Firstly, in any portfolio we are always concerned with the key aspects of value, risk, diversification and convexity.  Our pension assets are unique amongst financial assets in that they are natural inflation hedges, all being indexed, and thus provide a natural inflation hedge in our overall financial portfolio.  When inflation is strong and other financial assets are getting damaged, our pension portfolio steadies the ship with its' inflation indexing.  So, let's get on and define these characteristics.  We will talk about this more, later, when we introduce non-state pension elements to our financial frolicker portfolio.

To value any asset we have to choose a basis.  The correct basis for any asset that will eventually be converted to cash and spent is the currency in which it will be spent at the purchasing parity and time value of the time at which it will be spent.  The concept of asset value is inseparable from inflation and currency numeraire for a global frolicker...  Today we will be showing total portfolio valuations in each contributing currency, across a historical back-test of exchange rates for the past 50 years to exhibit the kind of volatility and stress that naturally occurs with time.  This allows us to see very clearly how the spending numeraire affects the value of our pension mix at any particular time and over time.

The risk in a multi-currency portfolio over time is that we have stored our savings in the wrong currency or that we are spending in the wrong currency.  Ideally we would like to save in the most under-valued currency (with respect to the near future) and spend in the cheapest currency (with respect to the recent past).  Why?  Well, we would like what we save to become more valuable as the currency we save in appreciates and we would like what we spend in to be cheap via currency devaluation compared to our recent savings history.  Currency sets exhibit quite serious volatility across the cycle - generally in the range of 40-70%.  This volatility is increasing with each business cycle as financial fragility in the western world is becoming a serious macro problem.

The convexity in our portfolio is a statement that the volatility of exchange rates as described above is a non-linear value opportunity.  It has optionality.  We can achieve positive convexity by saving and spending in the right currencies across the right periods of time, and we can cost ourselves negative convexity by getting it wrong.  The convexity in our positioning is realised whenever we choose to convert one currency into another, at any time other than immediately upon receiving the money.

Diversification in our multi-currency portfolio is the degree to which holding several currencies rather than one delivers a hedge against adverse movements in one currency.  We will be able to see this very clearly in our tables presenting the total value of our portfolio in various currencies over time.  It will be very clear that converting all our pensions into one currency as we receive them is generally not a good idea.

Now that we have defined the characteristics we will be discussing, let's take a look at several pension scenarios for singles and couples...

Let's start with a single male turning 67 on the 1/1/2024.  We will consider two cases.  In scenario S1, This gentleman receives a full usa social security ($3 800usd/month) and a full british social security ($11 500 gbp/year), alongside a residual australian pension.  In scenario S2, this gentleman recieves a half full usa social security ($1 900/month) and a full british social security and residual australian pension as in S1.  (This second scenario could be a realistic average case or a case where the usa social security was the spousal benefit from a working wife who was a full beneficiary.)

We now have to explain what we mean by a residual australian pension.  In several countries such as Australia, the pension is based on years of residence rather than contributions and is means-tested for both your other assets and income.  In the presence of significant other pension income this leaves a residual.  We will see that the residual is an important convexity feature as exchange rates bounce around over time.

I am going to show the secret couple super-power of a pair of unassuming acquaintances of mine.  They chose to move to and live in the USA after the introduction of the Trump tax cuts for the 2018 calendar year, over 6 years ago.  It was a watershed year for american couples as we are about to discover.  Prior to that this particular pair had been living in France and i will duly explain why...

The primary financial power of the global couple is in providing a double income in a high income country based on their skills, education and experience.  The primary global tradeoff in couple life is between countries that tax couples as two individuals and relatively un-favorably, or jointly and relatively favourably compared to two individuals, in some cases with further favouratism once children arrive.  Historically, one of many acute differences between the american household fiscal model and that of major european countries was the relatively penurious tax environment placed on married couples in america compared to individuals contrasted against the very favorable treatment of couples in countries such as France.  

France traditionally allowed income sharing in a married or civil couple so that a couple with mismatched earnings levels (one high and one low) would reap a very significant tax reduction compared to two similar individuals in combination.  Upon the arrival of children a further income sharing and tax amelioration took place across typical middle class houshold income levels.  By contrast, in the USA, married couples filing jointly paid in typical middle class household income ranges paid substantially more income tax than the two equivalent individuals in combination.

With the Trump Tax Cuts this historical situation was reversed literally overnight.  Tax brackets were adjusted so that married couples filing jointly were effectively taxed just like two individuals in combination.  This removed a quite significant fiscal bias against household formation in the USA.  It is still not a children friendly fiscal regime but at least it is not marriage hostile any longer.  So, our couple returned to the USA from France and promptly sent one to work and left the other at home to bond with a young child.  The tax savings involved combined with the savings in child care costs essentially amounted to the second mid-range after-tax earnings stream.  

The stay-at-home partner promptly noticed that there was a foreign earned income exemption provision in the household fiscal tax regime in the usa and went back to London for several months at a time on consulting assignment, staying with his parents there.  That little country arbitrage allowed another earnings stream at low taxation to be added to the household total, and a currency hedge too!, not too mention the consumer choices of both countries.   It's a good deal if you can get it.  Another example of the natural power in globalism, global families, and global access.

However, i was able to give my friends a little pointer in the direction of our core belief system in multiple social pensions.  In the USA, a minor-earning spouse is entitled to a social security benefit equal to half that of the major-earning spouse.  That is without a dollar of contribution folks.  As i have told you before, one of the primary attractions of the UK for the seasoned frolicker is that after 3 years of record you can make voluntary contributions from wherever in the world you are.  You guessed what happened next right?  Oh yes, my friends are fully paid up on the uk pension record and will be receiving 1,5 times whatever the major earnings record in the USA brings them too.  In this particular case, they may well receive a core couple social pension benefit of $6 000 from the USA, $GBP 3000, and a small retainer from the French government for their years of work their too.

.... and again, these benefits are for life, no arguments about x% portfolio withdrawal rules to be had here, and are indexed for inflation.  Now, that is what i call using the global power of the astute frolicking couple.

However, it is very useful in slow moving illiquid asset class corrections, and housing is such an asset class, to know where the carnage arrives first and where it arrives deepest, with that knowledge tempered by when.  In this post i am going to reveal the oracle immediately...

 The New Zealand and UK housing markets will be absolute blood baths by the middle of next year.  Households in variable mortgage rate markets are directly exposed to the cashflow shock of higher mortgage rates in tightening cycles.  This is not the case in fixed mortgage rate markets like the USA and France/Germany.  

Serious fast cashflow shocks sink household finances, especially at unreasonable leverage multiples of income.  A few short years ago mortgage rates were 1.5% in the uk, and they will be over 6.5% by the end of this year because the uk has an absolutely swinging inflation problem with serious second round progression in a wage price spiral.  It was always going to be that way.  I knew that when zirb was first put into common use as an acronym way back in 2009.  New Zealand is even worse because of the leverage multiple of wages there and the need for an excess country spread over major economies to fund their investment gap as an emerging economy.

The UK and NZ are going to have absolute housing market meltdowns of nightmare proportions.  We are talking 50-60% corrections.  This is what happens when you run a ponzi scheme for 25 years on the yield curve.  When the yield curve reverts, so do house prices.  Those markets are canaries in the coal mine because their households carry the change in yield curve effects directly.  Sadly you do not get to ask for a 300% wage rise when your mortgage monthly payment goes up that much.  I have said the UK and NZ housing markets were un-investable to any rational mind for 20 years - and there it is, right under our noses.  It was a ponzi scheme and it has failed.  NZ is already down 20% in a year, and we are just getting started, believe me.

The gig is up.  The ponzi scheme has fallen under its own weight, and the only thing that lies between housing markets and price disaster in those economies is the lag that housing always presents as an illiquid asset market that fights price discovery hard.  We have run such an incredible ponzi scheme in housing that you can expect a very serious risk of entire national banking systems failing.  That kind of ponzi - right across the economy.  You can expect absolutely desperate political manouvres to save those banking systems.  

You may find your private pension accounts simply get paraded into new systems and invested in finding a floor for housing.  That is one of the primary reasons i do not like private pension accounts.  They are semi-fiscal pots of money and we have serious economic drama ahead.  It is always better to be owed an obligation generally than specifically in times of broad crisis.  Very much like it being better to owe a failing bank a million than for it to owe you a million..You need to be on the right side of the catastrophe risk, every time.  Private pension accounts are going to get grabbed to manage catastrophe risk in my view - grabbed cutely no doubt, but still grabbed.

Fixed mortgage rate markets take longer to crash.  It is the macro recession and unemployment that takes them out eventually but when they do capitulate the losses are steeper and deeper.  The delayed price discovery process really comes out with a bang.  I expect major metros with a bit of bubble action history in the USA to cave by in excess of 60% over the next 5-7 years.  I state it plainly for the record.  Prices at zirb are simply very different to prices at 7.5% historical average mortgage rates.  There is a formula.  It is not a matter of opinion.  It is a matter of arithmetic i am afraid, and not much more.  No amount of glib realtor posing will change that.

Fixed mortgage rate markets, for the same policy rate and 10 year benchmark rate, always price more expensive mortgage rates than variable rate markets.  It is formulaic and fundamentally due to the long term fix structure.  You pay for the rate insurance basically.  That is why fixed rate markets fall further than variable rate markets, once they fall.  The mortgages are more expensive, all else equal.  The move from zirb to historical average mortgate rates in the USA is absolutely going to be catastrophic.  Catastrophic.  They played with fire, they doubled down, they got crazy - and then reality caught up with them.  It always does.  A ponzi scheme is evident in retrospect each time.

For those of you who believe in ponzi schemes and interest rate reversion as a feature of yield curves over time - and you should because we have centuries of evidence confirming both - and have positioned themselves accordingly, short housing, and long cash, there are going to be a few years of bumper investment opportunity in the second half of this decade.  Rational patience and wisdom will be rewarded.  It has been a long wait and some very very irresponsible governance but those are the breaks.  Life is not fair.

One of the realities of contrarian investing when it comes to property market bubbles is that property bubbles imploding are correlated strongly with currency crises.  It tends strongly to be the case that holding cash external to bubble markets is a good strategy.  For those of you who hold your cash in semi-reserves and waited for property carnage, you are about to be vindicated most profitably on your beliefs and investment wisdom.

That stereotypical baby boomer secretary or flight attendant you know with 20 rental flats is not an investment genius.  She is just an early stage ponzi scheme participant, and she entered on her media-stimulated risk-seeking preferences rather than any real nouse...  If she had any real nouse she would be capable of working out a monthly repayment a typical median wage earned could afford and type it into a mortgage calculator at rates before this tightening cycle and after it to understand the impact on housing prices.  

It is not rocket science folks.  The economic negotiation takes place on the monthly payment.  She would be selling those properties hard and fast and putting a liquidity discount on them to get them gone.  Those with even the faintest nouse about the fundamental price and risk factors know the gig is up, and actually knew it was up the moment central banks were making loud noises about transitory inflation that clearly was not after fiscal cannons got fired in a panic for covid.  The smart money is all sold up and desperately selling any residual portfolio with marketability and liquidity discounts being considered seriously.

While the flight attendant/secretary intellectual standard investment genius sails on blithely watching re-runs of Barbara Corcoran and her ilk boost housing, let's talk about what ponzi schemes really are for a bit...

We all understand what an equities-based ponzi scheme is.  Mr Ponzi first made himself immortal in the wrong way by collecting funds, promising returns that he could not meet, and paying original investors that carry out of the new funds being received from new investors.  Yes, it is criminal fraud of course, once the regulators act, which they basically never do until far too late when massive frauds have already occurred, and often they do not act decisively then.  You have been warned...

But what is a credit ponzi scheme...?  Well a credit ponzi scheme is constructed in two stages.  First, you allow a borrower to borrow money to buy an asset, and then you inflate the value of the asset artificially, by policy relaxation of the borrowing rate or relaxing lending constraints via deregulation or failure to apply underwriting regulations to the next round of borrowers.  Basically, the first stage is to offer universal credit and blow a leverage bubble at the same time with policy and regulatory over-relaxation continuously.  The second stage is to generate a carry for the early investors by allowing them to borrow at leverage against the assets they now hold in a funded position, or to cash out the price gains without realising them through an actual asset transaction, permitting cash realisation of unrealised gains.  Does that sound familiar to anybody looking back in hindsight over the past 30 years.  Let anybody borrow, dead or alive, blow a huge leverage bubble by dropping interest rates no matter what the economy did, and let the borrowers estimate the value of their home and take cash out of it like an ATM machine.  It certainly should...  

Deregulation and some fairly irresponsible policy rate setting coming out of the 2001 dot com bust to save the banking system from a market meltdown re-capitalisation event in 2001-3 (those pesky central bankers right?) led to an explosive leverage bubble and ponzi carousel in housing.  By 2007 the ponzi gig was blowing apart badly, but central bankers doubled down on saving the banking system from a massive re-capitalisation event, this time a leverage and credit ponzi bust, and dropped interest rates to 0 and printed trillions, as well as taking all the structured mortgage note toxic stuff onto their books, thus re-capitalising the commercial banking system directly.  The result was merely another 15 years of ponzi housing.  You will note that interest rates had never been sent to 0 nor had we printed trillions in all of recorded economic history.  Yes, baby boomer politicans are quite serious about financial ponzi schemes for baby boomers.

