Mr. Mizuno Retires (Part One of Two)
Today is Mr. Mizuno’s last day in the office. He has reached the mandatory retirement age of 60 years old. He is still healthy, sharp as a tack, highly productive and he enjoys his work. He would happily keep working for another five years, he thinks. Or perhaps even ten. But company policy is company policy. While clearing out his desk, a number of thoughts are going through his mind.
First, he notes that his firm’s retirement policy is not unusual. Nearly 90% of Japanese firms have mandatory retirement ages of 60 for most employees. Yet the Japanese are amongst the healthiest, longest-lived, economically productive people on earth and could in most cases remain at work through their 60s. Many of his friends are just like him: They would enjoy a few more years at work, if perhaps part-time in some cases, or with slightly more vacation time. He is also aware that the government has been encouraging firms to raise their mandatory retirement ages to 65, given an apparent desire by many older Japanese to continue working for longer. In this context, he finds it odd that 60 remains the standard retirement age in Japan.
Second, he thinks about his savings and pension and how these will finance his retirement needs. Like many Japanese workers, Mr. Mizuno has worked his entire adult life for a single firm, although that firm has expanded and changed greatly during his time there. He has accumulated a substantial pension, which will provide him a steady if modest retirement income, enough to remain comfortable within his current lifestyle. The mortgage on his home was recently paid off, as he always planned to do prior to retirement. He has also saved some additional funds through the years, most of which has been conservatively invested in bank deposits and savings certificates and, as such, has more or less retained its value to the present day. To be sure, Mr. Mizuno and his wife are most probably going to run through the bulk of this extra savings over the coming 20 years but, even in the event that they live somewhat longer, the pension will nevertheless cover their basic living costs indefinitely. (Incidentally, Mr. Mizuno’s company pension is fully-funded in primarily low-risk investments so there is minimal risk that, for some unforeseen reason, his pension plan might become insolvent or be restructured in some way, reducing his income.)
Third, he thinks about his family. He and his wife have two children who are now middle-aged, employed and, with the exception of the 30-year mortgages on their homes, free of debt. They have one child each of their own, both of whom attend their local, traditional public school. Mr. Mizuno loves watching his grandchildren growing up and is looking forward to spending more time with them following retirement, one of the positives of leaving work.
Reflecting on these things, Mr. Mizuno knows he has much for which to be thankful. His parents had a rougher go in life, suffering as they did as young people during the war and aftermath. For years they worked six-day weeks for wages that, at times, barely put enough food on the table. Sure, things began to improve rapidly in the 1960s, when Mr. Mizuno was old just enough to understand. They continued to improve through the 1980s and even in the 1990s, the decade in which both of his parents died. But Mr. Mizuno was taught by his parents’ experience to be thankful for having missed a few rough decades.
As he places his last few belongings into a small box–including a picture of him being congratulated by the company’s former president at a team outing, in which he had scored the highest collective points total in the various competitions–a few concerns do enter his mind. For one, he read last week in the papers that the Finance Minister is pushing for another rise in sales tax to shore up government finances, which have been gradually deteriorating for years. Sure, Mr. Mizuno and his fellow Japanese have long been accustomed to reading about government deficits, which have been chronic amidst efforts to stimulate the economy. But there seems a new sense of urgency for some reason, perhaps because the government’s total debt burden is now so high. Mr. Mizuno has read some articles in the press suggesting that the debt is now too large to ever pay back. This thought sort of worries Mr. Mizuno but he has difficulty understanding why the debt would ever need to be paid back. After all, it is he and his fellow citizens (and his pension fund) which owns the vast bulk of this debt, which pays a low rate of interest.
Admittedly, he is not in a position to buy up any more of the debt, given that he is now retiring. So perhaps this is why the government wants to raise sales taxes, to stabilize the public debt at the current level? Maybe that’s it.
Finally, Mr. Mizuno, even though he has only rarely travelled abroad–including a bargain family vacation to Hawaii and California when the yen/dollar exchange rate was below 90 in 1995–has some concerns about the world at large. As with essentially all his classmates, he grew up with tremendous awe of and respect for the United States. In history classes he learned of how the British and other Europeans had established trading routes and colonies all over the world, including Japan, before the US even came into formal existence.
Japan was late to the industrial game, although it had mostly played it rather well. But now with the US, UK and much of the euro-area economy suffering in the wake of a massive credit crisis, how might this affect modern, prosperous Japan? His lifelong employer produces precision tools largely for export all over the world. In recent years, somewhat more of these exports have started going to China and elsewhere in Asia, but many still go to the US and Europe. If those regions are now going to be growing more slowly in future, how might this impact the business going forward? The colleagues he is about to leave behind might need to deal with that.
After Mr. Mizuno finished packing his final box he walked out of his office and down the corridor to that of his successor, who bowed when he saw him and then smiled. It was now his turn to have the office with the fine view out over the factory floor, where he had worked for much of his previous 20 years at the company. As Mr. Mizuno was leaving the building for the last time as an employee, his successor walked into his new office and went straight up to the window, surveying the activity below. He had a few ideas about things he might change but, for the most part, he was content to oversee such a fine, well-oiled machine in action.
Regular readers of the Amphora Report will not be surprised by the narrative style employed above. We sometimes find it easier to communicate important ideas in this way as it avoids the need to rely entirely on economic equations and jargon. But the topic of what is happening in Japan, and what it implies for the rest of the world, nevertheless deserves some direct analysis. Japan is an immensely wealthy country with an equally immense demographic problem.
Think of Mr. Mizuno. He’s a member of the vast Japanese middle-class. He is retiring and expects a modestly lower income in future as a result. But like his fellow middle-class retirees, growing rapidly in number, at least he has saved for retirement. Retiring is only a potential problem if you haven’t saved for it. Wait a minute, some might interject, doesn’t Japan have a massive government debt?
Well yes, as a matter of fact it does.
[Editor’s Note: The above essay is excerpted from The Amphora Report, which is dedicated to providing the defensive investor with practical ideas for protecting wealth and maintaining liquidity in a world in which currencies are no longer reliable stores of value.]