Chapter 9: An Open Letter to All Those Who Are or will Be 65

3. Optimizing the First Three Pillars of Retirement
First, let us take a look at the financial situation of 60 to 65 year olds. We shall start with what in most countries is the basis of most people’s pension, albeit with significant variations.
To begin with, we have what is called the first pillar that in some countries accounts for the main part of a person’s pension, beginning at either 60 or 65 years (the time of entitlement varies considerably from one country to another).
This first pillar is based on the pay-as-you-go principle: monies are collected from a levy on wages by the state that, often out of necessity, adds extra financial resources derived from different kinds of tax. Such monies are then disbursed to those entitled to a pension (that is, you and me, who are also tax-payers) as and when our pensions are drawn. The scope of this first pillar is to provide every ‘retiree’ with a minimum income, which in some countries is subject to a maximum amount per couple; in Switzerland, for example, this ceiling is around 2000 euros. This means that in the case of the highest earners this pillar functions as a channel for wealth redistribution. The main problem with this system, however, is that if the number of those in work diminishes in relation to the number of those drawing a pension, then the State has to constantly increase taxes to make up for the difference and we are all affected.
In my native city of Trieste, the press recently reported that the number of retirees had levelled with those employed (who, in theory at least, must pay from their wages the pensions of those no longer working). Such a system, if acquired, where entitlements are defended at all costs, can only lead to failure, i.e., bankruptcy, with inflation either directly or indirectly causing a drastic reduction in pensions. As the senior members of the community, moreover, we should feel a little ashamed at having to rely to such an extent on the wages and earnings of the younger members. After all, it has always been maintained that we should think of the generations to come and secure a better future for them. But just what sort of future is that going to be if they have to keep working harder to support us retirees? Beyond a certain point, indeed, intergenerational solidarity begins to be affected as does the need not to discourage youngsters from working.
Let us, then, by all means preserve a first pillar, which will always remain the mainstay of our social welfare system, but let us, at the same time, be careful not to allow our short-term concerns to destroy it. I, for one, will be concerned to preserve part of my financial resources in the form of a first pillar that is both realistic and sustainable over the medium and long terms.
Let us now take a look at the second pillar of our financial resources after the age of 65. This is essentially a system based on capitalisation and it takes a number of different forms. It is also often called the complementary system. It involves collective (either directly or indirectly) savings, which provide an income on retirement taking account of calculations of probable survival. This means that with the same capital amount, if I start drawing my pension later, I can expect a higher income. The main snag with this second pillar, however, is inflation: if at 65 years I draw 1000 euros a month, with a rate of inflation of only 2 per cent per annum, by the time I am 75, I will have lost around one-quarter of my purchasing power. While with an average inflation rate of 3 to 4 per cent per annum, my 1000 euros will have lost half their value.
Now let us suppose that I live on for 20 years after retirement. In that case, over time, my second pillar is not going to amount to much. It is fundamental therefore, to understand why control of inflation is so crucial. One could, of course, look to one’s return on capital to offset the impact of inflation, but that merely introduces a second element of uncertainty.
Everything would be clearer if the return on capital were expressed in terms of its ‘real’ rather than ‘nominal’ value. But even then, there are many investors and economists who maintain that a little inflation helps ‘to oil the works’ and helps investors and risk-takers to pay off part of their debt from inflation itself.
The third pillar is made up of any savings, liquid and fixed assets we may have set aside for a number of reasons, often, where circumstances permit, as a supplement to our pension.
So we find ourselves at the age of 65, or at the point of retirement, with three pillars with which we try to make ends meet as best as we can. None of the solutions is perfect by itself and we would be wise to spread our risk across the three pillars in order to obtain the best returns possible and minimize the risk of any unpleasant surprises.
But think for a moment. If we lived in the 19th century, at the time of Bismarck, for example, when the age of retirement was over the average age of mortality, there would be no real problem. But do we really wish to give up all those opportunities for living that the industrial revolution has offered us? At 65 years, most of us have before us the possibility of living until 80 in relatively good health: a long enough time for us not to have problems concerning the soundness of our three pillars.
Despite an almost universal claim to aspire to retire as soon as possible, statistics show that leaving the workplace results in a rise in the number of suicides, in health costs, and in the incidence of major family problems and of various other kinds of upheaval. We think we are entering paradise only to find ourselves moving into a world of decline and disappointment. Those who survive the experience are precisely those with a marked tendency to work and a great capacity for productive activity. Even the ravages of Alzheimer’s disease seem to be less devastating for those who remain active. So let us prevent our dreams from turning into nightmares from which we cannot escape.
The real challenge, then, that faces us when we enter retirement, is that of remaining active: first of all for the sake of our health but also in terms of adding a fourth pillar to the three we already have. The aim of this open letter, and to be honest, the whole book is precisely to promote, by means of an in-depth debate, this fourth pillar. This in any event is my intention which I will continue to pursue until I am at least 80.

4. Remaining Active: The Indispensable Fourth Pillar
The fourth pillar is not just another way of postponing the age of retirement. It involves a change to the organization of the “Welfare State” and is based on part-time work (roughly 20 hours per week). We see it as part of a social policy for the appreciation and integration of the over 60s. Part-time work does, of course, also apply to youngsters who combine it with training, to working families, and to those who pursue a number of different occupational activities at the same time.
Patrick Liedtke and I wrote a book on this subject called Full Employment in the Service Economy, published in Paris in 2000 by The Economica publishing house.
As an integral component of the four pillars strategy, part-time work reflects the fact that over 60, even though we need to remain active in order to live well, we cannot work as hard at 65 or 70 as we did at 30 or 40. A new balance has to be found. If tennis players, for example, quit the professional sport at 30 it is not because they are ‘old’ in any absolute sense. Every age has its golden period, and this has to be accepted.
The unavoidable current debate about postponing the age of retirement would be much more constructive if part-time work were given its proper place. As early as 1983, the Geneva Association launched its research programme into this subject devoting a number of articles and books to the issue of gradual or progressive retirement.
The four pillars concept must be considered together, even though in some countries the holding of consecutive pensions is still forbidden, revealing a failure to understand that it is precisely thanks to this that we all have our best chance of finding a satisfactory solution to our financial problems. That our total assets are thereafter subject to tax merely ensures that the State or public political authority is able to produce rules for the achievement of social solidarity and justice in the manner it deems most appropriate. Let us first try, however, to depend on the four pillars to give each of us the best possible chance, especially those in the 60 to 80 age bracket.

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