Seems like the core issue is that we have a system in place that only works when young >> old
Sort of maybe yes.
Even when you save up the cash up front, you live off return on the investments. Of course you can invest globally, but wherever you invest, you rely on there being a young productive workforce to generate said return on investment.
Ultimately, cash is a nice abstraction, but you need someone doing the actual doing - harvest food, run hospitals, fire stations etc. With many old people around, there's many people who need services (especially health) but few to run them.
Where you are better off is you ringfence the saved up cash for investments, ensuring you have more growth to finance the whole party when it comes to it. In principle the state can do it too, but it's often too tempting not to.
- Stocks are a melting ice cube selling to a perennially shrinking consumer base.
- Bonds offer low returns and suffer from credit risk due to the above. Do we really think Japan is good for their 2055 bonds, assuming no inflation or debasement?
- Property also faces challenges with a shrinking population. Rural Korea, Japan, Italy and other places are already full of housing and commercial buildings selling for $30k and they're all overpriced.
The truth is that there is no model of retirement -- not the state model, private investment model, or family model that works in a world where the population is shrinking 50-70% per generation.
Even worse, some young people will still take financial risks, their bets do not pay off, and they become the penniless old, who only have their own kids to look after them. These young people are now stacked with debt, having to pay off money they've never even seen. Again, worse economy, and more misery.
In the long term, society is shaped by its people. If enough people decide "I'll take care of myself, and others should do the same," then that's the society you get - one mistake or accident and your life is ruined. There's your personal responsibility, choose wisely.
It would be an immense cost on those transitional generations. It seems terrible for the economy. Workers now have to save more of their paychecks, but also need compounding growth on stocks to make retirement feasible.
Yes, having a system based solely on positive demography isn't any good. In fact, I would argue that the reverse of this scenario is much worse. No matter what some would like to pretend, ressources are finite on earth and if you have a population big enough that deplete them faster that they can be renewed/recycled it is not good.
In any case I think it's wrong to look at it as a purely economic problem. It seems logical that one should be accountable for one's own retirement.
Previously this was done by having kids, because regardless of the economic situation they could always build on what the parents had and it doesn't take much to support your elder (unless they want a luxurious lifestyle).
Part of the problem is that the old generations (especially the boomers) have re-routed ressource distribution to themselves and you have an overspending on the past at the expense of future building.
The incentive around the providence state and pensions were all wrong in the first place now people are surprised that the results are undesirable (usually the one who advocated for the system).