The Global Birth Dearth is Getting Worse - But Does it Matter?

And is the 4% withdrawal rate still advisable?

Ric Edelman: It's Tuesday, November 19th. Got a question from Bob in Massachusetts. Here's what he asked.

Bob: “Hi Ric. With all the talk of people living longer, is the 4% withdrawal rate still relevant today or should the withdrawal rate be lower in order to ensure that retirees don't run out of money in retirement?”

Ric Edelman: No, Bob, I really don't believe that you need to make any adjustment in the 4% withdrawal rate. The whole point of the 4% withdrawal rate is to have your principle remain intact essentially forever. If you think about this, a diversified portfolio, a typical 60-40 mix, is a very classic, traditional, frequently used allocation by financial advisors.

With a 60-40 allocation, I think if you ask a typical financial advisor, they're going to tell you to expect a 7% return out of that portfolio on average over many years. You know, some may say six, some may say eight, but let's assume just for simple arithmetic, that you get a 7% annual return from your investments.

If you withdraw only 4% per year from that portfolio, then it's actually going to be growing 3%. Now, the reason you needed to do that is to offset the impact of inflation, which you can assume over long periods of time, on average will be around 3% a year. In other words, if all you do is spend 4% per year, the value of your principle in real economic terms will remain intact. In other words, you'll have just as much money when you're 90 or a hundred as you have today. So, I wouldn't worry about continuing to spend at a 4% withdrawal rate. I could even argue. that you could probably increase it to 5%.

In fact, I could probably even argue that if you don't care about spending down the principal, you don't want to spend it down so fast that you end up having no money left, you could probably though spend six or even 7% per year. The money would erode so slowly that it's still likely to outlast you.

Let's talk about a related issue today that I wanted to chat with you about. and that has to do with longevity. I've talked about this topic a lot with you. It's one of the most important subjects I've shared with you over the years. What's going on lately?

Well, it's not just longevity. That's the issue. It's the lack of births. That's the issue in South Korea. The labor minister there has publicly scolded young people for not having babies. Well, they're pretty worried about this in South Korea. They've got the world's lowest birth rate, 0.72. That's about a third of what they need to maintain the population.

Scientists tell us that women need to have 2.1 babies per year. yeah, I don't really know how you have 2.1 babies, but basically, they're saying on average, all the women in the population need to produce 2.1 babies in order to maintain the population. South Korea is 0.7, a third of what the number needs to be. In South Korea, 40% of all households only have one person. A quarter of households have a pet instead of a child. Last year, in fact, in South Korea, more people bought dog strollers than baby strollers. First time that's ever happened. Happened last year. It's again happening this year.

Some of these models cost 1,100 bucks. They come complete with Scottish fabric and off-road tires. Adults in South Korea treat their pets like pampered children with birthday parties, doggy mansions, travel on private planes. And yes, dog strollers. The situation is pretty dire. Half of all the women in South Korea who are ages 20 to 50 say they have no intention of having children.

Even the president of South Korea is married without kids. It's not just South Korea where this is a crisis. In Japan, the fertility rate back in 1990 was 1.6. They've had a birth dearth for 35 years. So, since the nineties, Japan has offered policies that are designed to get people to have more babies. Employers are required to offer childcare leave of up to a year. The government subsidizes daycare. Men get paternity leave. New parents get cash for having a child plus bi-monthly payments for all their children.

Last year, though, fewer than 500,000 couples got married, the lowest number since 1933. So, the government is now promoting not just births, but weddings. The government has even launched its own dating app. None of this, though, has helped. Japan's fertility rate, which was 1.6 back in the 90s is now 1.2, its lowest level ever.

And this is a concern for the Japanese military because tomorrow's soldiers are going to come from today's babies. Japan is only on track for 700,000 births this year, a 6% drop from last year, the lowest number of births on record. And so, the military is trying to make military careers more attractive. Japan is touting better bunks, bigger stakes in an effort to address the shortfall. The defense department is struggling to recruit soldiers. They recruited only 50% of their target this year, big decline from last year. So they're offering not just better bunks and bigger stakes. They're offering increased pay, improved showers and toilets, and more privacy in those bunks.

And they're pitching parents of low-income families. Don't worry about college or costs, they say. Just have your kids go into this new, improved military. South Korea and Japan. China in the Far East gets added to that list. Their fertility rate is 1.1. And so the Chinese government is actively encouraging women to have kids.

Officials are actually going door-to-door. They've ordered universities to develop courses showing students a positive view of marriage and childbearing. They've installed art in public parks, featuring sculptures of a man and a woman walking with three children under a slogan urging couples not to wait too long to have kids. There are posters everywhere promoting marriage and childbirth. are offering free premarital health examinations.

They're telling people to have children before age 35. Women are being given folic acid for free. That's a prenatal supplement. Government websites tell women to inform the government when they do get pregnant, and the government says it will reduce abortions that it says are medically unnecessary. Although nobody really knows how you exactly define that.

This is a global situation. Iran is having a problem in this category. Too few people, that means fewer weddings, that means fewer babies. Ten years ago, Iran had 800,000 marriages per year, this year they're having only 480,000. That's because ten years ago there were 8 million unmarried women, now there are only 5 million. Remember when the Shah of Iran was overthrown in 1979? Ever since then, women started going to college. But they raise the bar on who they're now willing to marry. Being a homemaker is no longer their only choice, just like here in the U. S. And back then, the Iranian government began to allow contraception.

