The world braces for retirement crisis

Dec 30, 2013 by David Mchugh
In this Sept. 9, 2013 photo, Dong Linhua, 59, speaks at his home in Shanghai. Dong, a former Shanghai factory worker and now a real estate investor, who owns three apartments and two small shop spaces says, "I heard that the authorities might postpone the age of the retirement, but I sure hope not, since I've already worked for almost 42 years." (AP Photo/Eugene Hoshiko)

A global retirement crisis is bearing down on workers of all ages. It will play out for decades, and its consequences will be far-reaching.

Many people will be forced to work well past the traditional age of 65. Living standards will fall and poverty rates will rise for the elderly in wealthy countries that built safety nets for seniors after World War II. In developing countries, people's rising expectations will be frustrated if governments can't afford retirement systems to replace the tradition of children caring for aging parents.

The problems are emerging as the generation born after World War II moves into retirement.

"The first wave of under-prepared is going to try to go into retirement and will find they can't afford to do so," says Norman Dreger, a retirement specialist with the consulting firm Mercer in Frankfurt, Germany.

The crisis is a convergence of three factors:

— Countries are slashing and raising the age to start collecting them. These countries are awash in debt since the recession hit. And they face a demographics disaster as retirees live longer and falling birth rates mean there will be fewer workers to support them.

— Companies have eliminated traditional pension plans that guaranteed employees a monthly check in retirement.

— Individuals spent freely and failed to save before the recession and saw much of their wealth disappear once it hit.

Mikio Fukushima, who is 52 and lives in Tokyo, worries that he might need to move somewhere cheaper, maybe Malaysia, after age 70 to get by comfortably on income from his investments and a public pension of just $10,000 a year.

People like Fukushima stand in contrast to many who are already retired. Many workers were recipients of generous corporate pensions and government benefits that had yet to be cut.

UNDER SIEGE

Germany established the world's first widely available state pension system in 1889. The United States introduced Social Security in 1935. In the prosperous years after World War II, governments expanded pensions. Companies began to offer pensions that paid employees a guaranteed amount each month in retirement—so-called defined-benefit pensions.

The average age at which men could retire with full government pension benefits fell from 64.3 years in 1949 to 62.4 years in 1999 in the relatively wealthy countries that belong to the Organization for Economic Cooperation and Development.

As the 2000s dawned, governments—and companies—looked at actuarial tables and birth rates and realized they couldn't afford the pensions they'd promised.

The average man in 30 countries the OECD surveyed will live 19 years after retirement. That's up from 13 years in 1958.

In this Sept. 9, 2013 photo, Dong Linhua, 59, picks towel gourds in his backyard in Shanghai. A global retirement crisis is bearing down on workers of all ages. Spawned years before the Great Recession and the 2008 financial meltdown, the crisis has been significantly worsened by both. "I heard that the authorities might postpone the age of the retirement, but I sure hope not, since I've already worked for almost 42 years," says Dong. (AP Photo/Eugene Hoshiko)

The OECD says the average retirement age would have to reach 66 or 67, from 63 now, to "maintain control of the cost of pensions" from longer lifespans.

Compounding the problem is that are falling just as the bulge of people born in developed countries after World War II retires.

Populations are aging rapidly as a result. The higher the percentage of older people, the harder it is for a country to finance its pension system because relatively fewer younger workers are paying taxes.

In response, governments are raising retirement ages and slashing benefits. In 30 high- and middle-income OECD countries, the average age at which men can collect full retirement benefits will rise to 64.6 in 2050, from 62.9 in 2010; for women, it will rise from 61.8 to 64.4.

In the wealthy countries it studied, the OECD found that the pension reforms of the 2000s will cut retirement benefits by an average 20 percent.

The fate of government pensions is important because they are the cornerstone of retirement income. Across the 34-country OECD, governments provide 59 percent of retiree income, on average.

FINANCIAL CRISIS MAKES THINGS WORSE

The outlook worsened once the global banking system went into a panic in 2008 and tipped the world into the worst recession since the 1930s.

Government budget deficits swelled in Europe and the United States. Tax revenue shrank, and governments pumped money into rescuing their banks and financing unemployment benefits. All that escalated pressure on governments to reduce spending on pensions.

The Great Recession threw tens of millions out of work worldwide. For others, pay stagnated, making it harder to save. Because government retirement benefits are based on lifetime earnings, they'll now be lower.

