What Does Retirement Look Like
Planning for retirement is already a daunting task. If you want a sobering data set, here you go!
Most of the retirement saving strategies seem to be the same as they have been for years: Save to get an employee match, save between 10-15%, the earlier you save the better. The rule of thumb is to have your salary saved by 30, 3x by 40, 6x by 50, 8x by 60, and 10x by 67. Dollar cost average, be aware of actively managed fund fees, be more aggressive when younger and gradually shift into bonds later, ok much later in life. All these are good advice but they are not addressing something rather important. What if the world is going to look vastly different in 30- 40 years?
30 - 40 years is Retirement Planning
When people hear or talk about climate change, many think this is going to happen far off in the future. This might start to change as unprecedented wildfires, larger and longer hurricane sessions, massive floods and droughts keep happening.
​
However, most dire projections are still fairly distant: 30-40 years from now. But that is the retirement age for a lot of people, and receiving retirement advice without climate consideration seems a bit tone-deaf.
​
Having 3x my salary saved by the time I'm 40 sounds like a manageable goal, but if where I'm living is going to be underwater, or will have large annual wildfires or unstable electricity? Most large cities are at risk for sea level rise and large areas of west are going to be harder to live in.
​
​
Climate Change Doesn't Mean Don't Save but it Does Mean Reassessing What Saving is.
This doesn't mean that there is no point in saving for retirement. If anything, amid such uncertainty the need to save is even more important than it was in the past. But there needs to be some acknowledgement about what the future might look like in a few decades. This isn't that unpredictable, there are (as you can see from this Propublica article) models created to reflect upcoming changes. Insurance companies are already taking into account climate change impacting where people live. In California it is getting increasingly hard to afford fire insurance for one's home. Flood plains are reshaping with national flood insurance being stretched in Iowa and Florida. Insurance companies, and risk management companies are trying to predict changes so they have a better understanding of their future liabilities. This is no longer a question of if, but when.
​
Plan for food and insurance costs to rise. Much of the food production will be in areas hit hard by climate change. This means food production will need to move northeast, to more temperate and wet areas. Home and flood insurance in high risk areas may be expensive or unavailable.
​
Utilities might become more unstable. Unless large investments are made soon, the electric grid might become more unstable. Investing in technology that would offer backup plans might be wise. Already California is experiencing 'brownouts' due to demand or fire risk. Larger storms in the midwest or larger hurricanes in the east might regularly effect power supply. Having an alternative electrical supply isn't just about relieving carbon emissions, but adding to the stability of living through more and more power outages. For people who need electricity to run wells or other critical infrastructure, this is incredibly important and should be considered when planning for the future.
​
Consider the water table. When moving to a home to retire, consider how stressed the water supply is. Many water reserves in the west and midwest are rapidly diminishing with wells needing to be drilled at much deeper depths.
​
Fund Managers not acting on Climate Risks
Most Fund Managers are doing little in terms of projecting the value of energy companies in the future to reflect the change needed from oil and coal to renewables. While the study is from a few years ago, 80% is a disturbingly high number of managers and companies not planning for climate change in their current investments. This seems quite different from the insurance companies that are currently invested in future projections of possible ongoing damage.
​
This is worrisome not just in the fact that fund managers are doing nothing to pressure older energy companies to pivot, but also because in the near future renewables will likely catch up to coal, oil and gas in terms of affordability. This may cause a reckoning and re-evaluation of energy companies relying on older energy sources if they do not adjust. Car companies risk a similar fate. This could potentially devastate portfolios whose assets are heavily exposed to such industries.
Change behavior and demand change
Rarely do politics and investment coincide. The thinking goes that politics is short term and investing is long term. But I'm arguing that this long term issue is an exception. The more pressure we can put on companies and governments to reduce or remove carbon from the air, the better. In a way, this can also be viewed as a form of retirement savings. If carbon reduction in the next 10 years offers a window of future mitigation of risks, then it should be viewed the same as any reduction of future risks - retirement savings!
​
This might mean demanding that abandoned fracking sites plug their wells, more demand for EVs, or even more reliance of crop production locally.
​
This is a daunting issue we are faced with but that doesn't mean we should just give up. We need to start having conversations about what it means to save for retirement with these events on the horizon. How do we mitigate and plan for some of the risks for ourselves and others?