The astute reader will have noticed already that the fundamental inevitable death blow for ponzi schemes, the thing that defines them as ponzi schemes and not economic growth processes, is exhaustion of the ability to keep paying the carry to the early investors.  In order to keep paying the carry you need to keep the leverage bubble primed with ever-lower policy rates, ever looser money, full employment, thus providing a fresh supply of new naiive investors with the cash to let you do it, and they need to believe your shinola.  

Amazingly, most ponzi schemes do not fail because of the financially literate population refusing to believe the shinola any longer.  They fail because the ponzi operator gets too greedy, the ponzi scheme gets too large, there are too many early investors drawing carry, and not enough new participants to keep the carry flowing.  That is what happened in the GFC.  A credit ponzi scheme fell over and got reflated pretty desperately.  Ponzi schemes fail under the gravity of their own economic size, not through human wisdom.  It is sad right?  The social predators amongst us win again.  Score 0 for social justice.

By now, you will all have realised that actually what we have all lived through for the past 30 years was a massive ponzi scheme in housing.  It was originally blown out of poor interest rate policies (too low and too loose) at exactly the wrong moment in 2001 when the housing market was already catching fire, in order to save banks from an equity market meltdown.  After that catastrophic policy error, the doubling down in 2008 was just completely unconscionable.  It is a serious problem, of a nation destroying size now.  

It has swallowed the two demographic cohorts after baby boomers almost whole on their lifecycle economics.  That may only be obvious in retrospect.  It has swallowed the rational investor with its duration against his lifecycle (30 years for young adults when it started), and will swallow the irrational true believer with the large scale losses he holds when it goes boom this decade.  Boomers will sail on through with the gains on the whole.  On average, you had to be a boomer to have enough collateral to turn one home into a portfolio early enough in the process.  

It really was just baby boomers enriching themselves and slaving the kids for decades.  It just was, very deliberate, very organised and quite quite socially vicious.  I am not a big fan of baby boomer group think about their sagesse in property investment.  It is not a great secret in this world that it is much easier to get socially vicious in government than to work and invest rationally for wealth.  Ask anybody who grew up tough in the third world if you have any doubts about that...  Sigh.

That decision to floor interest rates and print trillions as the GFC took form just absolutely scrap-heaped two generations instead of cleaning up the bad debt.  It was a political decision in the end, and it put those two generations on the hook for the ponzi debt instead.  Thank you baby boomers...  

How did this really happen...  Where were the checks and controls? Well, on both occasions the wishes of politicians to save generation Baby Boomer from its out-of-control speculative habit with money it did not earn and could not afford to lose correlated nicely with central bankers' primary wish to stop the banking system from self-immolating pretty much instantly.  When politicians and central bankers are looking for the same victims in a financial crisis, you do not want to be that guy.  If you are silent generation or gen X you are actually just generation Patsie.  

They do not want you to know it.  That is all.  They want you to go to work, rent a cockroach mansion, or better yet, buy one of their ponzi debacles and pay it off for them.  It is a pretty cute, highly effective  inter-generational scam really.  Not much better than street protection run by the mob.  Baby boomers are very committed to it.  They got away with it for decades.  That bring belief.  It takes people time to grow up politically and economically.  It does not arrive at 22 as you leave college.  What trailing generations should do is vote en bloque to remove baby boomer age politicians.  They are simply too dangerous for non-baby boomers to be allowed to take seats, in my opinion.  When you act like that for 30 years, you get tossed out. That is the final check and balance.

Your author saw it for exactly what is was at the time, and simply threw up his hands in horror and frustration at the charlatans that govern us, and took a few years on third world beaches.  Why work when the game is rigged for one generation and against the next?  He was not of a mind to capitalise the 60% losses that generation baby boomer were being insured against by political and central banker action.  He believes moral hazard is not just an euphemism.  Listen up central banking crowd, because without a labor force your policy posing ain't worth much, and we will not be getting airports or dams or electrical supplies or medical care out of you fine examples of professional contribution to society will we now?  We will just get another ponzi scheme as soon as you can.

Now, after that rather alarming showcase rant of common sense and extreme negativity about the pandering morons we allow to make serious economic decisions nationally, let's look at why this ponzi scheme must fail, and how an astute financial frolicker deals with it

Well, this ponzi scheme like all of them, has the fundamental limitation of size.  In this case, the size of the debt demographic flow it has impacted.  We have now displaced so many first time buyers demographically from their mid to late 20s into their early 50s at the leading edge and trailing back fully 30 years from there that this demographic displacement to the funding flow in long term debt taken for housing is a collapse mechanism starting now.  Demographics are not policy variant folks.  No baby boomer politician can make me 25 again.  I wish he could.  Pretty soon, he is going to wish he could a lot more.  He is going to exhort and issue a bit of rhetoric about how it is all my fault and how i should buy a home off him.  Good luck with that.  

We now have a 15-20 year broad cohort that are absolutely destroyed by the housing ponzi scheme on their lifecycle economics, aged roughly 35-55 today with a bit of fan around those numbers.  They are going to dislocate geographically over time as a response to their dislocation from that debt demographic flow that simply went on for too long.  You can see it in second world countries already.  Huge influxes of early retirees in their 50s.  This is just going to grow and grow for the next 20 years.  It is fixed by the past and policy invariant.  It is demographics in action.  ... and it is going to tear that ponzi scheme apart this decade because 30 years later, the elder kids were in their 50s and they were done with the game, and it just keeps going.  You can run a ponzi scheme in houing for 10-15 years.  You cannot run it for 30.  Those debt dynamics intersect with demography and give you a diaspora and a collapse on demographic fundamentals.

Let's talk about how a financial frolicker deals with credit ponzis effectively.  

Well, the first thing any investor should have is a pretty fair idea of the price risk in an asset he holds  Return and risk are two sides of a coin.  Believing you might make 10% this year is only half of the deal.  You need to have an estimate of how much you could lose if things get messy.  Things do get messy periodically.  We all know it.

My rough educated estimate is that we carry about 60% price risk and possibly more in western global capital real estate markets and their regional and dormitory centre equivalents.  I do not really care if it is 50% or 70%.  It makes no difference to my investment process.  Medium term downside price risk of 50-70% is simply not an asset class characteristic that i would ever go near.  I leave that kind of stupidity to that bunch best known for the HODL acronym as they bet their lives on 'digital gold' which is basically a computer program that generates a unique number and a work trace that anybody on the planet with a bit of tech nouse can replicate and issue their own form of 'digital' gold on their home computer on a weekend.  'Digital Gold' - yeah, right....  Digital dutch tulip fantasies more like...

Now might be time for that sage warning about negative leverage.  People buy homes in their youth and hope for the best because a home loan will leverage their wages and they hope their wages will rise.  It is a classic leveraged bet.  It is all winsome until the tale of negative leverage gets told.  The price effect on equity magnifies to the downside just as it does to the upside.  It is a linear bet at a high multiple of your wages 10-12 times these days.  Historically it was 3-4 times.  It is a big big bet, and it is a big big bet very late in a very long ponzi scheme.

To make out like a bandit, the wage-leveraged bet on housing depends largely on a short sequence of ponzi regulatory and policy behavior as outlined above for success, because the business cycle and short term interest rate policy cycles are actually shorter than the average period of time people own their homes.  Without a bit of ponzi behavior from the policy setter or regulator - nothing doing on average and housing is actually pretty boring.  I have read the studies.  It is part of what i do.  Pretty much every claim about housing as a hedge of inflation always going up, an unenviable natural store of wealth etc, is completely not borne out by long term studies.  Evidence is muted and mixed, over the very long run.  We live in independent housing for about 60 years of our lifecycle.  That is the very long run.

However, policy setter and regulators are very very motivated to ensure that financial assets appear to grow at rates well above gdp growth nationally.  Just ask your pension broker for the details of those winsome and unwise risky asset return estimates in the long run.  You have all heard them right.  Let's start with 8% and then tell you that if you move out of balanced funds and chase growth a bit it might be 10 or even 12%.  Yeah right.  The anchor folks is economic growth at 2% in the long run.  Clearly the entire economy is now tiny compared to the risky asset valuation 30 years down the line.  It is garbage.  It is garbage.  Please stick that under your hats and hold onto it throughout life.  Policy setters and regulators are endlessly tempted to ponzi support manouvers for exactly this reason.  It is one of the greatest managed charades of democratic capitalism.  it is pure chicanery and tom-foolery of the most damaging variety.  ... and it is where Depressions find their source.

Fortunately, there is an alternative to buying a home, and that is to rent one, which enhances your labor mobility in your youth too.  It is a fact that society leans againt the labor flexibility interests of youth telling them to buy a home in order to ramp housing prices for the elder cohorts.  Just as you would not buy into an equity ponzi scheme once you had identified it, you should not buy into a housing ponzi scheme once you see it for what it really is.  Just like equity ponzi schemes it is the last entrants that take the full weight of the fraud.  The early entrants had their carry and have often left the scheme behind by then.

Smart astute financial frolickers are looking at a 25 year dedicated housing ponzi scheme, promising themselves never to vote for a baby boomer politician again, because that chap has just been too injurious to their lifecycle, and letting somebody else hold the membership in the ponzi scheme that is going to lose 60% levered on wages.  That is not smart investing folks.  Really not.  That is a life destroying economic event if you get caught in that collapse.  There are periods when the risk in asset classses are actually as significant as there past records of excetpional returns.  It is the general case, in fact, and it is exactly because of the past record of exceptional returns.  The FOMO is actually the MOJO, the moronity of jubilant operators, the adle-witted prayers of the faithful no less, and this is one case where you do not want to have your mojo and you do want your wits sharp.

Astute frolickers are renting, and waiting it out.  They know what is coming.  What is coming frolickers is a serious global housing meltdown.  That is not a statement of opinion.  That is fact.  Ponzi schemes end badly - always.  The timing is uncertain. the large losses are not.  ... and the little inflationary surge we just had pushed a near term tightening cycle in with an edge on that was absolutely the end of this ponzi scheme.  Your author will go on the record and tell you that the UK will be in absolute flames on its residential housing market by the end of 2024.  That is already locked in.   It will take longer in countries with fixed mortgage rates like the USA but the losses will be more significant in those countries.  

In the next episode i am going to explain to you frolickers why crashes in global tightening cycles always happen faster in countries with variable mortgage rates, but always crash deeper in countries with fixed mortgage rates.  Stay tuned!

I am not a huge fan of professional economists or the studies they do.  I am not generally a huge fan of putting people who were quite possibly so poor mathematically that they could not study a second unit of mathematics in their final school years in charge of the economy.  

I have little doubt that the reason central banks and regulators failed so abysmally in the run-up to the GFC is inextricably woven with rather faux intellectualism claims from the economics faculty, and a lack of hard mathematical ability.  On the other side of that debacle of course were the exotic products quants who were busy originating mathematically arcane products with fatal tail risks, in the presence of no effective regulation or surveillance.  The flip-side of that coin, the failure to preserve the slightest mirage of underwriting standards in credit origination likes squarely on regulatory culture.

However, it is true that a concerted and desperate effort was made as the GFC burgeoned to essentially save western banking systems with very very radical and extreme monetary policy.  I personally found those decisions unconscionable at the time because of what they were always going to cause later, sowing the seeds of the disaster we will now have.  They were doubling down on disaster and kicking it a busincss cycle down the road.  Well, nature intervened with covid and they did not quite get a business cycle even.  They had to fire the fiscal cannons in 2020.

There is a fundamental economic tradeoff between inflation and growth.  We have known of it for centuries.  When you set rates too low and supply too loose for too long, disaster is with you soon enough.  The policy rate and money supply is the signal, and the economy will eventually dance.  Further, to unleash a torrent of fiscal cannons after running monetary policy too loose and low for fully 25 years was simply folly at its fullest.  A necessary folly and unconscionable not to this time around on the fiscal side, but it was always going to light the fire.  That fire had been smouldering in the long grass since 2012 roughly.

The only thing holding back the fire was tight fiscal policy matching loose monetary policy and a certain short-term risk aversion that prevented quite the same level of risk seeking with leverage that we had seen from 1998 to 2008, but there was plenty of it back by 2019.  When they opened the fiscal cannons to put a floor under covid all hell broke loose, and the fire started.  

How any central banker could credibly have stated in 2021 that inflation was likely to be transitory simply beggars belief in my opinion.  I believe it is strongly suggestive of a decision making culture that for decades had been built to sponsor risk seeking and then make it whole again when it became excessive through any policy means available while couching those responses very carefully to appear as though they were mandate driven.  I am here to tell central bankers that ponzi schemes at a macro level are not economic growth.  They are ponzi schemes and they end horribly, and the longer you maintain them with extreme policy the worse the conflagration in the end.  It is how Depressions happen.

