Retirement in an aging population

Retirement planning is an important topic in personal finance. The purpose of retirement planning is to ensure a person have sufficient living incomes after leaving the work force. Recent reports in the Economist showed that the world's population is getting older. This is going to complicate retirement planning for the individuals and the governments.

Key facts reported in the articles are as the follows. First, people will live longer in coming decades. The average life expectancy for people in the developed world is 78. This number is expected to rise. Second, in both developed and developing countries, we're seeing a trend of birth rate decrease (i.e., less babies are born into new families). Third, an aging population (more old folks and less young kids) will cause problems for the existing pension systems (e.g., the Social Security system in the US). There will be less young workers to pay taxes to support an increasing number of retirees.

So as an individual what can we do to ensure that we will have sufficient incomes to retire? I think there are only two reasonable answers: (1) prepare to stay in the work force longer, and (2) maintain a sound retirement investment portfolio for living into an older age (say 85-90).

• Ageing in the rich world
• A shortage of babies
• Living longer
• Selling to older people
• Targeting pensions
• Work till you drop
• China’s ageing predicament
• Coping with global greying

The ultimatum game

Do people always say yes to free money no matter how small it is? The ultimatum game is designed to answer this question. Economists often believe that any financial gain, however small, is worth having. Psychologists, on the other hand, disagree with this presumption. So who is right?

Dr. Terence Burnham of Harvard University recently gathered a group of students of microeconomists and ask them to play a modified version of the ultimatum game. A theory that this study tries to prove is that people often reject free money in order to prevent their competitors from getting ahead. This rejectionist strategy is not irrational, but differently rational.