fairly constant (barring some major crisis), and you can have rules so people don’t abuse the system too much. So no pyramid there: we adjust how much workers pay for health and unemployment and that’s the end of it.
Retirement however is subject to longer term variation because of that age pyramid. And at a time where we have boomers retiring, we have less working people to sustain them all. And it’s made quite worse when the salaries of the working people don’t even keep up with inflation. We could have solved this by having an exponentially growing population, but that is bound to crash at one point.
So okay, I understand the pyramid analogy there. There’s a problem though: the boomers will die. Population will eventually get over that hump, and we’ll have a more reasonable proportion of working & retired people again. So the temporary deficit is just that: temporary.
And if that’s not enough, there’s something simple we can do to solve the problem. It’s so obvious that (at least in France) people don’t even dare utter it on national television: just raise contributions a little bit.
But no, doing this is so unthinkable that our rulers would rather have people retire later. Which won’t work, because of structural unemployment. So what we’ll have instead is lower pensions, and an increased reliance on pension funds.
There’s a snag however: pension funds are actually a form of redistributive system. Because redistributive systems are the only system there can ever be. See, even though you’re ostensibly investing money so you can retire later, what happens in practice is that your money is being injected in parts of the economy to fuel your investment. And ultimately, part of that money will be used to pay currently retired people. And when you retire, and the time comes to get your money back, you won’t get your money from a frozen value store. You’ll get it from the current economy, be it interest rates from your investments or currently paying people. However you cut it, your pension has to be taken from the current economy, and the only way you get paid is if your pension fund (and by extension the whole economy), can support it.
I’d rather have an explicitly redistributive system, it’s more honest that way.
On one end of the spectrum, you have personal and "defined contribution" saving and investment schemes: the individual carries a personal pool into their later years where they draw it down. How are differences between the contribution+performance and lifetime needs reconciled? Estates pass inheritances or individuals are bankrupt and we recursively ask ourselves what sort of system will cover their needs.
In the middle, you have what I think you want. An insurance pool redistributes the contributions, performance, and needs among a cohort. How are the aggregate assets and lifetime needs of the cohort reconciled? Contributions could be curtailed in response to excess accumulation or increased to cope with unexpected needs. Like any insurance scheme, the risk management has complexity around managing liquidity in the face of time-varying needs, contributions, and investment/economic performance.
But what skeptics see is an ugly reality unfolding further down that spectrum. Population growth and the long delay between contribution and withdrawal is (either naively or willfully) misinterpreted as excess accumulation. This is used to justify either insufficient contribution or "theft" of assets to fund other initiatives than the insurance pool. This leaves a hollowed out pension systems with defined benefits that cannot be satisfied with their meager holdings. As with a Ponzi scheme, they appear to work while the incoming contributions from an ever growing cohort are used to pay outgoing benefits to an earlier, smaller subset of participants. They collapse when the participation rate fails to grow fast enough to meet the ever growing needs of the aging cohort.
Even if you save your retirement in a real estate, it's value is tightly correlated to amount of people in productive age when you try to sell it.
The only thing that can save one, is to start saving money early and give it to componding effect. Albert Einstein once said “Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn't, pays it”.
Anything else wont work because demographic at least for europe is bad.
The good information is that to make componding effect to work, crypto is much more compund effect friendly asset in the world. Of course, in the mean time you need to use your brain to not lose your priv key or being phished etc.
Good luck
If the future population does not drive a large enough economy, there are dwindling products and resources available to swap for all existing financial instruments. These real resources are things like clean water, food, medicine, shelter, energy, technology, and services which cannot be stored over a person's lifetime and then consumed decades later.
It seems to me that the instruments with meaningful value in this picture are those rooted in a right to capture future production. That is things like ownership shares in continuing business enterprises, industrial infrastructure, natural resources, buildings, and developed land for housing and commerce. Of course, infrastructure and buildings decay over time, but they do represent a kind of real stored value for a planned service lifetime.
An actual plan to take care of a shrinking population would need to think about how automation can increase the efficiency of production such that a smaller future generation can generate sufficient output to satisfy the needs of the whole population including the elder non-workers. To avoid the Ponzi threat or more generally the "musical chairs" game mode, this plan needs to accomodate continous, incremental decline. The important technological and cultural skills to operate this system need to be passed down to ensure continued production for all who remain alive.
In USA, social security and health care are different issues. SS can be patched up. Health care is on course to consume the entire federal budget.
Well, after the boomers have died, Generation X and the Millenials will demand their retirement package. The population age distribution will not become a pyramid with the next generations.
> just raise contributions a little bit
A little bit. Lol. In Germany the contributions are quite unpopular, too (and rightly so with 20% removed from your gross income), but the government just increased the tax subsidies over the years. Nowadays, they amount to about 30% of Germany‘s federal budget — on top of all the contributions. How much money do you think does a society need to pay for their retirees to make a redistributive pension system sustainable?
> See, even though you’re ostensibly investing money so you can retire later, what happens in practice is that your money is being injected in parts of the economy to fuel your investment. And ultimately, part of that money will be used to pay currently retired people.
No. You have a weird notion of how capital markets work. In a capital based system an individual saves for his retirement. Money is put aside every month and invested over a long time. The individual‘s money and its returns of investment are used to pay the pension.
You can make this a public system where everybody is forced to pay and even set up a national fund. It can be subsidied a little to support the poor when retiring.
This is how to render this system fair and sustainable.
My point is, you can't eat money. You can only exchange money for food. You can't heat your home with money. You can only pay for energy. You can't drive with money… well you get the idea.
So you're saving now so you can retire later. From an accounting perspective, sure, you increase a number there now, so you can decrease it later. What you cannot do is store actual food for several decades, accumulate enough energy for several decades, or store all the material you'll need several decades from now.
What you'll eat 20-30 years from now will not be taken from the current economy, it will be taken from the economy we'll have 20-30 years in the future. If there's no food there you will not eat, and that's the end of it. Maybe you'll have your money all right, but food will just have become too expensive for you to buy enough of it. (Now I talk at the individual level, but this is obviously a scale thing: some people will eat all right, just not everyone.)
Hence my argument that even capital markets ultimately are a form of redistribution. Because at some point, either the young work so the old can enjoy retirement, or we leave the old to fend for themselves. Or something between the two ends of that spectrum.
When you go from 10 active people to 1 retiree to 2 active people to 1 retiree, you can't solve a problem by increasing contributions by a little.
And no, investing money for retirement is absolutely different from spending it on the retirement.
I've addressed this remark here: https://news.ycombinator.com/item?id=31107334
I am not sure how it works in USA, but in Poland it's similar scheme as in Germany.
Pure Ponzi-like scheme, but if you decline to participate in it, then you go to fail for avoiding it.
Anyway, there are many more people who can join the crypto trend than polish Social Security system. Growth trajectory is downward, and only printing more many can save it from collapsing.