dearJulius.com

$type=carousel$sn=0$cols=4$va=0$count=12$host=https://playbuzz.dearjulius.com

How to survive the coming retirement crisis

How to survive the coming retirement crisis

By Allison Schrager, Quartz

Few things get people to riot faster than pension cuts. Recent protests in France and Chile were largely about retirement benefits. Even if they don’t take to the streets, around the world people are worried they won’t have enough money to retire.

By some estimates, the world is short $400 trillion to pay for its aging population. Chile and France finance retirement in different ways, but suffer from dangerous shortfalls nonetheless.

Chile has a defined contribution (DC) system where individuals contribute to an account and bear the investment risk of financing their retirement. The French government offers a generous defined benefit (DB) plan, where the state pays its citizens a set income each year. Both systems are falling short, because no matter how you finance retirement you can’t escape one fundamental truth; retirement is expensive and there is not enough money for it. Or, at least, there is not enough money to finance the length of retirement at the standard of living people have come to expect. As Baby Boomers retire, they are putting every type of system to the test, and we are all going to have to revise our expectations.

How bad is it?

The retirement shortfall has become more noticeable not only because a large population is starting to retire, but because Baby Boomers are the first generation to retire with individual accounts: the 401(k)-like plans in the U.S., U.K., and Australia, among others. Economists at the left-leaning Economic Policy Institute declared the 401(k) system a disaster, citing 50% coverage rates and low asset balances that won’t cover an adequate retirement.

But to a large extent retirees aren’t worse off compared to earlier generations, and in some cases may be better prepared. The post-war era is often considered a retirement heyday in America, where Social Security was well funded and people got a generous pension from their employer. But, in fact, at the peak only 38% of workers got a DB pension from their employer, so most people relied on Social Security. Now, more than half of workers have access to some form of a retirement plan. Better coverage is why the median retirement savings balance for workers in the U.S. doubled between 1989 and 2016, increasing from $9,300 to about $20,000, adjusted for inflation.

Individual retirement accounts make the shortfalls that always existed with DB plans more transparent. The World Economic Form defines a successful retirement as ending work in your mid 60s with 70% of your salary for the rest of your life. If that’s the goal, any shortfall reflects the retirement we want, not the one we ever had. Retirement is a relatively modern concept that only went mainstream after World War II. People now live longer and in better health, anticipating spending up to one third of their life retired.

Most countries have a DB or DC pension system, or some combination of the two. Each has its shortcomings and both can be made to work better to provide something close to the retirement people need.

The problems with defined benefit pensions

A large part of the global retirement savings shortfall comes from promises made by DB plans with no money to pay for them.

One of the two ways to finance DB pensions is the funded model, putting money aside today to pay workers in the future. This is how workplace pensions are normally financed, but many employers have not put enough money aside. In the U.S., the few remaining employers who offer DB pensions are mostly state and local municipalities. Dodgy accounting standards, and sometimes state laws, enabled these governments to underfund for decades. States are trying to make up the difference by investing in riskier assets like private equity, which promise a higher return, but increase the risk of even bigger shortfalls. Funded pensions in the private sector tend to be in better shape because they face more stringent accounting standards. However, low interest rates pose a source of risk because they mean smaller returns and larger estimated liabilities. This has also encouraged investment in riskier assets, which could lead to underfunding if there’s a significant market drop.

Most government-run pension plans, by contrast, are pay-as-you-go, where young workers pay taxes to support current retirees. This system depends on having enough young people to keep the system solvent, and aging populations are a problem. The U.S. Social Security program is set to face shortfalls in 2033. In other countries with generous but unfunded pensions, like Brazil, France, and Italy, retirement benefits dominate GDP and crowd out other services.

Emerging economies with large populations like China and India may turn out to face the biggest problems. Their retirement systems have some of the lowest rankings in a measure of adequacy, sustainability, and integrity compiled by Mercer. China’s pay-as-you-go pension system is set to run out of money in 2035 and coverage is not universal. With its rapidly aging population, Chinese workers face a great deal of uncertainty and insecurity in retirement.

DB pensions, in theory, should provide a worry-free retirement and provide scope to diversify risk across different generations. But promising to pay out a benefit for life, no matter what happens to markets or the population, is very expensive. Employers and governments always have an incentive to underestimate the cost until it’s too late.

The problems with defined contribution pensions

After the costs of DB plans became apparent, many employers and some governments switched to a DC system, where workers save for themselves and bear all the risks. Because nothing is promised, these plans can never be technically underfunded. The bigger concern is the accounts won’t be enough to cover people in retirement. This has caused Chileans to take the street and generated countless articles about a retirement crisis.

