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> This is vitally important because it means it's impossible for a significant percentage of people to retire early ...

Actually the ugly truth is that this impacts retirement at any age. Whatever way you're preparing retirement, if too many people retire at the same time they'll have to share a smaller pie overall because they'll live on wealth created by those still working, and the purchasing power of their retirement funds will necessarily be re-evaluated (or devalued) to reflect this aspect of reality.

cf. baby boomers.

The author hasn't missed the "what if everybody does that" scenario: http://www.mrmoneymustache.com/2012/04/09/what-if-everyone-b...

Bingo! This is why I find a lot of the economic debates frustrating. People think that money in the bank is like cans of pork and beans in storage. They don't realize it's just an earmark on the labor of some future person.

He's right that all savings are someone else's debt.

But, if that is your big sticking point, you can literally load up on the cans of pork and beans as your retirement fund.

"Savings account" is an abstraction for that, and it's important to realize how abstractions leak and fail, but for most people the abstraction is just fine.

Savings accounts are not abstractions for loading up on cans of pork and beans. If everyone simultaneously did that, then stopped working, everyone could still eat. If everyone put money into a savings account, then stopped working, they'd all starve. I think this is a deeply meaningful distinction. "Saving for retirement" in the modern financial sense is really more akin to having your kids take care of you when you can't work, except the transaction is severed from the familial unit and carried out in the market.

"If everyone put money into a savings account, then stopped working, they'd all starve."

And if everyone doesn't do that, there is a very good chance you can withdraw your money and buy some pork and beans.

Which is the point about leaky abstractions. Unless you believe there is a significant chance your scenario will play out, the distinction isn't very meaningful.

If everyone simultaneously did that

But, they won't. Not everyone is of the same age, for one. So, it's an abstraction that usually works.

Instead of accumulating pork bellies, you can accumulate pork belly futures. This is another abstraction. Not everyone can do this at once, either, but the price of pork belly futures will rise in response, telling people to stop accumulating so much of that good.

It feels like you are saying -- based on my experience talking with other people who think economics is just a sham, so perhaps I'm too sensitive to that and applying their thinking to you, unfairly -- that any savings are just a confidence game. This is what I'm arguing against.

I'm using the difference in edge case behavior to illustrate why I think the analogy is flawed. I don't think saving in a bank is just an abstraction for putting away non-perishable food. Not just that it's a leaky abstraction, but that it's the wrong abstraction. I think that distinction illustrates a deep difference between the two scenarios. "Saving" in the sense of storing away pork and beans is retrospective. How well you eat depends on how much you saved, but not on what else is going on. "Saving" in the financial sense is prospective. How well you eat depends heavily on what the future looks like.

That isn't to say that savings isn't an abstraction for something. Saving money in financial instruments isn't a "savings" game. It's a growth game. By saving, you make available capital. That capital goes towards growing the economy. Ideally, the growth in future production resulting from your capital offsets the share of production you take out in retirement. It's this element of growth that distinguishes financial savings from "savings" in the pork and beans sense.

"the transaction is severed from the familial unit and carried out in the market."

And this is one of the good things about a capitalist free market, it reaches certain efficiencies and spreads the risk (and rewards) across the whole economy (and all its participants).

There is not enough "pork and beans" any more than there is enough labor.

You do realize you've disproved your own point, right?

>>This is vitally important because it means it's impossible for a significant percentage of people to retire early unless the remaining workforce becomes correspondingly more productive<<

...

>>Arguably, that is already happening even without additional early retirees, simply because the increased average life expectancy (and thus the time people spend in retirement). Effectively, everyone is already doing an early retirement, compared to people 50 years ago.<<

Obviously the remaining workforce has become, and continues to become, correspondingly more productive. If you need another example of this, see 2008-2012. We lost millions of workers from employment ranks, and our GDP is currently higher than its ever been. Sure, past performance is no guaranty of future results, but I and many others believe this trend will only increase in the future. Fewer workers will be producing even more.

I haven't disproved my main point at all (returns from investment are ultimately funded by the working population) - just perhaps not given the proper weight to the caveat about increased productivity when talking about the effects.

However, fact is that most people's incomes have stagnated or decreased. The increased productivity is not quite enough to compensate for the increasing number of retirees and/or super rich (the article linked to by hudibras implies it's actually mainly the latter).

If you look at peoples' gross paycheck income, it appears to have stagnated, but much of this is due to the rising costs of healthcare. Incomes are effectively continuing to rise, it's just that much of that increase is being funneled into benefits rather than take home pay.

Then again, it's also important to bear in mind that most common investments are made in stocks and bonds, not in workers. In this case you're investing in companies and/or government securities, not employees, so falling incomes do not necessarily imply decreased ROI.

To some extent you are right: obviously someone has to do actual work, and not everyone can just make money on investing. That said, it's not a one to one correspondance: if more people are investing, that means there's more capital available for companies to build off of, which means it's easier to get a profitable company off the ground, which leads to more economic growth.

Or you can open your eyes and see the obvious fact: all productivity gains have been cashed by the top 1%.