The bottom line is, Iran's economy is now suffering from high inflation, a weak currency, and international sanctions. All that means the cost of living is high, and women today would rather work and earn an income than stay at home. But Iran, as we know, is still a backward nation when it comes to human rights. Married women can't travel abroad without their husband's permission. They can't divorce unless they have signed a prenuptial agreement. And if they do divorce, the father automatically gets custody of the children. Everybody in Iran knows that 40% of marriages end in divorce. So, a lot of women are just saying no to marriage, and thus, no to children. There's also this thing called white marriage in Iran. couples simply live together, even though that's illegal. They say that 10 to 15% of all couples are living this way. The result? Iran's fertility rate is only 1.7.

Russia has now even made it a crime to advocate for a child-free lifestyle. They have fines of $4,000 for individuals, $50,000 for corporations. Portugal is struggling with a population drain, too. Since 2008, 360,000 people ages 15 to 35 have left Portugal for better opportunities elsewhere. So, the Portuguese government is now trying to attract young adults to come live in Portugal. They're making the country a haven for low taxes. If you're a young person and you earn up to $30,000 a year, you can move to Portugal and you'll pay no tax for the first year. And then for the next three years, your taxes will only be 8%. And then for the next three years, 16%. And then for another three years, only 24%. The government says they expect 400,000 people in their 20s and 30s to take this offer.

And Portugal's gain though, that's European Union's loss. So expect other countries to make similar offers to stay competitive. For example, in Hungary, they're now giving low-cost mortgages to couples that have a baby. They gave minivans to 30,000 new parents, and they're giving $40 a month for every child.

In Norway, new parents get 14 months of leave at 80% pay. Fathers get three months of paid time off. And moms in the workplace get at least an hour a day to breastfeed or pump. It's not helping, though. Norway's fertility rate is still stuck at 1.4. In fact, there are now 55 countries trying to increase their birth rates.

And guess what else is impacting the low birth rate? Climate change. Yeah, 2023 was the hottest year on record. Looks like this year will break that record. And a new paper in a magazine called Population Studies says that the higher temperatures get, the fewer women get pregnant. When temperatures are above 77 degrees, we end up with 85 fewer babies nine months later. When the temperature hits 80, we get over 1100 fewer babies nine months later. I guess it's too hot to cuddle, I guess.

It's not just governments that are trying to solve this issue, the private sector is coming up with solutions, too. Check this out. You just had a baby, where do you go when you leave the hospital? Nope, not home. You now can go to a postnatal wellness center. These facilities are already in Taiwan and South Korea. Now you can find them in the U. S. as well. The Waldorf Astoria in Orange County, California, the Watermark Hotel outside of D.C., San Francisco, Manhattan, Chicago as well. These places charge up to $1,500 per night. The focus is in recovery from the delivery for mom, coaching and newborn care for both parents, plus 24/7 nursery staff so mom and dad can get some sleep. They also offer scalp and hand massages, foot rubs, room service provided by high-end chefs who prepare healthy gourmet food, and even a Japanese breast massage called oketani to facilitate the production of milk.

Yeah, this is a problem all over the world, including here in the U.S. Our fertility rate is 1.6, well below the 2.1 we need to sustain the population. But Laura Wright says none of this matters. She's an associate professor of sociology at the University of Saskatchewan, and she says, first of all, trying to increase fertility rates is a complete waste of time.

I think she might be on to something. After all, look at everything everybody's been doing around the world since the 1990s in Japan to currently in Norway and Hungary. We're not getting women to change their attitudes about having babies or child-rearing, so maybe all of our efforts to do it. is, in fact, a waste of time, like Laura Wright says.

Second, she says, and more importantly, declining fertility isn't the real problem. The real problem, she says, is that our existing social systems simply count on us having lots of babies, and that is outdated. So instead of trying to raise the birth rate, she says, let's alter our social systems. Let's build a society that acknowledges we've got fewer people in it, more of them old than young, and more of them living a lot longer than ever.

Meaning, maybe we have fewer elementary schools and more long-term care facilities. Maybe we have people working longer than in the past. For example, she notes that for a hundred years now, economists have said the prime age of workers are people ages 25 to 54. That kind of implies that people 55+ are too old to work. That might have been true in 1940. I'm not so sure it's true in 2024.

In fact, China has announced that it's raising its retirement age for the first time since the 1950s. The retirement age for female blue-collar workers was 50. It's now going to be 55. For female white-collar workers, the retirement age was 55. It's now going to be 58. For men, it was 60. It'll now be 63. But catch this. This shift in a higher retirement age, China is going to phase it in over 15 years. The population is furious, media say, but that's not really terribly important, is it? Because in China, the people aren't able to do anything about it in their repressionist communist government.

France has got a similar situation. They're trying to raise their retirement age, not only because people are living longer, but because they only produced 678,000 babies last year, the lowest number since World War Two and a 7% drop from the year earlier. If we're not going to be making new people, we're going to have to have the existing people work longer to sustain our societies. That's the point that Laura Wright makes, and I think she might be on to something.

If you haven't yet retired, you might want to think about continuing to work. If you have retired, you might want to consider going back to work, if only on a part-time basis. You might need to do so economically. You might need to do so to hire people to provide services who in the past might have done it for free. You might want to do it just to keep yourself busy and active, and staying healthy and sharp.

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I'll see you tomorrow.

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10/9 Webinar Replay - Crypto for RIAs: Yield, Staking, Lending and Custody. What’s beyond the ETFs? https://dacfp.com/events/crypto-for-rias-yield-staking-lending-and-custody-whats-beyond-the-etfs/

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