It was not mandate driven to keep rates too low for too long.  In the author's humble opinion anybody who believes that the zero interest rate is ever a sane policy decision has no place anywhere near policy decisions.  Sometimes over-leveraged risk seekers have to lose, even (and especially) if they are baby boomers.  The umpire made awful decisions for 30 years and the game is a write off.

Actually, there is a pretty fair argument to be made that the unpire was a bought decision maker, and the mess we are all in represents the simple fact of a baby boomer generational control premium in politics and the greatest achilles heel of democratic capitalism - it is a popularity contest in the end.  There is no room for a popularity contest in national growth policy.  There simply is not.  Too many standards of living depend on it.

Let's get into the details.  Firstly, the real reasons central bankers do everything they do is to stimulate the commercial banking system as hard as they can for as long as they can and then put out the fire as it starts to stop the commercial banking system blowing up.  Do not delude yourself about mandates.  For 30 years there is a clear history of market save followed by systemic save followed by market save.  Policy mandates are like inflations expectations.  It is the language of PR and media management.  They fight inflation when it spikes because it is death to the banking system in the medium term.  They fight market collapses when they happen for the same reason.  The central bank is exactly that - the central bank.  People should read institutional names more carefully and press releases with a serious grain of salt and a serious suspicion of false intellectualism.  No capable intellectual i know is very interested in jobs involving press conferences much.

Inflation is death to the banking system because it destroys the real value of capital.  If you have inflation at 10% for a decade then the same business startup must borrow more than twice as much money for the same real business structure at the end of the decade as it did at the beginning.  If the bank has been charging 5% interest on the loan and booking that as revenue, it's capital base in real terms has halved.  It needs to double its capital base to support the same level of real economic activity.  Now, it is all a little more nuanced of course but that is the plain guts of the argument - and it is a most compelling argument.  Inflationary cycles lead to a need for impossibly major bank recapitalisations, far worse than serious market crashes in either equity or credit markets.  Think that over, reader...

Inflation is death to consumers because their wages are not inflation indexed, and they are particularly exposed to the volatile components of inflation that central bankers prefer to ignore, food and energy.  Central bankers do not like any series that suggests inflation is higher rather than lower.  Decades of very careful media management has been devoted to making our inflation indexes nonsense to this end, to support policy that is too low and too loose, to support risk seeking and speculation, a ponzi scheme re-named growth.

Inflation is death to businesses because in general they cannot effectively predict it, plan for it, or pass it through.  Most real economic activity does not pass through inflation perfectly.  It erodes their capital balance sheets too but not as destructively in general as it does those of banks.  The repositories of capital for lending take the greatest hit.  Real allocated capital does better because it sees equity returns, whereas banks as warehouses of debt capital only recieve fixed debt interest returns.

So high inflation in the medium term is death to banks, and pretty toxic to the firm and household sector too, but the other caveat is that high inflation at high debt levels is double doom and destruction to banks.  

Banks are warehouses of medium to long-term debt.  They intermediate maturity for their customers.  They borrow short and lend to longer time frames.  This classic balance sheet duration risk is wrong way risk in an inflationary environment because interest rates rise in that environment to control inflation.  Of course the more seriously levered the debt warehouse is at the start of the tightening cycle the worse the hangover.  

Well, rates were at zero across the major developed world for a decade.  We are raising off a very convex place on the pricing curve.  We have never been here before.  It is not a good thing.  Raising interest rates from 5% to 10% is a much happier game to be playing on bank balance sheets at the national level than raising interest rates from 0% to 5% basically.  It is the exponential curve in action.  When you fight the exponential curve - you lose badly.

What does this mean?  It means that central banks can forget their 2% inflation targets and deal with quite signfiicant and unpleasant bank recapitalisations in 4-6 years or they can watch a number of very serious asset bubbles they blew up in a frightening ponzi scheme for 30 years blow away like tiny home villages in a hurricane, and lose a few major commercial banks that way.  

There are no good outcomes here.  When you hear central bankers tell you that there is still a narrow path to a recession-less recovery and inflation returning to 2% you should be laughing out loud, in your author's opinion.  When you hear the pundits tell you that housing will sail through the pricing curve adjustment because of tight supply you need to be wearing a gas mask to deal with those particular fumes.  That is nonsense.  Your monthly payment is a formula.  The rest is BS.  Total BS.  Supply is a technical factor but mortgage rate is fundamental.  You cannot pay a mortgage monthly payment with wages you do not earn.  It is the kind of BS that would make a pension broker balk, and those folk do not balk easily at winsome and unwise estimations of the future.

Now you all know why central bankers really fight inflation, then cause it again.  It is all a game in avoiding re-capitalising banks directly.  You will not be fooled by any doughy mouthed talk of mandates.  You should not have been fooled by any doughy mouthed talk of inflation expectations at a horizon for decades.  The whole reason they talk about it is to anchor yours.  You do not want your economic anchors set by central bankers, believe me.

In the next episode we are going to talk about why a ponzi scheme in housing is something you should not get involved in, especially after 25 years of it...

Knowledgeable frolickers are busy back-franking their record to make sure they get all their possible years of record under such generous rules.  I recently gained the knowledge, while chasing whitehall telephone operators yet again to process my CF38 form, that the deadline for this special originally set by legislation at 5th April 2023, then tactically extended to 31st July 2023, is now extended until 5th April 2025.  As late as 2025 you will be able to buy years of record for the years 2006-2023.  Here is the media release.  It happened today.  The rest of the good news is that the cost per year is fixed at the 2023 level.

Deadline for voluntary National Insurance contributions extended to April 2025

The government is giving people more time to pay National Insurance contributions towards their State Pension.

GOV.UKHM Revenue & Customs

I want to highlight that 2006-2023 is 17 years of additional record that can be purchased for the next 2 years, whereas generally only the last 6 years in arrears can be back-franked.  Get it done frolickers!  For frolickers that have been out of blighty for many years, or not in the workforce, that purchase of 17 years of gap years is worth close to 5 300gbp pa indexed forward for inflation every year of your retirement for 14 000gbp invested today.  That is extremely smart value investing, if you believe like i do, that we will not be at the 2% inflation target for at least 4-5 years and possibly a decade, and that further inflationary outbreaks are likely over the next 15-20 years particularly.  

Big hint frolickers, there is some trained thoughtful expertise in that suggestion.

We printed a lot of money and debt with fiscal and monetary cannons over 30 years, and we have two generations of adults who are going to have a much higher propensity to leave western countries for early retirements in cheaper countries because of the total fiasco ponzi scheme in housing run for generation baby boomer, not to mention bombed out no-tenure labor markets and mass migration displacing local skilled workers.  

Nobody is going to work in their 50s and 60s to pay a rent coupon to a boomer in a no-tenure labor gig.  There is a hard demographic diaspora limit on that ponzi scheme and labor markets management model, and it is arriving now.  That is going to keep labor markets tight for a long time, particularly at the senior experienced professional end.  The wage side of the inflation spiral is locked in.

Personally i think the very parlous fiscal situation of the UK means a review to national insurance is very likely.  The catastrophic reality of the NHS both on funding and on service levels make that even more likely.  The current bargain reality is probably not long for this world, but once your years are franked - they are franked.

To get your back record filled you need to fill in Form CF38 and get it mailed off to whitehall.  After you have thus been registered as a foreign beneficiary, you can organise payments on your back record.  To check your full record you can use the british Government Gateway services online to view a report showing any year gaps in your record.

I am including a link that will enable you to check your national insurance record via a UK Governmant Gateway.  You will need an authenticator app (like Google Authenticate), your passport, and your personal details like birthdate and national insurance number, to follow these steps.  This will give you an online printable record of any years you are missing and how many years are on your record.

Check your National Insurance record

Find out if you’ve paid enough National Insurance to qualify for the full State Pension - check gaps, contributions and credits, get a National Insurance statement, call the helpline.

GOV.UKGovernment Digital Service

I am also including a link to form CF38.  Please read the instructions carefully.  Please be aware the form is on an odd paper size and it may be best to print it to file before printing it to a less arcane paper size that you actually have in your paper tray.  You may end up only filling out 70% of the form otherwise.  Whitehall at its endless helpful best!

Social Security abroad: NI38

Use this guidance and form to find out about paying National Insurance contributions to the UK and getting benefits when abroad.

GOV.UKHM Revenue & Customs

For the sake of the argument we will assume that our financial frolicker holds a typical (average) usa, uk, and german pension, vested at age 70 and held to age 85.  This is pretty close to where life expectancy and optimal exercise sit 15 years hence.  This could comprise 10600gbp a year, 22500usd a year, and 15 000eur a year.  

For our first exposition we will assume conversion to an annuity in each case at age 70.  For annuity rates of 2.5% (typical of the gfc extreme low policy rate era) you would need 425 000gbp, 900 000usd, and 600 000eur.  Well, you would have your longevity coupon if you had invested that successfully.  Those are large number folks .  Good luck with that, considering the dot com bust and the gfc - unlikely.  You can talk with your pension broker about tax convexity all day long but big numbers break secondary effects pretty seriously.  For annuity rates of 5%, you need half this.  We are back in the land of reality.  

Quity a few tail edge baby boomers who had moderately risky equity portfolios they topped up in pension accounts will get near this.  Gen X will not.  Gen Z does not have a prayer.  They are paying student debt instead of pension pots.  Boomers really are the gift that just keeps on giving right?  The point is that your ability to replicate the core value of a portfolio of social pensions depends utterly and randomly on annuity rates when you exercise 40 years deep in your investing.  It is nonsense right?  It is not so much a series of returns issue as simply a government of the day floating you or sinking you for the rest of your life with a monetary policy rate decision issue.

Defined benefits and payouts are generally desirable over the stuff that fluctuates with a benchmark rate frolickers provided the benefit level is realistic.  That is why we build a portfolio of them.  Riding the roller coaster of risk to have it all stripped off you because you exercised in 2012 instead of 2006 is pretty brutal - oh and your portfolio got dumped into an atlantic sea trench too.  The wrong way risk on private pension accounts and their exercise value as annuities is truly lethal.  You have been warned wisely again Frolickers.  How is that caricature of your pension broker shaping up these days?

All of those numbers have to be inflated by 15-25% if you deferred your pensions until age 70 - as you should.  They have to be inflated for another 15% for tax effects probably too.  Yes, private pension pots do not really replicate a portfolio of social pensions very viable on an annuity disposal strategy.

A number of my readers will tell me that they do not care about the longevity coupon being replicated and they will take a drawdown option for its flexibility and to avoid unappealing annuity rates.  There is an argument to be made here.  So let us do another back of the envelope replication.  To drawdown for 15 years you are going to need 160 000gbp, 337 500usd, and 225 000 eur.  Look, it is about 1/3 the price of a low annuity regime, and about 3/4 the price of a moderate annuity regime.  It is a real decision in a low annuity rate environment.  Of course you will pay higher taxes, probably 20-25%, so its not as pretty as that.  Conversion to annuity is generally tax shielded better than drawdown options.  It falls apart pretty badly if you live beyond average lifespan by much.  It falls apart totally in your 90s.  Be wary.

Where the replication of a portfolio of social pensions with a private pension account really fails though is when you consider the asymmetric benefits.  When your spouse is getting half thanks to you, or your spouse and child survivors are getting 1.5 times your benefit thanks to you.  These contingent coupons can be achieved with annuities - but the rate effect is disasterous, and you are back into the drawdown optionality really.

Now we come to the point of this little bit of play in rough replication.  The real value in a private pension account is in topping up the core benefits you have acquired in a portfolio of social pensions for you and your family.  Please read that 3 times.  You should not be funding private pension pots in any serious way until your life is established and secure financially and you have 3-4 social pensions ready to pitstop you seriously.  You are just giving hard-earned liquidity to the chicanery of a process that claims 8% asset returns are achievable, when they actually are not over the time frames in question.  You are playing the roulette wheel - and for high stakes.

There is a reason we used to have defined benefit pensions.  You have just witenssed the reason.  The best modern substitute for a defined benefits pension built up over decades of service to one employer is a collection of social pensions.  Make no mistake about it.  However many you can get - go get them.

In the next episode, we are going to investigate the real value in a private pension pot, supplementing your social pension portfolio and providing an earlier pitstop day for you to make sub-optimal employment a distant memory...

The weakest and most constraining of my social pensions is the australian one.  It erodes quickly in the presence of other income, has strict moderate asset tests or it erodes again, and binds me to living in australia to receive it effectively.  A wife cannot work or you lose it again.  It is pretty constraining.