But, as economist Andrew Biggs points out, the typical retiree in America is better off than they used to be after firms switched to DC pensions. People have more retirement assets under a DC regime than they did under DB. Economists estimate that in America retirement income increased about 10%, after adjusting for inflation, for the median retiree between 2000 and 2011, and even lower-income retirees have more than before. They also estimate that the replacement rate (the ratio of retirement income to working income) has remained fairly stable and the move from DB to DC did not make retirees more dependent on Social Security.

That said, it still might not be enough to match people’s expectations for retirement. The average balance of soon-to-be retirees in America is $300,000 (assuming they have an account), which translates into just $15,000 a year at current interest rates. More worrying is how Americans can pay for their healthcare, since Medicare does not cover everything. Retirees can expect to spend $183,000 in health expenses, but estimates vary considerably.

And that’s not all. The U.S., Australia, and the U.K. have not addressed the hardest part of retirement finance. People have saved, but the market does not provide adequate guidance and products on how to spend their money after they stop working. Low interest rates not only hurt DB plans, they also make it more difficult for retirees to manage income risk in retirement.

In emerging markets, like Chile, DC plans also face additional challenges. For many years the assets were managed by high-fee managers who did not get high returns but still took a large chunk of savers’ assets. Many Chileans also work in the informal labor market and did not make contributions, which leaves them with meager savings for retirement. The Chilean case shows that DC pensions work best, in any country, when paired with a modest guaranteed state benefit which provides a sustainable income floor.

What is the solution?

Addressing the retirement shortfall will take a combination of more saving and better financial education. Both households and pension sponsors need to save more.

In a DC system, retirement accounts also need to be made more widely accessible. In the U.S., only half of Americans have access to them. The recently passed Secure Act, which makes it cheaper for small plans to offer retirement accounts and all DC sponsors to offer annuities, is positive step. Australia offers a good model, where accounts are mandatory and saving rates are high.

Where DB plans still exist, an aging society means pre-funding is a better model. Pensions also need to be subject to better accounting standards that require them to account for risky investments.

The bigger issue may not be related to generating an adequate income, but paying for long-term care. As people get older their odds of developing dementia increase. No country has figured out a good way to pay for long-term care without putting a large strain on families who often end up acting as primary caregivers. We also need to accept many people will have to work longer. Retiring at 62, or even 68, may not be realistic. This doesn’t mean that we all need to work full-time into our 70s, with contract or part-time gig work potentially providing a bridge to make a full retirement more possible.

Here’s the scariest thing: Even in the best-designed systems, almost no one today will earn enough money in their lifetime to not work for 20 or 30 years at the end of their life. This is true no matter who pays for retirement — the individual, their employer, or the government.