You have no requirement to invest in your local economy - and indeed, most people invest globally. So while all investment is ultimately funded by the working population, the working population is expanding massively every year if you look at the global picture. In emerging economies in particular, the demand for capital is sky high and one hour of saved income for you can buy you 100 work hours elsewhere in the world.

To simplify: if you work 7 hours a day, but save 3 hours worth of income out of those 7 hours and invest it in a company in a developing economy, you could be purchasing 300 hours of economic activity. So by saving, you have actually worked 300 hours that day (without your capital, those 300 hours would not have been done at all), while if you did not save, there is only 7 hours of economic activity.

>most people's incomes have stagnated or decreased

We stopped the high taxes on the rich, let the minimum wage fall in real terms, and made several other policy decisions which have caused the shift to the rich.

It's not retirees pulling us down (except perhaps arguably in the last week or two or life, drumming up huge medical bills), it's rent seeking.

I think the impact of this phenomenon is partially mitigated by globalized finance, i.e. I can save/invest my money in countries with different demographic profiles than my own. Capital won't stay in countries where everyone is trying to retire early - it will flow to countries where it is relatively scarce and earns a higher return.

Of course this only delays the eventual development, unless you fancy perpetuating international class differences.

> unless the remaining workforce becomes correspondingly more productive.

It's not impossible. Everyone can just become poorer. That doesn't have to be a bad result when you consider just how wasteful most modern lives are.

The blog adresses this issue somewhere (it's been a while since I read it) and argues that the topic is so niche that it won't be applied by a significant percentage of people.

Whether that's true or not is another issue of course.

edit: An earlier (and I think better) blog on this is http://earlyretirementextreme.com/, which is now discontinued. (The author recommended reading Mr. Money Mustache instead.)

It's not discontinued. Jacob started up again, so if anybody wants to switch back to ERE, go for it.

The cool thing is that your statement can be 100% true and you can still retire early.

As you say, a significant fraction of the population can't. But you get to choose whether you want to be part of the smaller fraction who retire early, or whether you want to help those who are.

All you need do is not spend your entire paycheck each month. The rest will be taken care of by the (still) significant fraction of the population who do.

Unless it gets taken care of by the increasingly significant fraction of the population who has their lives extended for a few more years at any cost.

Ah, never mind then. So I guess the plan is to stop saving money now, since you've shown that compound interest is a fallacy? I'll get right on it.

No, the plan is to save money but not make too much assumptions on how far it will get you, and most importantly not make any decisions that make you completely dependant on your investment returns.

Sure, if you assume everyone just sits around twiddling their thumbs and going on vacations once they're retired. A large number of people end up continuing to be productive during retirement, but they choose "jobs" based on enjoyment rather than salary. With a free market and a global economy, I fail to see the potential dilemma large numbers of early retirees could cause.

Retirement != not working.

Shouldn't salary correspond to productivity in a free market, though? So the retirees will work in less productive jobs, on average.

It's an interesting question what it will do to the job market. I suppose it means it becomes pretty much impossible to find a joby that is both enjoyable and pays well because the retirees who don't care for the salary will drive that down.

> Shouldn't salary correspond to productivity in a free market, though?

Ideally, yes. In reality, that's rarely the case, which is why wealth distribution has become such an issue and incomes continue to rise for top earners while falling for those in the middle and bottom tiers.

>it's impossible for a significant percentage of people to retire early unless the remaining workforce becomes correspondingly more productive.

This is an important point that's often hand-waved away in discussions of retirement, future earnings, and the aging population. However, productivity IS improving and its effects over the long run dwarf all these concerns.

I think productivity improvements are difficult to "feel" because we all think about productivity in terms of our personal lives day-to-day, but not in the long term integrated over the entire economy. I certainly don't feel like I'm 16% more productive than I was 10 years ago, but that's because I'm in a different job category with more experience etc. But a hypothetical worker today doing the same job I did ten years ago probably is much more effective than I was.

Here's a good overview of productivity improvements: http://www.cepr.net/index.php/blogs/cepr-blog/the-nonsense-a...

Very interesting point from that article:

"Readers may rightly note than most workers have not see the gains of productivity growth over the last three decades, but this just highlights the importance of intra-generational distribution. The impact of battles over distribution of income within generations will dwarf the impact of battles over distribution between generation."

Don't the effects balance out? Production goes down because people are retiring early. But so does consumption because these early retirees are consuming less both while they are working and after they have retired. Supply & demand stay balanced at roughly the same place they were before.

This alludes to one of the key problems with central-bank managed credit: you don't get accurate price signals about how much real capital is currently available for investment.

The return on capital obviously does depend on the supply -- more supply should mean lower interest rates, exactly as you're describing, which is exactly what you want in order to keep the level of capital investment at a useful level, neither too high nor too low.

But when your dominant interest rates are chosen by committee and defended by central bank open market actions, all that price signalling doesn't happen. Investors of all kinds get false signals about the availability of capital throughout the economy, and you get clusters of malinvestment.

Yes, arguably. For instance, before we got increased life spans, a lot of people participated in early retirement too--e.g. dying of scarlet fever before they even made it into the work force. That side of the equation no longer happens.