Hugh Hacking, Executive Head of Structured Investments and Annuities

In a recent interview on the Moonshots with Peter Diamandis podcast, Elon Musk, CEO of Tesla and SpaceX offered a provocative piece of advice: "Don't worry about squirreling money away for retirement in 10 or 20 years; it won’t matter."

Musk’s argument hinges on the rapid evolution of artificial intelligence (AI) and robotics. He maintains that these technologies will usher in an era of "abundance" where goods and services are essentially free, and everyone is granted a "universal high income." In such a world, he claims, traditional retirement saving becomes irrelevant.

This raises an important question for every working professional: Should we stop saving and start spending? While Musk’s vision is interesting, a closer look suggests that banking your future on a utopian miracle is a gamble most of us cannot afford to take.

The gap between vision and reality

Musk concedes that the transition to this new utopian world will be "bumpy." Beyond the technological hurdles, his vision requires a total dismantling of global capitalism in favour of a universal social structure, a complete rewiring of humanity.

Regardless of your stance on artificial intelligence (AI), it’s difficult to imagine such a profound shift in the global social order occurring within our lifetimes, let alone the next two decades. Technology may change how wealth is created, but it won't change how income is used anytime soon. Retirees need reliable monthly cash flow, not abstract promises of future abundance.

Retirement planning is not a bet

From a rational investment perspective, Musk’s view is essentially speculative. In the world of finance, speculative investments may offer spectacular returns, but they carry a "non-zero" probability of total loss.

Consider the two possible outcomes:

1. You save for retirement, and Musk is right: You reach retirement and find you have more than you need. You are financially secure in a world of abundance.
2. You stop saving, and Musk is wrong: You reach retirement age and find yourself destitute because the "utopian future" failed to materialise or was delayed.

It’s always better to have saved and not needed it than to need it and not have saved. Saving and investing for retirement will always yield a better average outcome than placing a single, massive bet on a technological miracle.

Lessons from history: Productivity versus risk

History shows that while technological leaps - like the internet - drive massive productivity and economic growth, the path is never linear.

Consider, for example, the Dot Com bubble in the late 90s where the ‘new economy’ promised infinite growth. While the technology did eventually change the world, the investment bubble burst, wiping out those who were 100% committed to that single vision.

Similarly, the Global Financial Crisis in 2008 and the Covid-19 pandemic in 2020 are reminders that real-world risks - whether systemic or biological - can disrupt markets and employment overnight.

There is no question that technological advances have led to significant productivity gains over time, resulting in economic growth and ultimately, the growth of investments. Certainly, it would be a mistake to ignore AI and robotics as they will likely create further productivity gains, which will in turn lead to economic and investment growth. At least some investment exposure to these technologies is a good idea because they are likely to be significant drivers of returns in the future.

However, we need to remember that advances are typically not linear or equally distributed. Given how uneven the benefits of new technologies have been in the past, we should expect similar risks with any new technologies. Diversification of investments therefore remains a foundational principle in managing investment risk. As new technologies displace industries and upend traditional income streams, being diversified is your only defence against an uncertain future. This is particularly relevant for long-term savings which requires investing in ways that would benefit from various futures.  

Technology may change how wealth is created, but it will not change how income is used any time soon. Retirement requires income security to provide monthly cash flows. The best way to achieve this is by setting aside a portion of today’s earnings and investing them in a portfolio designed to beat inflation while protecting against market risks and shocks.

The bottom line

Betting on a single utopian future which includes a huge social safety net to support you during retirement is an extremely high-risk strategy. Your retirement savings are not obsolete, and they won't be anytime soon. Even if you are a believer in a future of automated abundance, you cannot rule out a less-than-ideal reality. Your retirement savings are your insurance policy against a future that doesn't go according to Elon Musk's plan.

In the race toward the future, it’s fine to look at the stars - just make sure your feet are firmly on the ground.