COMMENTS




Made with in NYC
Name

4th of July,7,Abu Dhabi,2,Accessories,234,Acne,13,Adventure,32,Adventure Travel,638,Advice,295,Africa,26,African Food,2,AIDS,1,Air Travel,150,Alabama,5,Alaska,20,Alberta,1,Alcohol,4,All About Beer,1,All About Wine,2,Alternative Treatments,4,America,77,American Food,5,Amsterdam,2,Android,11,Anguilla,3,Animal,367,Animal Health,1,Animals,103,Anniversary,1,Anniversary Cake,11,Antarctica,7,Anti-aging,49,Antigua,3,Appetizers & Snacks,2,Apple,11,Apps,16,Argentina,15,Arizona,19,Arkansas,2,Armenia,1,Asia Travel,47,Asian Food,7,Asthma,4,Athens,3,Austin,8,Australia,92,Australian Food,1,Austria,13,Autism,1,Auto Insurance,1,Auto Show,52,Autos,655,Azerbaijan,1,Baby Shower Cake,29,Back Pain,25,Bags,10,Bahamas,13,Balance Work & Life,50,Banana Cakes,2,Bangladesh,8,Barn Finds,1,Bathroom,43,Be a Better Manager,33,Beach Travel,58,Beaded Dress,2,Beards and Shaving,29,Beauty,1888,Beauty & Style,35,Beef Recipes,7,Belarus,1,Belgium,9,Belize,15,Bermuda,5,Best Products,17,Better Partner,40,Beverages,3,Bhutan,9,Bills to Pay,35,Birds,4,Birth Control,1,Birthday Cake,109,Blue Lagoon,2,Blueberry Cake,11,Bolivia,3,Books,2,Botswana,3,Brazil,38,Bread,11,Breads,1,Break Room,12,Breakfast & Brunch,6,Breakup,19,Breakups,3,breast,1,Breasts,69,Broken Hearts,5,Brownie,8,Brunei,1,Budget Travel,97,Bundt Cake,30,Business Skills,102,Butter Cake,52,Buying,1,By Region,3,Cake Decorating,113,Cakes,54,California,109,Cambodia,4,Camera,6,Canada,80,Cancer,73,Car Shows,1,Car Tech,2,Caramel Cake,5,Career,290,Career Advice,298,Career Choice,125,Career Growth,180,Career Paths,24,Career Problem,8,Caribbean,45,Caribbean & Mexico,5,Carrot Cake,22,Cats,49,Celebrity,17,Celebrity Dress,2,Celebs,1,Ceremonial Cake,9,Certified Pre-Owned Vehicles,1,Cheese Recipes,4,Cheesecakes,251,Chicago,7,Chicago Auto Show,2,Chicken Recipes,14,Chiffon Cake,5,Children's Health,21,Chile,7,China,21,Chocolate Cake,395,Christmas,35,Christmas Cake,23,Christmas Travel,14,Classic Cars,39,Cleaning Tips,144,Clinical Practice,1,Clothes,1,Cocktail Recipes,2,Coconut Cake,21,Coffee,1,Coffee Cake,15,Coliseum,1,Colombia,18,Colorado,32,Columbia,3,Communication,2,Companies,2,Compassion,2,Computing,16,Connecticut,4,Consumer Electronics Show,5,Cookies,10,Cooking,8,Corporate Travel,2,Costa Rica,13,Country Travel,249,Creative,309,Creative Idea,22,Creative Ideas,37,Croatia,15,Cruiser Travel,16,Cuba,18,Cultural Travel,66,Cupcake,322,Customs & Classics,2,Czech Republic,6,D.C.,2,Dandruff,1,Dating,18,Dating Advice,73,Dating Advice for Women,22,Dating Tips,13,Decor,23,Decorating Ideas,181,Delaware,1,Demotivational,636,Denmark,12,Dental Health,26,Dentistry,1,Depression,24,Desert Travel,1,Desserts,3,Detroit Auto Show,4,Diabetes,25,Diet,131,Dining Out,3,Dinner,14,Disease,116,Divorce,16,DIY,112,DIY Fashion,34,Dogs,156,Doughnuts,5,Dress,29,Drink,27,Drinks,1,Drinks & Cocktails,4,Driving,3,Drugs,3,Dubai,15,Ears,2,East Africa,4,Easter,1,Easter Island,1,Easter Travel,1,Eco Travel,18,Ecuador,7,Education,87,Eggs,3,Egypt,4,Electronics,4,Electronics and Gadgets,2,Emirates,1,England,13,Entertainment,148,Enthusiasts,131,Entrepreneurship,40,Estonia,2,Eswatini,1,Ethiopia,2,Europe,110,European Food,8,Exercises,51,Eye,300,Eye Health,28,Eyebrow,56,Eyelash,20,Face,54,Facts,284,Fall Travel,43,Family,16,Family Travel,128,Faroe Island,1,Fashion,395,Fashion for Kids,2,Fashion for Man,12,Fashion for Woman,31,Fat Loss,91,Father's Day Cake,4,Father's Day Travel,1,Featured,218,Features,1914,Fertility,2,Festival Travel,25,Fiji,6,Finance,128,Finland,16,Fish & Seafood,13,Fitness,1177,Fitness & Exercise,219,Florida,69,Food,297,Food and Drink,14,Food Recipes,7,France,37,Frankfurt Motor Show,2,Free Travel,3,French,6,French Polynesia,5,Friendship,40,Fruit & Veggie Recipes,8,Fruitcake,70,Fruits,4,Fuel Economy,1,Fun,42,Funny,546,Gadgets,31,Galapagos,3,Games,12,Garden,24,Gardening,276,Gearheads,1,General,7,Geneva Motor Show,3,Georgia,14,Germany,18,Get Healthy,63,Ghana,2,Girlfriend Grooming,10,Google,15,Graduation Cake,2,Gratitude,11,Greece,37,Green Living,5,Greenland,1,Grooming,89,Guatemala,2,Hair,1264,Hair Care,317,Hair Color,299,Hairstyle,65,Hairstyles,855,Halloween,41,Halloween Cake,12,Halloween Travel,9,Happiness,19,Hawaii,53,Hayden Panettiere,1,Headache,22,Health,940,Health & Fitness,300,Health Care,491,Health Insurance,1,Healthcare Tech,6,Healthy,12,Healthy Drinks,31,Healthy Eating,186,Healthy Habits,159,Healthy Living,345,Hearing,1,Hiking Travel,63,HIV/AIDS,4,Holiday Travel,28,Holland,1,home,31,Home & Garden,205,Home and Decor,483,Honeymoon Travel,128,Hong Kong,13,Horoscope,31,Hot Rod Power Tour,1,Hotels,71,Housekeeper,8,Hungary,3,Ice cream Cake,21,Iceland,41,Idaho,4,Ideas,11,Illinois,13,Imports,1,Impress a Girl,20,Impress Women,4,Independence Day Travel,1,India,36,Indiana,5,Indonesia,13,Indoor Gardening,69,Industry,5,Inspiration,58,Insurance,5,Internet,19,Internship,8,Interview Skills,37,Investing,12,iPad,2,iPhone,6,Iraq,1,Ireland,36,Island,60,islands,2,Israel,9,Italy,56,Jamaica,8,Japan,44,Jealousy,2,Jewelry,13,Job Search,47,Jordan,6,Just For Fun,2,Kansas,6,Kentucky,2,Kenya,2,Kids,3,Kids & Pets,10,Kitchen,67,Koala,1,Korea,2,Kyrgyzstan,1,Lamb,2,Laptops,4,Latin America,3,Latin American Food,1,Latvia,1,Laundry,6,Layer Cake,95,Leadership,44,Legs,1,Lemon Cake,18,Life,1,Life Hacks,273,LifeStyle,1112,Lips,134,Lithuania,2,London,24,Long Distance Relationship,24,Los Angeles Auto Show,14,Louisiana,9,Love,165,Lowa,4,Lunch,5,Luxembourg,1,Luxury Travel,35,Maine,6,Maintenance,3,Makeup,608,Makeup & Beauty,11,Makeup Tips,77,Malaysia,1,Maldives,15,Malta,2,Mango Cake,3,Manicure,10,Marketing,10,Markets,11,Marriage,97,Marshmallow,3,Maryland,6,Massachusetts,9,Massage,5,Mauritius,6,Meditation,35,Men & Women,18,Men's,4,Men's Health,14,Menstruation,21,Mental Health,302,Mexico,74,Miami,13,Michigan,5,Microsoft,6,Middle Eastern Food,2,Mind,3,Mississippi,2,Missouri,7,Mobile,22,Moldova,1,Monaco,1,Money & Career,21,Monkey,1,Montana,12,Morocco,20,Mother's Day Travel,1,Motherhood,16,Motivation,2,Motorcycles,106,Motorsports,2,Mousse,2,Muffins,9,Mug Cake,14,Multiple Sclerosis,1,Muscle Cars,4,Muscle Cars & Hot Rods,3,Muscle Gain,2,Myanmar,9,Nail Art,195,Nails,252,Namibia,4,Nature,4,Nature Travel,102,Nepal,6,Netherlands,11,Nevada,23,Nevis,1,New Bikes,2,New Car Deals,1,New England,5,New Jersey,2,New Mexico,6,New Year Fashion,6,New Year's Day Travel,6,New York,55,New York Auto Show,3,New York City,20,New Zealand,47,Newfoundland,1,Newlyweds,4,News,334,Nicaragua,2,North America,11,North Carolina,6,North Dakota,1,North Ireland,1,Northern Ireland,1,Norway,20,Nutrition,447,Occasional Travel,9,Oceania,1,Offbeat,819,Ohio,6,Oman,5,Online Date Tips,2,Operating Systems,2,Oral,4,Oregon,10,outdoor,3,Outfits,166,Ownership,61,Pain,24,Painting,16,Pakistan,2,Panama,5,Pancake,19,Panda,1,Panna Cotta,3,Paraguay,1,Parenting,370,Paris,23,Paris Motor Show,4,Pasta,2,Pastry,7,Pebble Beach Concours d'Elegance,2,Pedicure,4,Penguin,4,Pennsylvania,10,People & Places,88,Perfumes,14,Personal Finance,164,Peru,21,Pets,307,Phoenix,1,Photo Feature,1,Pie,27,Pimple,3,Plum Cake,1,Poke Cake,10,Poland,3,Popular