I do not mind australia.  I grew up there and it is a gorgeous country.  The blue collar human blight is quite unpleasant.  The lack of respect at an institutionalised social level for an educated professional male compared to a high school dropout baby boomer who drove buses and owns 20 properties, none of which he could have afforded, if a government of his age group had not rescued him by slaving his kids for decades, is quite simply repugnant - in every way.  It is a global feature of baby boomers running unchecked for 30 years, but it is particularly aggressive in australia.  That has deep roots in a social culture of loutishness and high skilled trade job generation.  It is not a place where i really enjoy listening to the posing social nonsense in the coffee shop at the table beside me.  It really does ruin the natural beauty quite badly.

This of course becomes a great example of a strategic option being exercised for its strategic value.  I actually hope to develop enough wealth to be able to say 'who cares, i do not need you' to the australian social pension, but i have a contingent strategic plan.  My contingency is to use it as an emergency reserve pension to cover the period from age 67 to 70.  I will defer my other pensions until 70 to get the deferral cash coupon.  I will of course lose a decent chunk of my australian pension for having them - they get deemed as income if deferred.  As a result i will only get about 20k instead of 28k.  However, 20k aud a year is a substantive gift for simply turning up, that i will not get elsewhere, not with any assets.  There are income/housing support programs of about that size in the uk and the usa - but not if you have any assets at all really.  I do have an asset base and i certainly plan on having one at 67. So, as is often the case, the strategy is about mixing and matching what suits your scenario, strategically.

I plan to live off my emergency cash reserve plus the reduced australian state pension from 67-70.  At 70, i will take the other pensions on their full deferred coupon.  One gateway benefit of the australian state pension is rental assistance which can be claimed on RV park fees.  I plan to have a lovely couple of years touring australia in my father's RV which will probably be mine by then.  You can get about 300 aud in rental assistance for paying about $650 a mont in rent.

Another restriction on the australian pension is you cannot claim it and become ex-resident within 2 years.  It really is a tight constraining set of rules - so i have 3 years to waste back  home, just like the local beach bums who go on to be builders and make millions while the educated minority keeps the country running actually.  It is a pretty skewed reality down in aus.  It is about economic opportunity frontier - and there is a lot of scope for a dextrous aggressive disasterous moron in the mining and construction industries.  Australia is very effective at producing more of them.

Basically, my cash reserve will be supplemented by about 20k a year and 300 a month towards my rent bill for a few years as i let my other pension coupons defer.  That is a strategic option - which implies a national circuit of the country to exercise.  Since i have not spent any time in australia since age 27, that seems fair enough.  My weakest throwaway coupon becomes a cash reserve from 67-70 and a longish touring holiday of a lovely country - half funded by the government.  if i need it.  A strategic contingency.

At 70. the world will be open again, and my claims will be rendered.  At this point my concerns have little to do with pension structuring since the claim of multiple pensions will remove me from most significant other benefits.  The primary exercise criteria will be tax management and cost of living.

Personally, i suspect that one of the great demographic themes of the 2020's and 2030s, now almost a full working generation deep in a housing and stocks ponzi scheme run for boomers, and a bit of a scheme in defined benefits pensions being eliminated etc ad nauseum, will be a grey-haired diaspora.  I think the post 50 crowd who went under the housing bubble are going to have had enough pretty seriously, and be pretty seriously booking one-way plane tickets soonish.  I know i have had enough of it for a long time now.  

I am in my 50s so my exercise decision is already fixed - you do not borrow for 30 years in your 50s, not at artificially low rates with 30 years of ponzi in the rear view mirror.  That ship has sailed and you do not want to jump on the last one as it catches fire.  However, i sit at the lead demographic edge of about 15 years of cohort that have been pretty seriously torn apart on economic incomes and capital formation by baby boomers scheming in housing.  Especially the risk rational ones who knew what a ponzi scheme looked like.  They are leaving - early - for cheaper pastures basically.  You only have to take a trip into an asian or latino capital and look at the difference compared to 15 years ago to see how that is actually transgressing.  It will accelerate quite stupendously, i am certain.  There is absolutely a wisdom of crowds when everybody faces the same predator.  Nature in action.

Revisiting my local pension broker's theme of how to retire you need a fully funded state pension, a paid off home and a cracking large private pension pot that he can help you with most ably of course...  One substitute to the paid off home leg, is to simply live somewhere with cheap rents.   In Brisbane where i grew up simple apartments go for about 1600 a month.  In the Philippines, in rural beach towns an apartment twice that size goes for 250 a month - with direct sea views.  Financial frolicking involves knowing where to frolick, and when.  Replacing first world rentals with second world rentals that are significantly less than your proprety tax is a very viable substitute to home ownership.  Somebody should warn generation baby boomer than the tyranny is about to blow up on them - badly.  A lot of those cochroach mansion renters are now in their 50s or getting there.  It has been a revolting predatory game in ponzi risk seeking for 30 years - and it is over, because you cannot rent to a demographic that booked plane tickets in a pretty hard sharp dynamic of 5-7 years in the tail of it.

There are a range of countries in the second world where rents of 350-500usd a month are very achievable high standard of living accommodation offers.  Why would anybody who went under that housing bubble fund it for the greedy idiots a moment longer than they had to under the labor capture principle that got run on them in their 20s and 30s and 40s?  At the higher end of that range or just above you have european countries like spain and portugal and germany too... exactly.  I will not be retiring in Brisbane will I? - and funding some champion baby boomer risk seeker who could not add up.  No thank you.  Find another sucker dad basically...  

I have a slight informed message for the australian government too.  You might want to value your engineers a little more highly - or live in slums sometime real soon.  We have all had enough of doing the hard courses at college and getting the worst outcomes.  Food for thought for useless sociopaths who end up in politics and as 'captains of industry'.  We have all seen exactly what gets to the decision making well-heeled top.  Laugh.  I am a chartered civil and structural engineer who booked a plane ticket at 27 and never went back.  That is a productive waste of talent.  But when you pay them like secretaries ... you will get some serious leavers.

Many countries in the second world offer retireee progreams and do not tax your pensions.  You can imagine many americans get rid of their american citizenship pretty soon after they figure that out.  Who can blame them?  The global taxation system is reminiscent of the Death Star from Star Wars in its extreme imperialist attitude to global and personal reality really.

So frolickers, the moral of this episode is that as well as having your portfolio of social pensions established you need to take a view of strategic options on it, and you need to have some pretty clear plans about where you are going to frolick that does not impose taxes on foreign pensions and has a low cost of living and sites worth seeing.

We are going to keep things fairly simple to illustrate the value strategy.  Let us assume that our merry frolickers have managed to acquire 4 social pensions over the course of an astute working life, spent frolicking globally, and that our astute fellows have collected 3 major reserves and 1 semi reserve.  I do not care which of usd, gbp, jpy, eur you collect as majors; or which of aud, nzd, cad you collect as a semi-reserve.  The general strategy relies on the relative volatility amongst a basket of reserve currencies over a multi-year period, and the macro cyclical rotation that occurs between reserve and semi-reserve currency blocks.  You only need to look at a long term history of exchange rates and mark periods of extreme financial or economic stress in the majors and roaring commodity markets in the semi-reserves to see these strong rotations that occur time and again.  The recipe to risk management of a currency crisis in your domestic currency, whilst taking advantage of shocks in the production opportunity frontier in other countries is holding a negatively correlated mix of currency incomes folks.  It is not rocket science.

Let us assume you spend down your 3 most currently valuable currencies, those higher than mid-cycle valuations against the 4th, and save the 4th.  If you have a shortfall make it up out of assets in one of the 3.  Often the weakest will be the semi-reserve.  It is how global growth and stage of development works.  That simple.  Over years the relative values will bounce around within a block.  For example look at gbp/usd over the last 30 years and this minor convexity will work for you as long as have selected a base location well.  More on that when we get onto frolicking...  However, periodically a strong rotation will occur.  The currency mix will change by 30-40% relatively quickly between the major and semi-reserve blocks, and your savings in the weakest currency will suddenly be worth 40% more tax-free, since there is no tax to pay on your existing cash capital.

Currencies are at their most volatile when inflation rates are diverging globally since inflation spreads then diverge, and when real interest rates have been shocked out of long-run equlibria.  The third aspect is country risk premia.  This could be a financial shock like the gfc, or a war in the ukraine, or a natural disaster, or a technological innovation that pushes capital demand to one country strongly.   These are jsut examples...  The point is that your pension can easily become a moderate global macro bet with only upside produced periodically.  That is value convexity in action.  You simply sit back and take notice of a few long history fx charts and pick your timings.

This is one of the best reasons to not be totally dependant on social pensions in retirement.  You want to have other assets to draw on when you see an optionality argument like this, particularly when it expresses both value and tax convexity like this macro trade does.  Never forget that for a guy paying a 30% marginal tax rate, not being liable for tax is a 50% increase in take-home spending power.

To give a simple example, after the gfc the usd rotated from about 1.7aud to about 0.9aud at its trough.  Had you been saving your aud pension adroitly for 10 years prior, you would have saved value of about 330k usd instead of about 170k usd.  That is 160k usd of additional value in your wealth base, because you were adroit enough to spend out of strong currencies and wait for the global macro cycle to do what it does - change.  It is completely tax free.  It is money sitting in your bank account, sourced in the local currency. that has a different relative value in another currency than it used to.  There is no trading involved in brokerage accounts.  The tax man can go whistle, and he knows that.  Please learn today that a global life, with judicious choice of location at different times, and a healthy but moderate asset and income base, can produce lovely occasional positive shocks to your value, tax free.  The key investment strategy is knowing it, and patience...

For those of you who choose to join my newsletter i will be providing some analytic examples of this trained on real foreign exchange historic data.  At a later time, i may even offer you all a little AI predictive engine to help call the timings with some machine optimality and show you how currencies relate to each other right now compared to long-term parity and recent cyclical ranges.  

Yes, your financial frolicker is a serious quantitative developer off exotic options desks in big investment banks (including fx desks) with a bit of genuine down-to-earth hard-studied know-how.  No readers, you did not miss my copywriting...  I have not mentioned my newsletter service yet, because i am here to help you make better long-game decisions, not sell you stuff for the sake of it.  I abhor the hard sell of glib publicly available knowledge that the online business community is self-fascinated by, and which mostly amounts to a load of incitement to try something pretty risky, and hoping for the best.  Is anybody thinking of flipping real estate as interest rates surge from 0 to 7% after the biggest ponzi bubble in housing in history?  You bet they are selling that game like crazy on youtube.  The real sell is finding somebody naiive enough to listen of course.  It's utterly shameful and it makes capitalism is farce in low ethics.

Asymmetric features are features where the payoff or value function provides additional contingent cash coupons not to the hands of the beneficiary, or modifies cash coupons to the beneficiary on a contingent basis.  Typically, positive asymmetry involves a retirement social pension to ex-/spouses, or survivior benefits to ex-/spouses or child dependents. This resembles an insurance claim more closely than a financial share of ownership in an asset.  Negative asymmetry reduces the value to beneficiaries via asset and income tests and interactions with other pension assets.  Once again, i am going to outline these classic benefits and perils using my exemplar portfolio.  Let's frolick!

The Australian social pension is a very sad exhibit of just how negative asymmetric features can be.  In the case of spouses both of retirement age, there is a combined benefit and a combined income/asset test.  The net effect, in the presence of moderate levels of supplementary income or asset wealth, is generally to reduce the combined payout significantly, or eliminate it.  The social pension is reduced by $1 for every $2 of supplementary income over a low threshold or asset wealth over a quite moderate threshold.  If one spouse is not of retirement age and still working that typically destroys the value totally.  If the spouses have combined assets (including private pension accounts) excluding only their primary home, within moderate bands or higher, value destroyed again.  In australia, building a private pension account and investing with moderate returns through your working life might simply be replacing your social pension with your own hard-earned cash, and you will have denied a social pension to your spouse too.  The kind of interest rates we have had the last 15 years and the annuity rates they have implied have really broadened the range of private account wealth that simply became a drawdown that would otherwise have been met by the social pension.  That is not financially clever.  That is some pretty serious negative tax and social convexity frolickers, and you would have been better off not worrying about positive tax convexity, not building a private pension account, and taking the after-tax liquidity into a house or your lifestyle or economic activities.  You build your wealth on top of income support, not so as to eliminate it.   Don't be a patsie.  Learn to say 'no' to grandiose claims of tax convexity ... and pension brokers.

How is that tax convexity vs liquidity tradeoff looking now frolickers?  You just went without the cash for 40 years so your government did not have to give you a social pension.  That is not smart frolicking.  Sorry, but it's not.  It is no wonder pensi0n brokers are so motivated to tell you about tax convexity and how under-invested you are is it?

Now, with sensible planning the aus social pension is very valuable.  For non-working housewives and breadwinners who did not put together a private pension, and have very modest retirement incomes and assets it is a gift to the household of 45 000aud.  That is smarter frolicking.  Guess how big my private pension pot is in australia?  That's right frolickers.  You could spend it on two decent overseas holidays and get it gone.  This frolicker understands negative asymmetry...  A right sized australian frolicker probably targets retirement assets at somewhere around the limit of what he can have and draws a full social pension, unless he really believes he can make so much money he is prepared to walk away from 45 000aud given to him and his wife every year, for still being here.  Anything extra should be in the family home or gifted to the kids.  Assets tests hurt people with assets, not people with kids with assets.  