The National Institute on Retirement Security estimates that Americans are at least $6.8 trillion short of what they need to have saved for a comfortable retirement. For those 55 to 64, the shortfall comes to $113,000 per household.

THE ASIA CHALLENGE

In Asia, workers are facing a different retirement worry, a byproduct of their astonishing economic growth.

In this Sept. 9, 2013 photo, Dong Linhua, 59, picks towel gourds in his backyard in Shanghai. A global retirement crisis is bearing down on workers of all ages. Spawned years before the Great Recession and the 2008 financial meltdown, the crisis has been significantly worsened by both. "I heard that the authorities might postpone the age of the retirement, but I sure hope not, since I've already worked for almost 42 years," says Dong. (AP Photo/Eugene Hoshiko)

Traditionally, Chinese and Koreans could expect their grown children to care for them as they aged. But newly prosperous young people increasingly want to live on their own.

China pays generous pensions to civil servants and urban workers. They can retire early with full benefits—at 60 for men and 50 or 55 for women.

But the elderly are rapidly becoming a bigger share of China's population because of a policy begun in 1979 and only recently relaxed that limited couples to one child.

THE END OF TRADITIONAL PENSIONS

Corporations are cutting pension costs by eliminating traditional defined-benefit plans. They've moved instead to so-called defined-contribution plans that shift responsibility for saving to employees.

But people don't always enroll. They don't contribute enough. They dip into the accounts when they need money.

Several countries are trying to coax workers to save more.

Australia passed a law in 1993 that makes retirement savings mandatory. Employers must contribute the equivalent of 9.25 percent of workers' wages to such retirement accounts.

In 2006, the United States encouraged companies to require employees to opt out instead of choosing to opt in. That means workers start saving for retirement automatically if they make no decision.

Explore further: Survey: Working longer—older Americans' attitudes on work and retirement

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Returners
2.3 / 5 (3) Dec 30, 2013
In response, governments are raising retirement ages and slashing benefits. In 30 high- and middle-income OECD countries, the average age at which men can collect full retirement benefits will rise to 64.6 in 2050, from 62.9 in 2010; for women, it will rise from 61.8 to 64.4.


Too little too late. That's 37 years to make a 1 or 2 year change. What's the point, as that's nearly two entire generations away.

The change needs to be 1 year per decade just to break even with the average increase in expected life span, however, since the programs are all currently in the hole anyway, it needs to change about twice that fast for the next several decades in order to catch back up to where it is supposed to be.

Perhaps the governments "get that," but they know they could never pass that by the people, so they won't do the correct thing, they'll just try to fudge it again and again, staying hopelessly far behind.

Keep "fudging" for the sake of pleasing the masses, and you will find...
Returners
3 / 5 (4) Dec 30, 2013
cont... ...keep fudging, and you'll find a country near you, namely "us", looking more and more like Greece as time goes on.

Of course, the downside to the "Demographic Winter" problem is that as younger, more educated people take more responsibility than their parents and grand-parents did, in terms of reproduction and planned families of manageable size, those same people get punished because they are left with the bill of the previous two or three generations.

I am currently on SSI for medical reasons, so I don't exactly have a lot of room to talk, though I wish I could say otherwise.

The point being there are people who WERE perfectly healthy when they retired in their FIFTIES who have been retired for THIRTY years or more. They've probably made significantly more money while on retirement than what they did when they were working.

One thing I will say is that in terms of productivity, we have more now than ever, we just don't have jobs because a larger share of that cont...
Returners
1.8 / 5 (6) Dec 30, 2013
We don't have jobs because such a large share of that productivity is from automated systems, meanwhile, the top 10% prosper, because they are the ones who have, in many cases, manipulated the system, and now own most of those automated systems.

So when you think about it from that perspective, incomes in certain sectors fall because employees have fewer work hours. So even though technology and productivity went up, in some cases income went down, and therefore potential to save went down. Not only that, but because those people make less money they pay less to social security and other taxes, further decreasing the available funds for the next generation of retirees.

Without more taxes on the fabulously rich, there isn't going to be a reasonable solution, because most normal people sure as hell don't have it.
Benni
3.4 / 5 (5) Dec 31, 2013
Without more taxes on the fabulously rich, there isn't going to be a reasonable solution, because most normal people sure as hell don't have it.


The IRS publishes the numbers of people at each income level. Pick the income level where you think the "fabulously rich" level starts & look at the IRS published numbers of people in that level & higher, next, add up all those incomes & divide it by the numbers of people in the United States who are in or near the "poverty level". What you will discover is that you could tax the "fabulously rich" at a 90% tax rate only to provide a paltry few hundred more evenly divided dollars to the poor each year.

