A future studies researcher who runs the virtual reality lab at Bar-Ilan University, Professor David Passig publishes research that points to vectors that are moving the world and leading us in different directions from where we are today and in particular different from how we see the future. Human nature dictates our "static expectations," and our belief that what was is also what will be.
So, for example, we would like to believe that just as our retired parents live off of their pensions, so too will we live off our pension funds when get to be their age.
"This is a mistake," Passig warns. "The current model is not sustainable and is predicted to collapse. In 30 years, this model will completely collapse and will leave an entire generation of children without anything," he says, undermining the model we trust our retired lives with every month.
Passig notes today's trend that sees "60-year-olds living off their pensions for 20 years, as opposed to 10 years a few decades ago. If we take into account that the in their 40 years of working, the average Israeli saves 1-1.5 million shekels ($277-$416,000), then it is clear that this amount can provide for at most 15 years, and that is why we are already facing a 5-year deficit."
And as previously mentioned, this trend of increased life expectancy is consistent. So, despite the fact that the trends indicate that they will live 40 years after retiring, today's 30-year-olds set aside an amount of money for their retirements that is based upon the assumption they will also live 20 years post retirement. In other words, the pension system is selling us a lie that is based on irrelevant assumptions that adhere to a system of static expectations, the likes of which help us overcome the naked truth, which is that we will all eventually die.
Starting at birth
Passig expects the pension fund crisis to be a "type of revolution that will shock societies in the middle of the coming century." We are already witnessing this trend in places like the United States and Europe, but also Israel, where people continue to work at an age where they are meant to enjoy their pensions funds without having to work."
In many instances, these people are immigrants who have no retirement savings, but according to Passig's models, a majority of Israelis do not have enough saved to ensure that they will remain retired for good. Already today, many retirees are unable to get by solely with the social security payments they receive from the government and their retirement savings.
Passig does not always suffice with presenting the trends and their resulting forecasts, he also examines alternatives that could constitute a solution to the problem. On the matter of pension savings, he has encountered one alternative model that proposes retirement savings from the moment of birth.
"The idea is that the state will allocate [funds] for every newborn for these savings. We calculated and found that this would come to $10,000 a person – a one-time stipend for a dedicated retirement age account. Then the saver could continue to deposit money that would be exempt from taxes up to a certain ceiling into their retirement fund throughout their lives."
"This money could be managed by the individual personally, but there must be public financial institutions that will manage these funds. We found that over time, these funds could yield a 5% return per year, and provide at least 20 years of dignified living following the revised retirement age, which should be 70."
Additional alternatives could be an even more substantial increase in the retirement age and expanding the phenomenon of adult employment. But Passig believes this is not a practical option, simply because many professions are too draining.
According to Passig, "Sixty percent of the workers in Israel are employed in the service industries. It's not feasible to extend their employment, and certainly not the manual workers." Furthermore, Passig asserts, employment rates are on a ongoing downward trend. Already today, 65% of the workers support the 35% that are not employed."
Beyond that, he noted that "the existing trends make many of the workers redundant. According to our models, in the middle of the 21st century, 60% of the population will not have employment opportunities."
Passig is of course talking about broad trends, and not about the small classes of knowledgeable people who are already able to continue in their occupation at any age.
The end of social security
Another trend that has exacerbated in the past two decades is people who choose to make a living from occasional investments instead of employment. What was once a characteristic of the top thousandth and hundredth percent has become quite the phenomenon among the middle classes, or at least the top 10%. These people leave their jobs to invest in stocks, companies and real estate. But the reality today is such we have yet to engage in a proper discussion of the issue. Apparently, it is convenient for both the pension system and the regulators to sell the illusion that absolutely nothing has changed.
Passig was one of those who years ago sounded the alarm over the expected collapse of social security.
"They tried to prove to us that they have actuarial feasibility until 2050, and slowly the forecasts began to fall, so that now it is clear to all that at most, it can survive until 2028. That's right around the corner, and we refuse to deal with it."
It is clear to Passig that many decisions, such as the increase in stipends for police officers' pension funds, the provision of stipends to all people with handicaps at minimum wage levels and the like are unsustainable.
The models clearly point to the continued growth not just in life expectancy but also the birthrate in Israel and aliyah. Passig speaks of a point in the not-so-distant future in which the period of exile comes to an end. In other words, almost no Jews will remain outside of Israel: a large portion of Jews will assimilate, and those for whom their Jewish identity is important will make aliyah.
"Already today, for the first time since the Babylonian exile, the highest concentration of Jews in the world is located in Israel," Passig notes. According to the professor, "These trends point to 16 million residents living in Israel in 2050. By the end of the century, 30-35 million people will be living here. Are we preparing accordingly? Where will they live? Is the appropriate infrastructure for such a population being built?"
The solutions Passig proposes sound fantastical: "We will need to build up, but also deep into the earth. They are already doing this in Montreal and Japan; commercial and residential centers are being built underground. There, it is cheaper to heat these spaces, and here, it would be cheaper to cool them. At any rate, we must begin to prepare for the future, not the past. We walk around with the sense that we are still a start-up, but we are here for a historic project of thousands of years, and we should start thinking from this perspective."
