The Cost of Living and the Economic Value of Babies

'Working forever' is not a sustainable retirement plan... What stage are you in?... One thing you must do before Doc's 'Retirement Wake-Up Call'... The cost of living and the economic value of babies... Save your spot for Doc's FREE event...

My dad just kept working and working...

I (Corey McLaughlin) wanted him to stop. But he continued going to meetings in the city, taking phone calls throughout the week, and generally staying glued to his computer in his home office at other times. (And this was long before COVID-19 spread across the globe.)

When people asked what my dad did, I said he was "semi-retired."

Today, I know this term – semi-retired – is a pretty common label for a lot of folks above "retirement age"... which in itself is something of a sliding scale. It's different for everyone.

In any case, if you are in or close to what you consider your retirement-age goal and either still work by choice (to stay active and engaged in the world – good on you)... or by necessity (to provide for yourself and your family)... you're ahead of many of your peers.

That's because a third group – which includes my dad – exists... I'm talking about people who are simply uncertain about their golden years.

These folks know there will be expenses... but they don't know for sure where the income will come from (aside from the Social Security checks they've been promised).

So they do what they've always done... They keep working.

Here's the thing, though – simply 'working forever' is not a sustainable retirement plan...

As much as we hate to admit it, Father Time – like Mother Nature – is undefeated...

We may want to work forever and be in great health until our time is up, but at least right now, I don't consider the chances of me being able to write for a living until my last bill is paid to be very high.

For one thing, people are living longer than ever before. With that comes all kinds of challenges, both physical and mental, that could end the ability to work... And even if you're generally in good health, it isn't guaranteed that you'll find enough work to make the necessary income to support the lifestyle to which you've become accustomed.

And if you're using our current retirement system as a guide, that's a big issue – because it isn't designed for people to live as long as today's projections show, or at least be able to afford it. As our colleague and Retirement Millionaire editor Dr. David "Doc" Eifrig wrote back in a classic January 10, 2018, Health & Wealth Bulletin essay...

In 1928, U.S. life expectancy was about 57 years.

Today, according to the Social Security Administration, folks turning 65 this year have an average life expectancy of 84.3 (men) or 86.6 (women). What's more, folks are living longer than ever. One in four 65-year-olds today will live past 90, and one in 10 will live past 95.

Considering most existing retirement plans assume you'll retire around 65 and live for another 20 years, this scenario is already a concern. And the situation gets more unclear if you consider this, as Doc said...

Someone who is 65 years old today is expected to live 20 additional years... to the age of 85. But when this 65-year-old was born, scientists expected him to only live to the age of 68. So right now, this typical retiree is already 17 years "ahead of the curve."

And as medical advancements continue, that number could grow even more... even faster.

The number of folks who make it past the age of 100 is expected to grow at a rate 20 times the total population by 2050, according to the U.S. National Institute on Aging.

It's no wonder that outliving one's retirement savings is the greatest fear of most people nearing retirement age (in addition to, as we said yesterday, inflation concerns).

In June 2020, even after the first round of stimulus checks, roughly 42% of Americans reported having less than $10,000 saved for retirement, according to a survey from personal finance website GOBankingRates. Now, imagine needing to spread that savings over 30 or 40 years... in a world where prices keep rising.

What if you're one of the folks who outlives your money? It's a well-reasoned worry...

As we mentioned in yesterday's Digest, Doc will roll out his 'Retirement Wake-Up Call' next week...

Doc plans to show folks in or near retirement the best places to put their money today... in order to create steady streams of income and to protect and grow their nest eggs. He'll also discuss the biggest "lie" you're being told about retirement today.

The event is totally free... And just for registering, you'll get an all-new report from Doc and his research team, plus a handful of other bonuses.

The action is set to begin next Wednesday, June 23, at 10 a.m. Eastern time. Be sure to sign up for the event right here.

We're excited to see what Doc and senior analyst Matt Weinschenk will say during the event. But before then, we urge you to consider doing one "homework" assignment...

This exercise won't take long – many of you have hopefully done it already – but it's essential so that you can take advantage of Doc's great recommendations. And even if you've already done this exercise before, now is as good of a time as any to revisit it.

Said another way... this is stuff that my dad overlooked. And it's why he just kept working and working with no end in sight.

The first key to stop worrying – and stop working – is to take action...

So your homework assignment is this... Make a plan. Hit the uncertainty head-on.

Nobody likes to do it, but Doc suggests the first thing any hopeful retiree should do is to make sure your money will last through retirement... and that starts with estimating your lifespan.