Those private pension pots are more like an invitation to shoot yourself in the head than a mere red herring in australia.  That is, unless you really believe that asset returns of 8% actually happen in economies that grow at 2% over 40 year terms.  I certainly do not - and you should not either.  What actually happens is that politicians run ponzi schemes as hard as they can for as long as  they can - and then crash corrections happen.  The sequence of returns is a very vicious redistributive gamble.  I call to your mind the dot com crash, the GFC, etc ad nauseum.  Surely, somebody will smugly remind me of housing.  Don't be smug - be patient, that crash is here now too despite the best efforts of baby boomer politicians to make sure their generation owned everything in town, their kids were slaves and their grandkids semi-slaves.  That is the nature of big macro ponzi-schemes run for one generation by one generation.  Financial ponzi ends in financial catastrophe each time - and your age will randomly determine how you fare on your private pension bets, not so your social pension.  It is a defined benefit.  It is not path dependant on the state of the economy over your 40 year betting game.

On interactions with other social pensions Australia is again pretty miserable as they are treated as income.  They too will reduce your pension by 1 dollar for every 2, if you live in australia, but by 1 dollar for every dollar if you don't.  The australian government is not fond of sending money overseas basically.  For the global frolicker, the australian social pension is very quickly a tear-away and throw-away coupon, without knowledgeable planning that puts its rules first in portfolio construction.  With careful planning it is a 28 000aud a year cash coupon to a single reducing to nil as his income reaches 58 000aud.  For couples you can roughly double it and reduce by 20%.  For the financially savvy, it is best thought of as an option collar strategy on income between 28-58 000aud, with a short call option composed of an asset test which must be allowed to fall out of the money.

The USA is the opposite end of the spectrum.  Spouses get half benefits, irrespective of assets although there are income tests if you continue to provide labor after retirement age.  Survivors get full benefits up to 150% of the benefit amount.  This is strong positive asymmetry.  Interactions are serious here too.  Primary beneficiaries lose benefits dollar for dollar if they have foreign social pensions unless they have contributed in the usa for 30 years.  Spouses however are exempt.  The american spousal asymmetry is a very serious feature.  I consider myself very fortunate to hold that particular social coupon.  It will change my life, no less.  The direct pension is actually far less valuable than the spousal pension once other social pensions or usa govt worker pensions are in the portfolio.

The UK is simple and nasty.  No income or asset tests, no interactions, and no spousal benefits.  No particular interactions on other social pensions.  It is an extremely useful second direct social pension because of its lack of negative asymmetry.  It is valueless to spouses and children.  In 2016, the british government trumpeted its pension reform of raising it very marginally in value, and quietly destroyed spousal and survivor benefits.  So much for democracy in action.  They really value housewives and child-rearing in britain - manifestly.  If your husband works all his life and dies relatively young the state will happily let you starve.  Oh yes, those great and good of the british political class, steeped in land ownership in the 10th century as it is.  Bunch of....

However, it is a very inexpensive pension to buy once you are offshore.  Every cloud has a silver lining.  British clouds have very dim silver linings often.  I was pleased to find this one.

Let's now talk about the convex features of social pensions.  Convexity in a feature simply means that the payoff is not linear.  The key convexities in social pensions are the longevity insurance feature - total payout depends on lifespan, the inflation hedging feature through annual indexing, the vastly under-used feature of deferral, and an assortment of special bolt-on features of a cash and non-cash type that social pensions are gateway benefits too.  These special benefits can include housing, health, and utility/transport benefits and so can hold significant secondary value.

The primary pragmatic reason why social pensions must form the core of your retirement planning from early on in adult life is the simple fact that most people do not acquire the kind of wealth that leaves them completely riskless of depletion if they live to a ripe old age.  Funding life from 67 to 75 is a different game to funding life from 65 to 105.  The convexity offered by the longevity coupon of social pensions is an asset you need to have, and the lower your terminal wealth the more of it you need.  Resetting your risk preferences higher in retirement to deal with a low invested wealth generally ends very badly.  You want a good base longevity-guaranteed income component.  Social pensions pay until the day you die, and then often to your family.  They are pure pots of gold in your 90s, and after you pass if your spouse survives you.  The longer you live the more you get.  The longer he or she outlives you the more they get.  The longevity coupon of a social pension cannot be replicated any other way than by annuitising your private pension pot.  Why would you bother, in light of the following features?

The secondary pragmatic reason why social pensions are a necessary core of your retirement portfolio is their inflation indexing.  Inflation is a recurrent economic theme.  It always will be.  It is economic cancer on wealth and the value of the monetary unit.  Hedges are extremely rare and difficult to construct.  Your social pensions are a key portfolio asset in this regard.  They are positively correlated to inflation shocks when everything else you own or earn is negatively correlated.  You want as much of that stuff as you can lay your hands on.  If you suffer an inflationary decade in your 50s or 60s when you are too old to labor again at the end of it and have no time left to build wealth, the destructive impact of that inflation shock late in your labor life can be absolutely fatal to even moderately successful wealth building.  It changes the game, badly, at the end of the game.  This path dependence feature of inflation shocks is nasty.  ... and that is why social pensions insure against it.  Get some more of them!  Do not bother asking your pension broker how you can add an inflation coupon to your private pension account - you can't, and he could not care less.  He wants the fees and he is selling you tax convexity poses to get the fees.

The next convexity is what i like to refer to as a bonus coupon for conservative investors.  In many major social pension systems you have the option of deferring your claim from age 67 to age 70.  When you do this you typically get roughly a 15-25% cash bonus on your monthly payment.  Of course you have to support yourself from age 67-70.  However, it is a risk-free investment, and it carries the longevity coupon and the inflation coupon and the survivor coupon for the rest of your life.  That is turning bronze to gold, the financial frolicker way.  If you are in solid health at 67, you should make absolutely sure that you have the cash reserves to live until 70 and defer your social pension portfolio.  That emergency reserve you get told to keep in life - here is where you blow it away.  You will not need it again.  If you have to go live in some cheaper location - do it.  It is not fun to not be able to afford the grocery bill in the 90s as inflation spurts again frolickers, not after those medical/pharma bills that are going crazy too.

I also want to mention the convex value of a social pension as a gateway benefit to a range of other cash and non-cash benefits.  In some countries, rental assistance or mortgage assistance are tied to receipt of the social pension.  In some, utility bills get subsidies, and in some public transport passes and health benefits are provided.  There are often senior cards that provide a range of amenity cost discounts to improve life for the senior community, cheaply.  If you have a bit of a global itch, having senior benefits in several countries allows you to keep frolicking for longer.

In the next episode, we are going to talk about how to construct and structure your transition to a full claim on your social pension portfolio.  

Firstly, to costs...  

Well, the australian social pension is free.  It never costs a dollar directly, and if you do not live in australia it is not costing you any money indirectly in the form of your personal tax contributions to the national budget.  It does not get much cheaper than that.  The USA social pension is almost free to me because i will receive one without any significant record of contributions from my own labor.  Please note, that where qualifying periods are relevant, double social security agreements between countries can be availed upon.  For example, my 10 years of adult residence in australia can be cross-credited to 40 qualifying quarters under USA rules, were that ever to become necessary.  It is not presently.  Financial frolickers read their social security agreements amongst host countries.

A financial frolicker knows his social security agreements and how to operate them, as well as he knows his income tax brackets and how to lodge a tax return.  It is a defining skill that makes a Financial Frolicker different to the man in the street.  The man in the street has lodged tax returns - but has never heard of, much less read, a social security agreement for salient features.  Be wiser frolickers.  Taxes are, on average 30% of your income.  Social charges are, on average 20-25% in anglo countries, and 30-35% in european social democracies.  They warrant equal general administrative expertise.

Wow guys - that is 2 average-outcome major social pensions for nothing, truly for the 'beach bum gold standard in lifelong labor peony and effort'.  A brute benefit of 28 000AUD and 21 500USD every year until the day you die, indexed for inflation, for being born and making it to age 67.  Be wiser frolickers, and take the social dividend provided to you by society's intermediation on your behalf.  When baby boomers run ponzi schemes in secondary assets, look to intermmediate across several national groups of them.  The financial solution to concentrated deliberate socially predatory asset ponzi nastiness is truly a diversified approach to intermediated social dividends.

Of course, the usa social pension is a spousal benefit and a spouse went to work for 35 years.  The money is the same, and it is a lovely example of what financial asymmmetry in payouts can bring you in value.  Marriage is bliss to the Financial Frolicker.  You will be hearing that again in many future episodes long after we have forgotten social pensions because everybody is clued up and has 3 of them.

Helas, my british pension was not free, either in direct labor contributions or in direct financial costs after that phase.  I worked very hard for it as a freelancer and due to some unemployment after the GFC there were gaps in my record.  It does cost a significant typical chunk of your labor returns - the typical 20-25% social charges to get it.  Fortunately, you do not actually have to provide labor in the uk for 35 years to get it.  You need at least 10 years of record to get a pro rata part-franked pension.  You can port years of record with double social security agreements to meet this qualification again, but you only get pro rata franking on years you actually contributed to the uk system.  

The huge beneficial caveat is that you can continue making voluntary payments after you have left the uk long behind.  This is another great example of asymmetry as a source of value, this time on the contributions basis rather than the benefits basis.  Once you have a national insurance number and 2 years of record you can leave the country and continue to contribute.  That is the intermediation threshold - 2 years of local record.  

If you want to continue to purchase years of record from offshore it is an absolute budget proposition, truly cheap and cheerful.  It costs about 850 pounds per year presently and you can backfill for 6 years as a general rule, although at the moment there is a closing special window to backfill for years prior to 2017.  The local worker with a decent professional income might be paying 6-7000gbp per year for the same franked year of record.   That is a serious asymmetry working for you.

If you are a would-be frolicker who has ever lived and worked in the uk but does not now and has gaps in their social card record pre-dating 2017 you need to go and get yourself form CF38 and send it in today, and chase like crazy to meet the end-july deadline.  Hurry and scurry people.  ... and learn to keep your eyes open for special contribution windows.

In my case, i paid 12 years of 20% of labor value in the uk, and i will have to purchase 23 years at 850gbp a year, about 20 000gbp as a whole of labor life contribution, but spare a moment of empathy for the local professional worker who is paying 6-7000gbp a year in social charges, for the same franked year of record and a health system that would kill you happily...  

It will pay for itself in about 4-6 years on its own account i guess.  However, permit me to introduce you to our first portfolio concept. As as incremental asset added to the two basically free social pensions outlined above it will pay for itself in 1-2 years.  We must consider the total income in retirement of the portfolio against the total contribiution cost to acquire it, adding assets incrementally from the cheapest to reach the income benefits we need..  Please feel the joys of taking a portfolio view on incremental asset costs, right?  The cost of the british social pension fell into nonsense when considered as an incremental asset as opposed to in its own right.

I am presently prepared to bet i will live to 70, but i know i would like the extra income potential however long i live, so i pay the contribution cost for the additional social pension, and thank the gods of social intermediation for their kind favor.  As you may imagine i am now starting to whistle quite merrily at that pension broker chap who wants to offer me a tax-advantaged investment vehicle, which might not be so tax-advantaged when you really need it in anger, 20-40 years hence.

As you can see, it is very possible to achieve 3 major western anglo state social pensions as a personal or spousal beneficiary, without much cost at all.  That is a pension portfolio paying, before interactions, 28 000 AUD. 21 500USD, and 10 600GBP every year.  That is super-smart value investing at the long end of the game readers, using the power of intermediation and a global frolick.  That is the financial alchemy of bronze to gold.  Learn it.  

In a future episode we will do a comparative analysis of what you would need in a private pension pot, and what it would have cost you in various decades, to replicate this outcome.  It is going to amaze you - and make you cry too.  It will be a very sad lesson in the power of interest rate policy to ruin large crowds of people who believed they were being 'financially savvy and responsible', because they were told they were by their financial advisor and the government of the day.  

At the end of your working lives when ruin is really ruin, it is most disappointing to find that governments acted re-distributively for 40 years for another cohort thematically in financial markets with deliberate policy extremes - and for every sociopathic risk seeker out there to boot, and simply used your naivete to help those groups out.  How could that possibly go wrong badly later right?  Please conjure up your mental caricature of your pension broker, which should be easy by now.  He is potentially more dangerous to your financial health than your stock broker or online brokerage account.  But he is let off a leash by government policy - never forget that.  Seriously...  You need to be fully vested in a hazmat suit when you take expert advice from these types, and dabble in their chicanery on their preferred terms.

