Assumptions Will Be Tested

It’s still February and we’ve seen a lot happen. We had an essay by someone who was describing how good AI has become at writing code and how it will eventually come for most white-collar jobs. Then we had a sci-fi thought experiment on the implications on the economy in a 2028 Report. Then, today Block laid off over 40% of it’s workforce, because AI.

Today I would like to tell you that our assumptions are going to be challenged and likely broken by AI. Things that have been standards for decades are going to be tossed out the window. It is extremely hard to plan for such a shock, but I would recommend thinking about potential implications and how to plan for them.

In the doomer scenario we have no jobs. In that scenario would you like to spend your time watching Netflix now or wait until later when you have a ton of free time? Your opportunity cost changes a lot. Do you want to make a big decision to lock in a jumbo mortgage? Even planning a vacation at the end of the year starts to feel intimidating.

In the abundance scenario we may have all our needs met and diseases cured. In that case do we want to spend all our hours grinding away when it’s going to pan out for everyone? I’m not going to tell you where these changes lead and no one can with certainty, but what I can say is the pace of change will accelerate. Next, let’s look at some examples of assumptions that will be stretched.

Jobs and the 4% Rule

If how we work changes dramatically so will job security. Perhaps we end up with bouts of unemployment between various jobs. It certainly would impact how we think about retirement. Meanwhile, the 4% rule is based on historical stock market returns. If AI slashes costs maybe the stock market goes bonkers and investments are worth a ton. But on the other side, maybe there is no more buying power left and the market tanks.

30 Year Mortgage

We don’t know what the job market will look like in 1 year, but we have mortgages that stretch on for 30. Underwriters make an assumption that you will be able to continue to make payments for the duration of the loan. Those get packaged up as high quality debt and sold. If white-collar is displaced, who would want to hold onto those mortgages? Who would want to issue them? Does having a mortgage become good because it is hard to get or a liability?

Life Expectancy

I think a bright spot is that we may get new medicines and treatments thanks to AI. That could extend our lives meaningfully. Yet there are plenty of financial products tied to current assumptions of when a typical person dies. Pensions, medicare, life insurance. Government entitlements are already a huge cost. If we add even more people to the top of the pyramid it becomes more unsustainable.

Taxes

Last year I did conver

t some retirement to Roth because I was in a low tax bracket. Well, if we aren’t employed, then we’ll be in a really low tax bracket and I should’ve waited to do the conversion. This is always a guessing game though.

Credit Card Points

I am one who loves to collect and redeem points. If demand for travel decreases then maybe your points become more valuable as there should be more award availability. However, you may also not want to travel or spend money, so perhaps cash back works better.

Conclusion

I hope I have taught you skills on how to approach a problem through my many articles. I don’t have a solution for you or myself here, but it seems like we are all entering the unknown together. All the best to you!