My dad's case is kind of funny, but also sadly true... He told me a few times that he thought he wouldn't live past 60, given family history, so he never really thought about how much retirement savings he would need.

Regardless of the grim pessimism in that outlook, going with the "under" on life expectancy isn't a great retirement plan. It isn't a bad idea to anticipate that you'll live longer than you think.

Once you've done this part of the homework, several other big decisions will get a lot easier...

We're talking about things like how much you need to save per month... or how much you can (or should) invest per year... and in which assets you'll invest in to manage risk and get a reasonable rate of income to boost your retirement nest egg.

From there, you can always adjust as circumstances change.

Next, you'll want to figure out what phase of retirement planning you're in...

As Doc wrote in his excellent Health & Wealth Bulletin essay back in 2018, there are three main phases of retirement planning. They are...

1. Accumulation – The accumulation phase is the time when you focus on growing your wealth and getting a general idea of how much money you'll need in retirement. You can do this through saving money, investing in the market, buying real estate, etc. It's never too early to start accumulating wealth. As we've said before, compounding is one of the most powerful tools you have to grow your wealth, especially when you've got time on your side.

2. Consolidation – During the consolidation phase, you should zero in on what you'll need to survive retirement... including bills you'll have to pay and income you'll expect to receive. This is also the point when you switch to more conservative investments in order to preserve your capital. This phase is for people who are within several years of retiring.

3. Distribution – In the final phase, you get to enjoy your hard work in retirement. This is when you begin taking distributions from income sources like Social Security, a pension (if you have one), dividend payments, etc.

You'll want to consider different investment approaches depending on which bucket you're in.

Arguably the most important thing to do, Doc says, is to start accumulating wealth. And the sooner, the better. You can't really do the other two phases without doing that first. We expect this to be a part of what Doc and Matt will talk about in next week's wake-up call.

But before then – as I said earlier – I urge you to do some math and figure out how much money you expect to need (or want) in retirement... What are your monthly or yearly expenses? How much will your monthly Social Security check be? And what are your total assets now?

Literally write all of these numbers (at least your most reasonable predictions about each) on a piece of paper. The numbers might not be what you want to see... But if you're serious about taking control of your financial future, this is where you need to start.

After that, you'll have a goal to point to (in terms of earning a reasonable return on your investments) and a proper risk-management allocation based on your own situation.

Planning does a lot of good... so you can protect your portfolio from an untimely 2008-type market disaster... a "Melt Down"... higher taxes... and inflation... while also trying to secure generous returns in a yield-starved world.

Again, then you will be well-positioned to use Doc's recommendations as best you can and properly allocate your portfolio. (Remember, you can register for the free event here.)

OK, so that's one side of one of life's big questions for retirees to always consider... How much does it cost to live?

To finish things off today, we're going to hand things over to our international editor Kim Iskyan, who recently explored another angle that many folks never think about.

This might sound deep for a financial newsletter, but here's what we mean... What is the economic value of a life to the world?

You see, most people don't realize it, but 'We the People' are worth a lot...

I'm referring to the idea that we – all of us, collectively – with our skills and abilities, matter more to economic productivity than certainly most governments give us credit for.

This idea applies to most countries, some more than others. Yes, we're particularly looking at you, China... You may have seen that China just recently lifted its "child limit" to three...

As Kim explains today in a special contribution, the whole iconic "one-child policy" – which became a universal two-child policy in 2016 and is now a three-child policy for married couples – was totally misguided to begin with... if the country really wanted sustained economic growth.

Kim takes the Digest home today with his analysis of China's latest population-manipulation move... and explains the real value of babies... who eventually become older, to the point where they too need to figure out cost of living expenses in retirement...

China's population has long been a defining feature of the global economy...

For all your life – and likewise, for anyone who has been born within the past 2,200 years – China has had more people than any other country in the world. China's population has been a point of pride, for one, and a key driver of the country's economy... and thus, the world's.

But within the next few years – some people think it's happened already – China is going to be demoted to the world's No. 2 in population. India, which over just the past 20 years has added the equivalent of the entire population of the U.S., is moving into the top position.

In itself, China – with roughly 1.4 billion people – losing the top slot is little more than the answer to a trivia question. (The U.S. ranks third globally in population, but remarkably China has four times the number of people.)

But this reshuffling of the world's population rankings is actually quite significant. It highlights China's demographic headwind – which will soon become a gale-force challenge...

Without a rising population, economic growth is much more difficult...