The german pension is very expensive to build later in life, and never makes sense as a standalone asset.  You get 36EUR a month for every point you buy, and to buy the maximum 2.17 points for a year will cost you about 2400 euros per month, to my best belief, a fact i am currently verifying.  It is a terrible price/value trade off.  You pay 2400 a month to get back 1200 a month over, on average longevity roughly the same periods of time.  However, an FF must consider the overall pension portfolio scenario.  If an employer is paying half and providing unemployment insurance contributions on your behalf too it is somewhat fairly priced.  As a freelancer paying both sides or an ex-country voluntary contributor it is a disaster on price vs future value.  You need to be enmeshed in long-term stable employment in germany, and earning decent money.

So, when considered as part of a so-far very cheap social pension portfolio this is one tradeoff where i actually have to place some analytic capability rather than a back-of-the-envelope easy decision, and it is likely a non-elective contingent decision based on mode of employment in the end.  If you work as an employee you are on the hook and the pricing is overall ok, and if you do not it is not worth it.  I need some more income in retirement but this is a costly way to purchase it privately rather than through regular employment.  I may make some minimum pension contribution to capture some gift points i am offered for rearing children for example, and move to a private pension pot locally in germany.  

This due dilligence is a work in progress so stay tuned frolickers.  A later episode will present my suitability analysis and due diligence efforts as a template for you all.  However, the first 3 social pensions were free and super cheap, so i will take a balanced view of paying a little more than i want to for the final element of the portfolio - but probably not privately without holding my nose.  One caveat is that if inflation stays high, the inflation hedge, the annual indexing, makes those nominal price/value notions very skewed over a couple of decades.  You are not going to save and invest and beat 6-8% inflation over 15 years.  Not at this late exhausted stage of financial ponzi run for the benefit of generation Baby Boomer.  (Aside - when the economy grows at 2% the domestic asset base does not grow at 8% in the long run.  Sorry.  It is a ponzi scheme, inducted on policy measures on the yield curve.  Again, more in a later episode.)  Sometimes, you must pay the piper to not end up eating rat rattatouille at 70.  Sometimes, financial frolickers get winged deliberately.  We just don't get winged by ponzi operators late in a scheme, and we never get winged by financial chicanery in the hands of folk who earn their livelihood through it.  Be wiser about your desired living standard at 70.  Be prepared to compromise on individual assets and take a portfolio view on outcomes.

What we have achieved here is a significant middle class adult income, in retirement until the day we die, fully inflation hedged, for a token contribution really.  That will certainly make us feel better about paying for more expensive or riskier portfolio elements we may need to top it off with.  Oh - and folks.  No stock market crashes relevant here.  No sequence of returns close to retirement to worry about.  No annuities getting destroyed by interest rate policy pants-dropping.  You know what you are getting in the end.  Think that over a little...

Your financial frolicker remembers defined benefit company pensions, the golden gift of early cohort baby boomers to themselves both in government and large companies, and actually has a small one.  Let me tell you, would-be frolickers, defined benefits kick the living shit out of anything you are betting for, as does anything with an inflation hedge element, and anything with spousal and/or survivor asymmetry, especially for the next 20 years since we went a bit extreme on policy and ponzi the last 30, doubly true when inflation ticks up, or your spouse has had below average labor outcomes, or one of you has shortened life expectations or disability, in that very unfortunate case.  Believe it.  That is how life is.  

You do not need the heavy financial education i have across accounting, economics, finance, actuarial concepts, asset and risk manager practice, and derivatives markets stochastic asset pricing in rocket scientist mathematics that i make my labor bones out of to hear good advice.  You just need good intuition to know common sense when you hear it.  

In fact, the clear power of social global intermediation here is enough for me to almost manage to be polite to baby boomers when they tell me about smart investing and how life is not fair and we all do the best we can - and then housing comes up.  Seriously generation Baby Boomer, get a grip on yourselves on your policy extremes and inter-generational equity capture before we do it for you, in a somewhat determined way which might be just as injurious to your financial health as your ponzi schemes were to ours - but rather faster.  

Political control premiums end quickly at the mortality curve.  Agency conflicts dissolve and reverse, the policy rulebook gets torn up for other objectives than your collective ponzi scheme in secondary assets, and suddenly the tyrants are naked in the streets.  Economic and political regime change happen.  You have been gently and wisely warned generation Baby Boomer.  

For the first time in their adult lives, generation Baby Boomer is approaching a watershed in political, social and economic power, and they may need to exhibit greater wisdom - and simply be less exploitative and a lot less sociopathic.  Be wiser Baby Boomer readers, much wiser....  Economic tyranny ends in economic revolt.  Plus ca change.  

For my non-baby boomer readers, please do hand generation Baby Boomer your multiple social benefits cards at retirement, whistling as you would at a pension broker.  Tell them you understood the power of diversification and intermediation - and diversified their liability to you for a change, rather than the other way around.  Same caricature?  No, we need a much worse caricature for generation Baby Boomer i am afraid.  They have been fairly motivated at the financial chicanery to their own cohort interests for a very long time now.

However, it is time to let Baby Boomer go the way of the dinosaurs gently and move onto out next episode, integrating our social pension portfolio and exploring special features.

This financial frolickers journey to enlightenment began long before he was ever conscious of it.  Way back in Brisbane, Australia, and not even in the senior phase of high school at age 16.  He was quietly unknowingly building years of adult residence record towards the australian social pension.  It was costing him nothing.  Society was intermediating on his behalf.  Please hold that concept of some individual or group or broader society intermediating to provide benefits.  We will return to it, again and again.

Your financial frolicker swept blithely on in life with the normal concerns of study and university and jobs and family, blissfully unaware of the concrete details of his accruing social pension.  Life happened, as it often does, and the best laid plans of mice and men amounted to very little but economic disappointment...

Your financial frolicker needed a job, had family who had emigrated to London who enjoined on him to exercise another individual's intermediation, on this occasion for a British Ancestry Visa through his English grandmother.  He rocked up in london at the tender age of 27, completely unaware that he had indeed already qualified for an australia social pension.  He could have got on that plane to London over 18 months earlier, actually...  

Your financial frolicker has become something of a champ at timing intermediations since then, but he was just getting his sea (or plane) legs.  The australian social pension had cost him nothing, beyond growing up and attending university and working in the country for a few years after that.  It had never cost him a direct dollar.  It is a very fine act of social intermmediation of the country for the individual.  Think deeply on this, readers.  When we get unlucky in life, all we have is intermmediation.  It is a formal base in collective management of the hard non-elective risks of life.

In those days, i had not learnt the financial frolick and did not know what a righteous weapon intermmediation was.  It took me 3 years to even bother going down and getting a National Insurance number and as a result several years of record were lost as dues were paid under a notional temporary number.  

Nobody has ever accused Whitehall of mass efficiency and effectiveness to my knowledge. One of the unique features of the british social pension is the propensity for lost years of record and incorrect calculations.  Let the payer beware! - and check his record regularly.  

Life evolved and over a decade and a half of freelance work in London and across europe, i must admit that work skills and access, tax management, and wildly escalating house prices with no apparent basis in reality concerned me far more than did social pensions.  I could not have told you the first thing about them except that they existed, and you got paid for being old, basically.

I wish we got paid for being young, don't you?   There were a few years in my 20s and 30s when that would have been most helpful.  Thinking on it, i was fortunate enough also to have received Austudy (a student income assistance benefit) for 4 of my 6 years at university.  Another fantastic form of australian social intermmediation in the form of transfer income payments.  It kept my rent paid, and my bus tickets purchased so i could focus on study and becoming an engineer, rather than ending up driving those same buses.  Social intermmediation again folks, at its very best.  We do not want the brightest kids driving buses.  It is not in society's interest - or theirs.  Intermediation matches those interests.

Life moving briskly along, the GFC happened, London turned into a wasteland of unemployed smart kids (and the british of course, who were rarely unemployed and even more rarely well educated smart kids,  in my experience.)  I decided to exercise a little bit of brinksmanship-standard intermediation, this time on my cost of living during what i saw as a prolonged economic downturn, and flipped off to asian beaches and a bit of remote study.  Geolocational intermediation of the cost of living is a theme we will be returning too eventually.  

Let's just say that i lived for several years without declining my capital base at all.  I thought i had it all figured out with this geolocation arbitrage on cost of living stuff.  Then interest rates tanked and i realised i still had plenty to learn.  Sadly, it was time to bid adieu to cheap beaches and get a real job again - fast.

London had apparently transformed into a third-world post-apocalyptic state where the only people making any regular income were hookers from european accession states and british investment bankers.  It was sometimes hard to tell which was which for a simple colonial boy to be honest, but the hookers were prettier, had much better teeth, and were significantly more honest in general.  I eventually immigrated to the USA - relying on individual intermmediation again for a Green Card.  

Surely there would be jobs for smart talented engineers with heavy tech and finance experience in major capital markets right?  You heard the buzzer didn't you?  America was an absolute disaster.  The one thing you absolutely do not want to be in the great USA is a highly educated engineer with a background in investment banking technology and mathematical finance, white, foreign, and older than 45.  It is a recipe for long-term unemployment.  You really would have been better off driving the buses...

However, around about this time your financial frolicker had figured intermmediation out pretty seriously, and had seen the opportunity in social pensions.  He had always known that the long end of the game dwarfed the short end of the game.  He had always know that geolocation was a useful strategy for the financial frolicker and he had acquired british and american passports to aid in that open-borders pursuit.  Around about now his expertise on social pension rulesets was starting to get established pretty seriously.

Brexit happened as covid rolled through the world.  Your financial frolicker did not need to be asked twice to take out an insurance policy on the USA and its disdain for effort and talent, compared to a cheesy elevator ride-length pitch ported at you by a sociopath.  Plus ca change, ... twice.  Your financial frolicker toddled off to germany and enrolled for temporary residence there, establishing his european settlement rights.

The moral of the story is that wherever life leads you, do not leave your social pension cards behind at the airport.  ... and collect a few passports along with experience in a few global bases of operation, spread across the developed and developing world.  Your children will thank you later, after you have taught them the financial frolick.

Up next, we are going to discover the true difference between a collection of assets and a portfolio constructed of those same assets.  It is time to dance one of the mainstays of the financial frolic, and dig into the costs, benefits, special features, and correlations among social pensions.

The very Special Social Pension of the average FF, is no more than a portfolio of national scheme social pensions, assiduously acquired and nurtured over the term of an adult life.  Personally, i will be a fully entitled recipient of an australian state pension, half of a fully-franked american social security cheque, a fully franked british state pension, and a part german social pension.  

In fact, when my would-be financial advisors cock their heads at me (pun intended) and suggest that i am not saving enough for my retirement and they have products that could help me do that and save me some tax too, i whistle jauntily and tell them that i do not need their products.  I do not - because i actually use an additional state pension (the german one) as a savings vehicle.  It gives me longevity insurance and inflation protection, and a bunch of gateway benefits too, and it is not subject to significant rule changes that erode its value, well not without mass electoral revolt countrywide.

Yes, guys and gals, many social pension schemes, once you are enrolled, allow voluntary payments - globally with caveats.  In my case, the american and australian ones do not, but the british and german ones do.  They can be franked as private pension schemes, just like private pension accounts but without the tradeoffs between tax convexity and political and regulatory risk and treatment.

You will pay your tax, and your social contributions - and you will get your social pension.  Social pension rules may change - but you are going to get one, and they can't change too materially because too many seniors depend on them and little else.  It's incredibly hard politically to change entitlements systems for social pensions.  People vote hard on things they rely on in old age and contribute large sums of money to over a working life.  This financial frolicker considers risk of major material reform to social pensions almost vanishing, but the risk of major material reform to private pension funds absolutely overwhelming and imminent.

I listen to the debate in america about entitlement programs like Social Security being unfunded and unsustainable and i just laugh out loud.  Of course, it is great press for selling private pension accounts and the lobby groups are all for that, but the bottom line is if you think getting universal health care in america took a long time, you ain't seen nothing compared to taking people's social pensions off them...  

I will bet you your house that in 15 years time absolutely nothing will have changed materially except some additional sources of funding for those programs.  They are untouchable.  The australians as always offer a real clue on directionality.  You do need to worry about your private pensions and assets and income being used to offset your social pension entitlements.  That is a real risk.  However, the first asset they will use for offsetting will be your private pension pot - count on that.  They want to use those politically for fiscal purposes.  That Baby Boomer crowd is just itching to use those pots to cash them out on ponzi housing en masse.  Trust me.

By imminent reform to private pension rules, i mean the next stock market and macro crash which we are currently on the precipice of.  My bet would be that after they expunged monetary policy to put a floor under the GFC, then expunged fiscal policy to put a floor under covid, they will be putting a floor under the next crisis with your private pension pots.  Sorry.  Hard politic is something generation Baby Boomer has excelled at for a long time.  Their private pots are full for them, and the Devil take the hindmost - literally.  

That is Baby Boomer political lore when it comes to growth and inter-generational equity.  You do not want to be the youngest.  I sometimes think everybody who is not a Baby Boomer should answer to the name 'Patsie' for what we continually allow them to get away with, but i think that day of reckoning is coming too.  I just want you guys to have viable financial situations when that social conflict gets real, in the later years of this decade.  It is going to be a doozy.  One for the ages...

