Wednesday, July 31, 2013

Slow Long-Term Growth US Economy Means Longer Working Years And Many Fewer Future Retirees

From Bloomberg, "Don't Grade the Economy on a Curve" by Megan McArdle:
To take just one example, think about retirement savings. If the economy is going to grow at 3 percent a year, then you can pour a relatively modest 15 percent of your income into savings and probably retire in comfort. But if it is going to grow at 0 percent, then stocks won’t deliver much in the way of aggregate returns, so you need to save more like 40 percent of your income, if you want to enjoy a retirement that’s now often almost as long as your working life.

People do not realize that that when they put a fairly small percentage of their income into a retirement account, they’re banking on a pretty steady growth rate. It just doesn’t occur to them, because economic growth has been going on for so long that it feels like a law of nature, not something that’s highly contingent.
Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 1.7 percent in the second quarter of 2013 (that is, from the first quarter to the second quarter), according to the "advance" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 1.1 percent (revised [downward]).

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