Without pensions, matching 401(k) plans, and funding toward Social Security, the retirees of the future may not have any retirement money at all. And that’s just here.
Generations retiring decades from now may not even get a retirement because of a $400 trillion retirement savings gap that the World Economic Forum estimates will take effect around 2050. In 2015, that gap was roughly $70 trillion.
The WEF estimates that babies born today will live past 100 years of age, but our extra-long lives mean needing more money in our elder years to cover our living costs. We’re going to need to work later in life to barely make ends meet. In fact, it’s up to employers to help workers to make sure they can survive well past working age.
WEF says our biggest problem is more of us are living longer, and it’s actually hurting our workforce.
“The key driver of the challenges facing retirement systems is increasing life expectancy and a falling birth rate,” the WEF white paper says. “This leads to a smaller workforce supporting an ever-growing population of retirees.”
One of the biggest obstacles is the lack of financial literacy. This isn’t just a United States thing. This is a worldwide epidemic.
“The lack of awareness of the basics on how interest and returns will compound over time, how inflation will impact savings, and the benefits of holding a broad selection of assets to diversify risks means that many individuals are ill-equipped to manage their own pension savings,” WEF says. “Some groups are particularly vulnerable, including women, the young and those who cannot afford, or choose not to seek, financial advice.”
Other problems, like low-growth environments and inadequate savings rates, contribute to another problem: a lot of personal responsibility. WEF says the way the plans are designed puts a huge strain on individuals to manage their own retirement savings. But all these factors, combined with a lack of financial literacy, is only hurting us.
The biggest gaps around the world
It’s easy to concentrate on the United States when it comes to major retirement woes, but we aren’t the only ones with problems. In fact, we aren’t even the country with the biggest problems.
WEF estimates that in the United States, the retirement gap is growing by $3 trillion a year, or five times as much as our defense budget. But in 33 years, there will be more than 600 million retirees in China and India, where the savings gap will grow by 7 percent and 10 percent, respectively — the highest gaps in the world.
What should we do now to prepare for later?
There’s no denying that saving for retirement is hurting all of us, but who does the onus lie on? All of us, actually.
“It should be the responsibility of the government to provide a pension income for all citizens that acts as a ‘safety net’ and prevents those who miss out on other forms of pension provision from dropping below the poverty line.” WEF suggests. “This should be the foundational objective of a country’s pension system, but in many countries, this first pillar pension provision is lacking or is significantly underfunded to meet future needs.”
WEF thinks technology is a major help. Automatic deductions make saving easy, especially if it’s done through the employer before it hits the employee’s account. There’s also educating employees on many different money-related topics to help encourage various types of saving. Money knowledge and management is key to setting yourself up for your future.
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