As the US economy slowly reopens, unwinding from the COVID-related lockdowns of 2020 and early 2021, employers are facing an unprecedented shortage of available workers. Many reasons have been cited for the lack of employees, including low pay, overly generous unemployment benefits, and lingering fears of COVID-19.
No matter the rationale, one solution to the problem has been an uptick in the already rising trend of businesses (especially major corporations) embracing automation. And while labor shortages persist, the trend toward automation means that more and more people are, in effect, competing against increasingly sophisticated technology.
Which begs the same question we asked three years ago: What will you do when you’re replaced by a robot?
In a study released last October, economists Ziad Daoud and Scott Johnson concluded that as many as 800 million people “face a high exposure to the risk of their employment becoming obsolete.” And it follows an even bleaker conclusion from a 2013 Oxford University study that estimated automation could threaten 47% of US jobs in the following two decades.
Soon, restaurants could be staffed almost entirely by robots or automated servers. At many fast-food restaurants, you already punch in your order at a kiosk, rather than speak it to an employee. Some hotels are already equipped with automated check-in systems and robotic butlers. Imagine a future where driverless vehicles are the norm: that development alone will render more than four million US jobs obsolete.
And it’s not just unskilled or low-skilled workers who are in jeopardy. Many of those at risk of losing their jobs to automation will be highly skilled professionals. After all, why pay for a physician’s diagnosis when an expert system powered by AI could perform just as well in most cases, and never need to take a break? Robot judges that can determine guilt or innocence could eventually replace human ones. Indeed, in China, the Beijing Internet Court already offers a mechanism to adjudicate civil disputes before an AI-powered robotic judge.
This trend is unstoppable. And the transition’s speed is increasing exponentially. You’ll need to adapt, especially if you’re under 50. Our 2018 essay on the robotics revolution listed some of the occupations most likely to be automated (e.g., accountants and bookkeepers) and least vulnerable to the trend (e.g., robotics technicians, handyman-type positions).
Americans also need to face another reality: The social safety net our parents and grandparents relied on will mostly be gone by the time we need it.
The good news is that if you’re already receiving guaranteed pension benefits such as Social Security, you’ll probably continue getting them for the next few years. The bad news is if you’re not yet old enough to qualify for these payments. In that case, you’ll receive some portion of the benefits you were promised. But it won’t be anywhere close to 100% of the amount you expected and planned for.
A big reason is the impact of higher unemployment on pension schemes like Social Security funded by worker contributions. And it’s likely to happen sooner than you might think.
The trustees of the Social Security trust fund estimates payments will continue as normal only until 2034. After that date, the fund’s reserves will become depleted and employee contributions will be sufficient to pay only 76% of scheduled benefits. The Congressional Budget Office (CBO) is even more pessimistic and predicts an insolvency date of 2031.
We believe that even the CBO’s prediction is wildly optimistic, especially if automation eliminates nearly half the jobs in America.
I’m 66 and I anticipate receiving much lower Social Security payments than what I’m currently entitled to. In my retirement planning, I’m counting on:
- A 50% cut in Social Security benefits in 2028
- Another 50% cut in 2038
- An additional 50% cut in 2048 (if I live that long, I would be 93 years old)
At best, Social Security will be able to pay out no more than 50% of promised benefits to anyone retiring in my lifetime. And well before that date, the entire system will likely collapse. Young workers will revolt overpaying into a system they’ll never benefit from.
Medicare is in even worse shape. Each year, the Board of Trustees for Medicare publishes a report summarizing the financial status of the program. Recent trends suggest that the portion of Medicare funded with payroll taxes that pays for hospital care will be depleted as early as 2024.
So, you’ll not only need a Plan B for your job but for your retirement and medical care as well. And the younger you are, the more likely it is that the safety net won’t exist at all when you need it. If you’re under 45, you’ll need to self-finance essentially 100% of your future retirement income and medical care.
That means you need to save as much money as you can, by any means at your disposal. One option we hear a lot about is the FIRE (financial independence, retire early) movement. The basic equation for FIRE is that once you’ve saved around 25 times your annual expenses, you’ve achieved financial independence and can retire.
But FIRE doesn’t always work out as planned. People have retired early only to find themselves looking for work again a few years later. They may not have saved enough, or their passive income stream didn’t work out.
Still, it’s a good start. And one thing is for sure. Especially if you’re young, you’re vulnerable. Today wouldn’t be too soon to start your own Plan B.