So, my advice to all would-be financial frolickers is to go out there and frolick. Work in several countries, and smile broadly at the line on your payslip that represents social contributions.  Everybody should have 3-4 social pensions, that they keep franked with direct labor or voluntary contributions.  Every non-baby boomer who is short housing on this planet should answer ponzi housing with replicated social pensions.  Every single one of you.  The older you are and the longer you have been short housing the more desperately you need several social pensions.

We all know conventionally that one social pension is not, on average, enough for a decent lifestyle as a senior, and that you certainly cannot be paying rent as well.  That is the whole 'carrot and stick' act on getting you into private pension pots that are subject to re-regulation by Baby Boomer politicians.  However, if you have 3-4 social pensions then one of them will pay the rent so cover the short housing position, and a second will cover the gap that your private pension pot is for.  The third is the charm.  ... and the 4th is a bit of tactical insurance that you get aggressive with if you see features being modified against you.  

You do not want more than 3-4.  The likelihood of asset tests which limit your income in retirement by offsetting your entitlements is real and growing.  It has already been the case in australia for decades, although it was a serious political fight to bring it in.  Don't get crazy - just get your middle class income covered.  It is very possible to put together a few entitlements as outlined here that will pay 50 000USD in retirement, indexed every year for cost of living, until the day you die - with survivorship benefits for your family.  It is also possible to pay rather amazingly little for it on one side of a married couple.  We are going to get to that...  When it comes to social pensions and the financial frolick, marriage really is bliss...

One pension broker who i am currently carrying out a due diligence exercise on in germany has a typical pitch deck presentation that suggests a viable pension plan is comprised of an owned home, a fully franked state pension, and a private pension pot.  That fairly classic appraisal then devolves into debunking alternative private pension alternative selections to its own of course.  

I agree with the brokerage that for generation Baby Boomer this was very solid sensible advice.  For the next two generations i doubt it very much.  I suspect a much better plan is to avoid ponzi housing until it touches heaven and falls to hell, and to avoid significant values in private pension pots due to the likelihood of those pots being assigned other purposes by substitution.  If you are not a Baby Boomer who has owned a home for 30 years.  If you are gen X and have not owned a home ever - you need 3-4 social pension schemes, and you need it now.  You probably want to be in a country with very developed socialised rental markets and a habit of lifelong rental.  Guess why an Australian non-boomer ended up in Germany?

In the next episode we are going to show you how cheaply a set of social pensions can be acquired, and just how flexibly some typical scheme features can interact to give you additional benefits, when you need them most.  You will be quite amazed at the economic powerhouse that is your social pension entitlement card.

We have all been told, relentlessly, that part of being a financially literate astute adult is making tax-privileged contributions to a private pensions plan to the fullest extent, whether it be an american 401(k) account, or a british ISA, or an australian Superannuation fund account, or wherever, however named...  We are told the earlier we start the better and that we are all massively under-invested in our own old age.  I beg to differ on all counts, and am here to construct you a substitute that i consider a much better alternative.

It is absolutely true that we should be providing for our old age from the day we start work, and indeed, we are....   Probably to a far greater and more robust extent than you may think, and the more we frolick the better.  Hold that frolicksome thought as i introduce you to a global selection of the humble social pension...  

In Australia, you do not even need to go to work to be providing for your old age.  The state pension in Australia is residence period based.  You can decide at age 16 that school bores you, go become a Surfers Paradise street kid, and live on benefits until age 26, then get a bit tired of the local beaches and take your beach bum act global until age 67, any way you can make it happen...  You will be fully eligible for an australian state senior pension - about 28 000AUD a year.  No questions asked.  No work record or contributions account required.  Ten years of adult residence and a returned resident at retirement age.  That is the deal - and it is the best social pension deal on the planet because it costs you nothing and is not contingent on labor provision, or even residence after 10 years of it.  You are free to frolick.  Free to qualifying participants is always a hard offer to beat.  

Sadly it is not globally portable at retirement age unless you have 35 years of residence in australia, and it is a genuine social pension, which means it is income and asset tested and disappears rather quickly if you have alternate sources of income or a significant asset base beyond your primary home, which is exempt.  Australia has a very serious pension deal on the table for global beach bums - if you spend ten years and retire there without much beyond a home and some sensible savings level, it is a gift from society straight to you.

The Americans, hard working bunch that they are, are not believers in social dividends like pensions for long-term residents of the country.  They run a contributions system that will take roughly 8% of your pay and another 8% off your employer.  It is costing you 15% of your potential labor value every month - for at least 35 years to be fully-franked.  It has a typical formula basis, but with a very interesting convexity for lower-income long innings workers.  It has particularly valuable asymmetric benefits to a reduced work spouse and to survivors.  Social Security payments, with caveats, are fairly broadly globally portable too.  They are frolick-franked.

It is potentially about 2-3 times more valuable than the australian state pension, at about 50 000USD a year if you have been a fairly high professional income earner for 35 years of record, but the average is only about 18 000USD.  It is a long high income haul to get the pot of gold.  .. and i must recuse myself for accusing the americans of not believing in socialism, because they tell me this so often and so loudly, but in fact the american social security system pays a very special social dividend to spouses who have poor working and contribution records.  

Spouses with 10 years of marriage record (even then divorced and not remarried) get half of their working spouses entitlement if theirs is less, even if they have never worked a day in their life.  Surviving spouses and ex- do even better.  They get the full entitlement, not half, and if there are dependants they can get up to 150%.  

The americans will only sponsor married beach bums apparently, and your spouse is not going global with you...  Dear old other half is chained to the job and two weeks leave a year in america for 35 years to make it happen for you.  

The next time an american spits the word socialism out at you if you come from a social democracy like i do, please smile gently, do not bite, and tell that dear person about their social security system for spouses.  America is actually a deeply socialist country when it comes to old-age public benefits.  I do wonder how many failing early marriages this quick prosaic summary may potentially re-inspire and rescue.  I also wonder deeply about the cognitive function of many retired americans i have had spit the word socialism at me within 5 minutes of noticing my accent as they lived off their socialist public benefits.  

The British, as is their wont, throw a most meaningful pose, make vast promises, fail to implement, and under-deliver terribly - and late.  Plus ca change really.  The British social pension will take you 35 years of contribution record, cost you about 12% of your income up to the upper tax bracket and then about 2%.  It is costing your employer too, so again about 20-25% of your potential labor value.  It is not quite as simple as that because the contributions fund the NHS too - well they are intended too, but anybody who has ever had to use the NHS for anything beyond an antibiotic prescription knows it does not work.  In my opinion, many third world countries have better health systems than the uk, but that is a rant for another day.  

For your 35 years of being tied to an employer in Old Blighty and hoping to never need health care, much less a decent dentist, you will receive about 10 500GBP.  ...If they can find your record and have kept it accurate.  Yes, the under-delivery is quite serious.  A street cat might be able to live on it - not you.  It is globally portable - frolick franked again - but with caveats on the annual inflation indexing.  The british really do not like their ex-colonies except when there is a war to be fought, and dying to be done.  Again, plus ca change....

The Germans, as you may expect, are an absolute classic case in strong fair and funded social democracy.  The social pension, the GRV, will cost you again about 20% of your potential labor value, and has a contributions formula over 35 years.  It caps at about 85 000euros income a year and on a fully franked modestly high income record like this would pay about 32 500euros at normal retirement age.  It has fairly strong caveats on portability, which i am still investigating.  As always, in retirement you will face some additional social taxes on it, rather than just income tax.  If you want the benefits of social democracy, the costs are forever.

All of these social pensions are indexed annually for cost of living inflation, on the appropriate domestic formula.  Please read that twice fellow frolicker - social pensions are near-perfect inflation hedges.  No, read it 5 times.  Yes, 5 times.  Inflation hedges are very very difficult to construct in private financial assets for the average guy or girl.  A decade of strong inflation, by it's nature, will tear your wealth profile apart by eroding the real capital base.  It is economic cancer, especially from mid-life and later.  ...and that is exactly why social pensions are inflation indexed and provide inflation hedges.  You will not be getting that feature in your 401k or super or isa or rierstr fund - believe me.  

Now, i have a personal working knowledge of each of those social pension systems because i am a beneficiary of each of them.  It is in my interests to have a pretty strong working knowledge of them - and it is in your interest, fellow would-be frolicker, to have a strong working knowledge of the systems you are potentially a beneficiary of.  Do i hear scurrying minds wondering whether their past offshore frolics might hold a payout feature?

I bet it has surprised all you would be frolickers that you had so much money saved for your retirement - before anybody even mentioned 401k or super or isa or rierstr products?  You are getting stiffed generally for about 20% of your labor value up to a modestly high mid-career professional salary as a general estimate.  You have saved 20% of your labor worth, compulsorily, before anybody mentioned private pension accounts.  Hold that thought please for later.

Indeed, a private pension account might also be a very viable component in your overall personal finance portfolio, and it might not too...  The question is one of suitability, and before we make significant financial commitments we should always appraise suitability.  You will find this is enshrined in the investment policy process of any financial fiduciary you deal with who has a formal duty of care, typically your asset manager or pension advisor.  Your mileage may vary.  Let the buyer beware....

To undertake a suitability analysis we have to understand the key financial and general features of the product we are looking at, it's risk and return characteristics, it's tax treatment, and the way in which it integrates and correlates with the rest of our personal finance portfolio to help us achieve financial goals and reduce financial risk.

Firstly, the primary benefit marketed of private pension accounts is their tax convexity.  You will not pay tax or pay a reduced income tax exposure on income you contribute directly to the account.  Of course, you will pay tax in the end, when you draw down the money in retirement.  National rules vary from part taxation on entry and exit and no taxation on fund growth while in closed fund mode (eg australia) to no tax on entry, full personal tax on exit, and no tax on growth (USA) to the fairly generous british version with large amounts deductible on entry over a 4 year window (240 000), no tax on growth, and a generous 25% tax free lump sum on exit, with flexible annuity or drawdown exit treatments.  Personally, i think the british scheme has the best tax convexity.  Mileage varies, regulations do change, but the general feature of saving  some tax to incentivise you to save is uniform.

The point here is not to get bogged down in national schemes or the risks of regulatory change if you have a large pot, but to simply point out that tax convexity is a complex issue and in general you are going to pay taxes at some point on the time horizon.  You may reasonably expect that by saving in a private pension account you will defer some significant taxes, you may avoid some or all taxes on growth, and you may avoid some tax altogether because your marginal tax bracket in retirement may be much lower than it was in your peak earning years, or due to special tax convex exit features in your national scheme.  I will spend an episode on comparing schemes later, not today.

We need a reasonable general framework for assessing suitability with a tax convexity product feature, without getting too buried in details.  Generally, i consider the value of private pension account tax convexity to arrive in two parts.

The first part being in deferring taxes on entry and potentially avoiding some of these deferred taxes if you are in a lower tax bracket in retirement (which most are), as a savings incentive.  That simple.  There is a value proposition here.  It is not the killer feature it is marketed as.  Saving a 40% tax bill today to lose the liquidity and pay a 30% tax bill in retirement - if you get to a longevity point where you have actually drained your pot - is not a killer feature to me.  Yes, it has a value - no it is not the kind of value that would make you cry over too hard if you missed it for a few years occasionally.  

The second part of tax convexity value in private pension accounts arrives if the growth in the fund is not taxed in the hands of the fund.  This is actually potentially a much more valuable convexity than the tax deferrals and bracket erosions.  However, some systems do tax (uk) and there is a general and very unfortunate trend in the western world to fiscal catastrophe after 30 years of baby boomers running ponzinomics in asset markets and on fiscal spending.  Your financial frolicker thinks the days of private pension account growth being untaxed look fairly numbered.  In any event, you have to grow by as much as inflation every year just to stay still in reals and so this tax convex feature has limited real value in inflationary workout periods.  Inflation is truly economic cancer.  

I hold two opinionated caveats on this tax convexity feature.  Firstly, i think the political risk of regulatory change is high.  I think fiscal holes must be filled and these pension account schemes are large invested pots of money that are easy to monitor and  tax.  I think there is significant political and regulatory risk associated with building or holding a large private pension pot over the next 20 years. Secondly, i think the likelihood of strong financial asset returns after 30 years of very deliberate ponzi schemes since the mid 90s are very very poor - vanishing.  My central viewpoint is that we are likely to get taxation on growth, badly performing asset markets for a decade, and moderate inflation for a decade.

Unfortunately, economic context is everything.  If you were a baby boomer dumping oodles of cash into a private pension account from the 90s this tax convex feature probably had high value for you on average risk taking patterns.  If you are a gen Xer like me, it held some value.  If you started work in the 00's it is probably going to come out flat - and you might get taxed on growth as inflation swept through pretty hard and your exit feature convexities that i have not dug into stripped out too.  All of economic, financial, and political regulatory risk are heading in the wrong direction hard basically.  That is what happens when you run unsustainable policy mixes to support one generation of risk-irrational speculators in the long run.  You get a messy workout.  We are there - basically,

In any event, taxation should be a secondary consideration to performance, or growth.  As in life, we have to make money to pay taxes.  However, in general the tax convexity of private pension accounts is their primary financial benefit feature that makes them different from you just investing savings in risky financial assets through a brokerage account directly.  Of course, if your marginal tax rate is 10% or 20%, tax convexity now and in the future may be a much less important concern than having the cash you need when you need it in the short term, which brings us to liquidity....