Now, with the wealth of the rich confiscated, there will be fewer people to buy overpriced coffee at Starbucks, those waiters & waitresses will lose their jobs & need welfare benefits further diluting the money pool from which you are presently drawing your income thus making even fewer government funds available to you.
Doug_Huffman
5 / 5 (3) Dec 31, 2013
The Poverty of Historicism brought to you by your progressives, Marx, Hegel and Plato.

Either we are equal or we are not. Some retired successfully is not sufficient for all to retire. Thank God that I am old and comfortably retired, hopefully old enough that things can't change so fast as to make me uncomfortable.
Benni
3 / 5 (4) Dec 31, 2013
The Poverty of Historicism brought to you by your progressives, Marx, Hegel and Plato.

Either we are equal or we are not. Some retired successfully is not sufficient for all to retire. Thank God that I am old and comfortably retired, hopefully old enough that things can't change so fast as to make me uncomfortable.


Don't count on it, Doug. Just the other day the country of France imposed a "wealth tax". A "wealth tax" is an instrument of retroactive taxation based solely upon the principle you have in your bank savings account irregardless of fact you already paid income taxes upon it 20-50 years ago. If you were a diligent saver & didn't do stupid things & end up with a significant retirement nest egg in France, you are about to see a significant percentage of it confiscated by the Fascist/Communist political class now governing that country. That same political class thinking is what now rules Washington DC & created the debacle called the Affordable/ ObamaCare Act.

Whydening Gyre
5 / 5 (1) Jan 01, 2014
60 yr old artist, here. Retirement was never on my to do list anyway...:-)
TheGhostofOtto1923
2.3 / 5 (3) Jan 01, 2014
I think the only solution is to devise a political system which makes stealing from rich people legal. There are many more poor people than rich people so all we have to do is get it on the ballot. If that doesn't work we can always burn Kiev.

Let's do it. All we have to lose is our EBT cards. And we are going to lose them anyway.
wealth tax". A "wealth tax" is an instrument of retroactive taxation based solely upon the principle you have in your bank savings account
Yeah something like this but with lots of flags and sloganeering.
indio007
not rated yet Jan 02, 2014
This is all a result of the financial vehicles that retirement and pension money being invested in being fraudulent. The paid in money represents lent money. that debt is being reneged on. pensions must invest in AAA securities. if you think that trillions of dollars of AAA securities all went belly up by accident, you're naive.
Benni
3.7 / 5 (3) Jan 02, 2014
I think the only solution is to devise a political system which makes stealing from rich people legal.


.......and wait till you see what the political class rulership in France defines as "rich". A bank savings account less than $100,000 American will be classified as "rich". Already Democrats in the U.S. Congress are devising plans to confiscate all 401K plans, the net effect being to "guarantee" such plan holders less than half the principle they've already paid in when they retire, this is what France is doing now. It's coming here.

Let's do it. All we have to lose is our EBT cards. And we are going to lose them anyway. wealth tax". A "wealth tax" is an instrument of retroactive taxation based solely upon the principle you have in your bank savings account


Yeah something like this but with lots of flags and sloganeering.


You must not have a 401K plan? Sounds as if you think you deserve some kind of "right" to live off of some other person's savings.
TheGhostofOtto1923
3 / 5 (2) Jan 02, 2014
No bennihana I have the right to make jokes which sail over the heads of 2dims like yourself.
Benni
5 / 5 (1) Jan 02, 2014
No bennihana I have the right to make jokes which sail over the heads of 2dims like yourself.


No, you weren't joking because if you had been you wouldn't have just gone off on a tirade of name calling like you just did.........if you had been joking you would have clearly stated that you agreed with me that every word of what I posted was in fact an accurate portrayal of the future of retirees in this country, those who have lived frugally during their working years so they wouldn't be a financial burden on the rest of us in their elder years. Otherwise why would you make fun of that as you just did? You made fun of it because you are one of those who wants to confiscate someone else's hard earned savings accounts for your own selfish use while never having to work for it as they did.
Egleton
not rated yet Jan 04, 2014
I have no problem stealing from two legged sharks.
Benni
not rated yet Jan 05, 2014
I have no problem stealing from two legged sharks.


Who are you classifying as "two legged sharks"? Those with 401k's?