Productivity – the structures and incentives in an economy to increase production per hour worked – is a key driver of economic growth. If more people in a country are doing economically productive things like building cars, rolling burritos, or selling windows – and they're doing it more efficiently than they did in the past – the overall economy will grow.

As I (Kim Iskyan) wrote in the June 8 Digest, the other main ingredient of economic growth is a rising population. It's a necessary – though not sufficient – ingredient for sustainable long-term economic growth. Even a country that gets everything else right – smart policies, sound macroeconomics, and strong leadership, for starters – will in time struggle to grow if its population isn't increasing in size.

And that's where things are starting to look tricky for China. In early May, China released the results of its once-a-decade 2020 census, which showed the slowest rate of population growth since the 1950s.

The release of the census figures was delayed by more than a month. Demographers around the world speculated that the data was being "fixed" in order to avoid the political embarrassment of showing a year-on-year population decline, as opposed to just slowed growth. As the Economist explained...

Taken at face value, the [reported] population increase in 2020 when compared with annual birth figures suggested that, miraculously, no one died last year.

A drop in China's population would have been the first decline since China's tragic Great Leap Forward economic campaign of the late 1950s, which resulted in as much as tens of millions of people dying of starvation.

Even if China's population didn't decline in 2020, it will soon...

The fertility rate – that is, the average number of children that women give birth to – is what I call the "economic skeleton key" because it's the most important indicator of the future size of the working age population... and thus, long-term economic growth.

Globally, fertility has been falling for decades. The average woman in 1960 gave birth to five children in 1960 – and just under half that, at 2.4, in 2019. That's barely above the "replacement rate" of 2.1 children per woman (to "replace" those kids' parents).

In much of Europe and Asia – including Spain (1.2), Germany (1.5), Japan (1.4), and South Korea (0.9), according to World Bank numbers – the birth rate is already below the replacement level. And recent estimates suggests that China's is between 1.3 and 1.5. (The uncertainty stems from the possibility of data manipulation, and the fact that births are not always officially reported.)

China's government sees the writing on the wall... Just three weeks after the release of census figures – lightning-fast by the standards of any bureaucracy – the Chinese government announced that it would officially loosen its family-planning policies, to allow couples to have three children.

It's a significant change – and comes just six years after the country allowed families to have two kids.

For decades, China tried to keep births down...

Back in 1980, the Chinese government officially limited couples to only one child. But over the previous decade, a brutal and coercive government campaign to limit childbearing had already – incredibly – reduced fertility by half, to just under three children per couple. Part of the rationale, as Foreign Affairs explained in 2015, was that ...

China's impatient reformist leaders [were] desperate to find ways to increase the economic growth rate per capita... [the government] recognized that China was falling ever further behind its dynamic neighbors in East Asia, and they also saw that by promoting economic growth and raising living standards, they could [improve] the party's authority and image... They desperately wanted to avoid having future economic gains diverted to feeding more people instead of raising living standards.

At the time, China's economy was heavily agricultural. Policymakers were strongly influenced by the idea – first advanced by English economist Thomas Malthus in 1798, and reinforced by prominent western thinkers in the late 1960s – that population would grow faster than the food supply over time, triggering mass starvation and crisis.

Advances in agricultural technology and food production – including chemical fertilizer, mechanized farming, irrigation, and seed breeding – have proved Malthus and his fellow doomsday prognosticators completely wrong.

But China's government didn't get the memo... and figured that they could tackle the challenges of low per-capita GDP – and the worry of not being able to feed everyone – simply by reducing the number of mouths to feed (apparently not thinking through the long-term implications that reducing the number of working people would have on the economy.)

Malthus was the misguided basis of Chinese government policy for the next three decades...

As Scientific American magazine explained in 2016...

The solution to overpopulation is not to force people to have fewer children. China's one-child policy showed the futility of that experiment. It is to raise the poorest nations out of poverty through democratic governance, free trade, access to birth control, and the education and economic empowerment of women.

The Chinese government's latest family-planning policy change is an implicit admission that the country's one-child policy was a monumental mistake.

What's more... China's economy is the world's second-largest. But it's at least 60th in the world in terms of per-capita GDP... trailing the likes of Romania and Panama. And it's less than one-sixth that of the U.S., according to World Bank data.

China has succeeded in bringing down its population growth, and can better feed its people – but, ironically, it still lags far behind in economic output per person.

Allowing families to have up to three kids won't help much at this point...

Fertility rates are like giant, ocean-going supertankers... once they're moving in one direction, it's close to impossible to alter the course.