The primary dis-benefit of marketed private pension schemes is illiquidity.  They are extremely illiquid products and in many cases you cannot retrieve the money until retirement age with typical caveats such as severe disability and qualifying ages.  National schemes vary again.  Where you can withdraw there will be tight limits and rules and tax penalty treatments.  

As a general guide for suitability assessments private pension accounts are the most illiquid asset you will ever own.  They are more illiquid than the car you drive, houses in a housing crash, hedge fund investments that have decided not to return monies, closed end funds etc.  They are a seriously illiquid investment vehicle.  That should never be overlooked when considering your portfolio of assets from the perspective of providing liquidity when you need it.  Your private pension account in not designed to provide liquidity, until you are elderly, with caveats.  

If you do not have sufficient alternative sources of liquidity a private pension account might not be very suitable right now in your life.  Please read that last sentence 100 times, because you have been told at least 10 000 times that you are a muppet if you do not have one the month you start your first job, and contribute to it regularly from then on.  We all understand why we get told that right?  Somebody makes a fee from the day you contribute and more fees the more you contribute.  It is not rocket science.  These guys telling you about tax convexity features are telling you about tax convexity for a reason...  You should regard your private pension account as a closed end fund for which the investment incentive provided is tax convex treatment.

The final consideration in general suitability assessment is the kind of risk and reward tradeoffs that can be established, and the fee structure for the product.  In general, private pension accounts are limited to risky bets on stocks bonds and money markets.  You have all heard of the 60/40 rule and the 4% spending rule.  Ignore them both.  In my opinion, they are both far too simplistic to have any value at all other than to a social marketer.  

What you do need to realise is that money you give to your private pension account is money you will be investing in financial asset risk premia for the course of your working life.  It will not be available for alternative asset investment, nor for consumption.  If you want capital to start a business you will not find it here, larger deposit to buy a home - same story, artwork, vintage wines, a motorcar collection, private equity, hedge funds - nope.  You are allocating money to conventional financial asset class risk.  That simple.  You want to consider the amount you have exposed to conventioanl asset class risk within the overall parameters of your portfolio and its diversification and exposure to broader risk factors.

With that quick backdrop, here is the pearl in the shiny blue ocean.  The simple truth is that most people heed their investment advisors, motivated bunch that they are, or the internet, and invest far too much money in private pension accounts from far too young an age, because of the 'tax savings'.  The impact on their liquid access to funds is often catastrophic as life matures and they have children and mortgages, and the impact on their overall concentrated exposure to certain conventional classes of financial asset (stocks and bonds) is also often extreme and catastrophic.  Please kick the tyres before you skid a vehicle around a corner in a hailstorm...  

If you do not have an emergency savings account sufficient for your job risk of transitional unemployment and other sources of liquidity sufficient to keep you going for 2-5 years whatever they might be (including mum and dad here), then you should not be giving hard cash to closed funds until you are 67. If you are a stockbroker you probably do not need your portfolio as exposed to stock market fortunes as your job is.   Get the message?  

It's the riskiest kind of financial lunacy to not put liquidity first as a personal investor, and to not consider a broad portfolio that integrates your labor risks and your lifestyle requirements and choices as well.  Saving 30% in taxes is great this year - until you need the money or lose your job next year or the year after....  Be wiser.

The Financial Frolicker does not generally believe in early starts to private pension accounts and he consider the relentless action of politicians to make accounts compulsory and the fact that they give you tax breaks in the first place a pretty compelling reason for you to be a bit suspicious in the first event.  Politicians of course are very happy to have large nationwide pots of money that they can change the rules on later - but you have to get the money into the pots first folks....  

Your FF was prepared to pay a little more tax in his 20s on junior professional income levels, have a little more liquidity, and wait for the liquidity and tax convexity pendulum to swing more in his favor before he even looked at that tradeoff analytically.  The point here is to understand your own pendulum and pivot of liquidity and tax convexity and that really depends on your liquid wealth and your income level as you go through adult life, year by year.  

He does not believe in huge private pension pots either.   A pension pot is not a bank account.  It is not yours.  It is held, in fiduciary, on your behalf, and rules can and do change in very aggressive and penurious ways.  Generation Baby Boomer has been very aggressive about ponzi schemes in financial assets manouvered adroitly with extreme policy settings for 30 years now, and that will come home in the fiscal washing basket someday soon.  

This financial frolicker does not like the odds of private pension accounts not facing pretty serious absorption into general fiscal duty.  The pots got filled by baby boomers and their kids, the baby boomers will largely get their pots back, and the kids might not, and the grandkids might be stuck with compulsory contributions they would never go further than.  That trend is not new, is it, really?

Of course, if this FF is going to tell you to proudly tell your financial advisor that you are financially illiterate and do not want to top up your 401k or your Super fund allowance, when they tell you again about your gap, he better have a better alternative offer.  Well he does actually.  You just knew it right ... you have been glued to your screen for 10 minutes waiting for the secret sauce?

Well, in the next episode your FF is going to show you how to construct a portfolio of social pensions instead of a portfolio of private pension accounts.  If you ever relished the ides of beating Baby Boomers at their own penurious games in Ponzi, and felt miserable in the certain knowledge that you were simply 20 to 40 years later to the ponzi games that they started - and thus the patsie - stay tuned.  (By, the way, if you are not a Baby Boomer, you absolutely are the patise at the card game.  We all have been for a very long time now.  But the ones who will really get hurt are the patsies who thought they would bet like boomers but 20 years later.  Ponzi games are what they are.  People who arrive late do not get hurt, they get destroyed.)

However, please do me one small favour, dear would-be frolicker.  The next time some savvy sociopathic financial sales and advice type tells you that you are not saving towards your old age, please remind him you are saving 20% of your potential labor worth generally, before you came in to talk to him.  

Please watch the reaction carefully.  It is even better when they are Baby Boomers - they are accustomed to making an actual offer to the financially illiterate masses of their own cohort.  It is much tougher when you have no offer to make to the financially literate - and he's younger than your kids.  A certain amount of advisor baiting can be a very useful learning experience.  You can learn a lot as these savvy types try to show you value where there is none.  It is a worthwhile investment of your time to help you refine your critical analysis.  Do not bring your cheque book, or your credit card.  They are a very motivated bunch.

In the next episode, we are going to reveal the oracle - a truly global diversified portfolio of social pensions.  Keep reading!!

Everybody worries about their current job, their career progression, their housing position value (or lack of one), their kids private education, their stock market portfolio, whether they should be in alternative assets right now, and the list of short-term financial lifestyle concerns simply becomes dizzying and then an abyss, leading to information overload and decision paralysis, and then an assortment of bad stuff quite often.  I am here to tell you that understood properly, the short end of the game matters far less than you may think.  Far less indeed...

The long end of the game, clearly enough, begins when the short end ends; but when is that exactly?  Well, for the masterful FF, regardless of age or intent, it has already happened.  There is no short game.  There is only the long game.  Our happy FF has understood that the chips get counted down the race track, not at this pit stop.  The short game is a liquidity game - that simple.  If you have the liquidity to cover your short game, then you are playing the long game.  If you are challenged to manage your liquidity requirements then you need to eliminate debt or develop more income, and you are stuck as a victim to the short game until you have that pendulum on the right side of its fulcrum.  The short game is for suckers, frolickers.  I have never owed money past a monthly due date on a credit card in my life.  Nor should you.  It is a game for patsies.  You earn what you earn - live within your means.

So let's talk about how those chips get counted at that distant pit stop...  The astute FF knows that at the end of the circuit when he hops out of his little economic income-providing vehicle he needs some financial substance to allow him to frolick freely.  We live in a world where we are indoctrinated heavily to the belief that we should study, work, save and invest, providing for this eventual thing called 'retirement' that comes when we have white or grey hair, or none, and if we have made canny investment choices this 'retirement' might be quite nice, but if not then 'retirement' might be quite grisly.  If you step back and think about it, it really is the modern life cornerstone of 'chair and whip'.  It governs us in all sorts of weird and wonderful ways as we progress through adult life.

However, the FF's are here to tell you that 'retirement' can be very good and very meaningful and very early too, if you fail to fall into a few very simple propaganda pits. We are going to give you some FF instant-cash pitstops for just that purpose - so you can look at the propaganda pits as they really are.  First let us define the pitstop where our chips get counted meaningfully.  Retirement is not what you think.  It is not the day you finally say to the firm that has employed you or the business you have run 'that is it, i am done today, forever'.  That may be how we think of 'retirement', but that is not what retirement is.  

Retirement, to the FF, is the ability to retire from the short game concerns of life.  He has the ability to generate the liquidity he needs sustainably, passively or semi-passively, without taking significant risk of large losses in financial markets.  His behavior is no longer dictated by the need to generate income from labor or explicit business risk taking or investment risk taking.  He may choose to continue in economic or risk-taking activity of one form or another, but he has reached the long game and he will constrain his appetites to stay in the long game.  The rest is elective.  It is self-expression, rather than an enforced survivalist labor march or risk seeking sprint to try and achieve unrealistic gains in the medium to long run.

The primary pitstop where we check our gas and type pressure for the laps ahead is in fact the age at which we qualify for state retirement benefits.  That is a big cognitive hit.  Think that over a bit...  

Why is it when the government provides us an income rather than one we provide for ourselves through economic activity?  Well, the simple truth is that the only real longevity income insurance that most of us have, the vast majority of people, is that provided by the state.  The day that income insurance arrives is a pitstop day.  That is a pitstop day that the FF has very carefully marked in his plans and has fully funded, fully franked.  It is not the only pitstop day, but it is the big one.  It is the pivot across which the pendulum of other decisions swings.  

Unless you are born with a significant trust fund or are unusually financially successful in life, thus essentially building yourself one, you are basically always at tangible risk of depleting your assets if you have substantial longevity and really ending up relying on government-provided social income or the loving charity of your children, should you have any.  That is just the way life actually is - do not let your pension broker kid you too hard with his protestations of 8% long-run risky asset returns in a 3% growth economy, especially after 30 years of ponzi...  That would be quite unjudged and unwise.  

For example, this particular frolicker does not have a significant pension plan with a stocks and bonds allocation mix - and never has had.  Hold on, readers are screaming, you must be financially illiterate my good fullsome Frolicker, sir!  ... but no, in fact, the classical humble private pension allocation is one of the greatest red herrings of adult life, and i am about to explain to you exactly why...  

For example, yours truly holds a serious pitstop day at age 67, at which time he will accrue eligibility in no less than 3 state pension systems in 3 different reserve currencies, and he may contingently acquire a 4th.  By age 70 he will have acquired the 4th as well.  In our next episode i am going to lay out for you how an aspirational frolicker might avail themselves of a portfolio of state pensions.

Meanwhile, i want you to consider for yourselves whether any financial advisor or wealth manager has ever really talked to you about a portfolio concept in state pensions - i doubt it.  There are no brokerage fees in recommending you to go and get your social entitlements, broadly and globally.  

There are, however, several significant economic wisdoms in a set of state-backed social pensions:- the currency diversification, the longevity insurance feature, and the fact that they are near-perfect inflations hedges, not to mention the asymmetric benefits of spousal entitlements and survivor benefits.  The inflation hedge alone is quite topical today in a way that it has not been since the early 80s, because it is almost impossible to build an effective inflation hedge in regular financial asset classes.  Commodities are better, but an indexed state pension is as good as it gets.

Imagine a life in which you did not have to save for retirement in your 401k, your Superannuation fund, your corporate pension fund, etc ad nauseum.  If you could and did, successfully, great, more frolicking for you, but if not, several states had it covered for you anyway.  This is one core strategy for the experienced FF - accepting the reality of life and its cycle, and making sure that his pitstop day is designed as a payday.

The next ambition of a serious FF, is to add a few more pitstop days along the journey of life that occur a little earlier than his state retirement accrues, to shorten the short game and to lengthen the long game.  We would like the short compulsory labor game to indeed be a short game...  We would also like financial risk seeking to be elective, rather than a desperate attempt to take more long term debt and equity risk to catch up with earlier ponzi players.  The elective long game is the only game we all want to play and we want to play it on our terms for as long as possible.  That is the common human condition.

Now all of this is not to say that the short game does not matter, fundamentally, and we are going to talk in length about how to navigate the treacherous waters of the short game, but the primary point in the short game is to build the long game, to build our pitstop days, and get to them a little more quickly on the track.

Up next, we are going to show you the hidden arcane reality of the multi-national state pension portfolio and exactly why you would benefit from one too.  We are going to show you the financial-life transforming power of social obligations accrued in several countries.  Stay tuned...