After China's one-child-per-couple limit was lifted in 2015, the birth rate hardly changed over the next several years...

The government has said it will provide support to promote bigger families, such as child care and paternity leave. But that won't make much of a dent in the cost of raising another child – from schooling to shoes to housing – for the average family in China. As one user on China's Twitter-like platform Weibo said, as reported by the Wall Street Journal...

I'm not buying three Rolls-Royces not because there's any restriction, but because they're expensive.

The government didn't remove the children limit altogether because it would look like an admission that its family-planning policy was a colossal failure. What's more, it would put the entire national bureaucracy responsible for enforcing those policies out of work.

Economic development is by far the best contraceptive...

As Foreign Affairs explained...

Around the world, wherever economic development occurs, the trends of rising urbanization, incomes, and educational levels lead to declining fertility rates, as parents invest more resources in their own consumption and a smaller number of children.

In India – where, like nearly everywhere else, the government isn't involved in family planning – total fertility was nearly equal to China's in 1970. And while India's fertility rate has steadily fallen, to 2.2 births per woman today – it is still above the replacement rate. While the graph of China's decline looks like a cliff. And that difference makes all the difference.

This is all to say that China faces enormous fundamental challenges...

As life expectancy in China continues to increase –the average person lives to 77 – and births decline, China's population is getting older fast. In fact, the only country that's aged faster is Japan – the poster child of demographic collapse. Today there are 80 million more Chinese people aged 60 and older than there were just a decade ago.

Meanwhile, over the same period, the country's workforce shrank by 45 million people. That spells trouble for the pension-fund system, which is forecast to run out of money by 2035.

And immigration – which, apart from home-grown population growth, is the only other source of workers – won't bail China out. There are just 1 million people living in China who were born elsewhere, or around 0.07% of the population... lower than any other country on earth. (That compares to 14% of the U.S. population.)

That's not to say that China's economy – which grew 2.3% last year and averaged 7.7% per year over the 2010s – is about to come to a standstill. China can wring out more improvements in productivity than in countries where productivity is already high. China will likely continue to post solid growth for years to come.

But if an economy can only rely on productivity improvements to generate growth... growth inevitably slows. And that will also be a problem for China's economy – and for the world. As Fortune magazine explained...

In the 10 years through 2019, China, on average, accounted for about one-third of global economic growth... larger than the combined share of global growth from the U.S., Europe, and Japan. In 2020, China most likely accounted for almost all of the world's economic growth, as was the case during the global financial crisis.

How will China respond?...

In 221 B.C., a brutal emperor named Qin Shi Huang unified numerous warring states to create a unified China – to create the world's most populous country.

Chinese President Xi Jinping will within the next few years be forced to tell the Chinese people that the country lost that title.

Perhaps the looming demographic reality that faces China will provoke a renewed sense of purpose and spur innovation. But there's no question about this...

The slow changes in China's demographics will be one of the biggest stories of the global economy for decades to come, and there will be risks – and potential opportunities – as the country wrestles with seismic population shifts.

Fortunately, we have one great place where anyone can stay up-to-date on this and all the big trends in China... My colleague Steve Sjuggerud's True Wealth Opportunities: China newsletter. You can learn more about that product right here.

This Is How the Financial System Dies

Lynette Zang, the chief marketing analyst for ITM Trading, is back with our editor-at-large Daniela Cambone to talk about the Federal Reserve's plan to unleash a digital currency. "With programmable money, they will be able to do anything with a push of a button," Zang says.

Click here to watch this video right now. For more free video content, subscribe to our Stansberry Research YouTube channel... and don't forget to follow us on Facebook, Instagram, LinkedIn, and Twitter.

New 52-week highs (as of 6/16/21): Asana (ASAN), CBOE Global Markets (CBOE), inTEST (INTT), and ResMed (RMD).

In today's mailbag, more feedback on Mike Barrett's Tuesday Digest about electric vehicles ("EVs")... Do you have a question or comment – praise or rage? As always, e-mail us at feedback@stansberryresearch.com.

"Enjoyed your article about more electric cars coming to the market. Sounds to me like there will be a need for more power plants to be built to handle the extra electric needed to re-charge all those vehicles.

"Here in Texas, our provider ERCOT is already asking for conservation this summer. I can't see how they will handle thousands of electric vehicles being charged every day." – Paid-up subscriber Gary A.

All the best,

Corey McLaughlin and Kim Iskyan
Baltimore, Maryland and Dublin, Ireland
June 17, 2021