Ingredients,26,Pork Recipes,7,Portable Media,14,Portugal,21,Pound Cake,55,Prague,1,Pregnancy,112,Premium,1,Printer,2,Protein Bars,1,Psychology,1,Pudding,9,Puerto Rico,7,Pumpkin Cake,45,Qatar,6,Quick & Easy Recipes,11,Real Estate,72,Recalls,4,Recipe,1098,Recipes,52,Recipes & Meal Ideas,3,Recipes By Course,5,Relationship,167,Relationship Advice,180,Relationship Advice for Men,23,Relationship Advice for Women,27,Relationship Problems,58,Relationship Secrets,14,Relationships,147,Research,94,Resort,11,Restaurants & News,13,Resume,11,Retirement,10,Reviews,1,Rhode Island,2,River Travel,2,Road Trips,49,Romania,4,Romantic Getaways,15,Rome,5,Russia,16,Safety,5,Saint Lucia,1,Saint Patrick's Day Travel,1,Salad,6,San Miguel de Allende,1,Science & Tech,66,Scotland,10,Seasonal,56,Seasonal Travel,59,Security,9,Self Help,14,Self-Care,3,SEMA Show,5,Senior Relationship,2,Sex,7,Sexual Health,19,Shanghai Auto Show,7,Shaving,1,Sheet Cake,20,Shirt,4,Shoes,29,Shopping,10,Shots & Shooters,1,Side Dishes,4,Sightseeing Tours,2,Singapore,18,Ski Resorts,10,Skin,429,Skin Caare,1,Skin Care,609,Sleep,62,Slovenia,6,Small Business,163,Smartphone,28,Smile,1,Smoothies & Juices,3,Snacks,1,Social Media,44,Solo Travel,24,Solomon Islands,1,Somoa,1,Soth Africa,1,South Africa,14,South America,3,South Carolina,4,South Dakota,5,South Korea,3,South Pacific,2,Space Travel,14,Spain,33,Special,46,Special Cake,579,Special Feature,113,Special Features,490,Sponge Cake,15,Sports,22,Sports and Exotics,4,Sports Cars,8,Spring Travel,23,Squirrel,1,Sri Lanka,6,Strawberry Cake,22,Street Fashion,8,Stress Relief,35,Stroke,2,Student Travel,1,Style Guide,25,Summer Travel,53,Summer Vacation,8,Supercars,10,Sweden,19,Swiss Alps,1,Switzerland,20,Tahiti,1,Taiwan,3,Tanzania,1,Tarts,12,Tattoos,81,Taxes,7,Teas,2,Tech,89,Tech Advice,12,Tech Education,7,Tech Hacks,19,Tech Updates,2,Technology,138,Teen Advice,4,Teeth,5,Tennessee,6,Texas,57,Thailand,31,Thanksgiving Cake,4,Thanksgiving Travel,5,Therapy,3,Things to Do,165,Tibet,2,Tips,264,Tips & Tricks,6,Tokyo Motor Show,2,Tools & Skills,16,Top Stocks,1,Top Stories,1,Traditional Cake,4,Train Travel,23,Training,1,Transportation,22,Travel,297,Travel Advice,64,Travel Apps,1,Travel Guide,40,Travel Tips,149,Trends,7,Trucks,1,True Health,5,Tunisia,2,Turkey,10,Turkish,1,Tuscany,1,TV,2,UAE,10,UK,40,Ukrine,1,Understanding Women,28,Urban Travel,47,Uruguary,1,USA,629,Utah,12,Uzbekistan,1,Vacation Travel,245,Valentine's Day Cake,7,Valentine's Day Travel,1,Vanilla Cake,17,Vegetables,3,Vehicle Travel,2,Venezuela,1,Vermont,4,Victoria Falls,1,Video,5,Vietnam,5,Virginia,5,Waffles,3,Washington,15,Washington DC,20,Waxing,19,Web & Social,17,Wedding,87,Wedding Cake,549,Wedding Dress,30,Weddings,60,Weddings Travel,4,wei,1,Weight Gain,29,Weight Loss,755,Weird,172,Wellness,193,West Indies,2,Wi-Fi,2,Wildlife Travel,13,Winter Travel,56,Wisconsin,5,Women Lifestyle,23,Women's,265,Women's Health,173,Work Environment,77,Workout,8,Workouts,81,Worldwide,155,Wyoming,2,xxx,1,Yemen,1,Yoga,85,YouTube,3,Zadar,2,Zambia,3,Zimbabwe,4,
ltr
item
Bloom Magazine: How to survive the coming retirement crisis
How to survive the coming retirement crisis
https://1.bp.blogspot.com/-0si502Tm58Y/XhCt5QKWhzI/AAAAAAABtJ4/fAqryHmK-x4WMr5R9p3KirP1aKQSs8PYACNcBGAsYHQ/s1600/retirement%2Bcrisis.jpg
https://1.bp.blogspot.com/-0si502Tm58Y/XhCt5QKWhzI/AAAAAAABtJ4/fAqryHmK-x4WMr5R9p3KirP1aKQSs8PYACNcBGAsYHQ/s72-c/retirement%2Bcrisis.jpg
Bloom Magazine
https://bloom.dearjulius.com/2020/01/how-to-survive-coming-retirement-crisis.html
https://bloom.dearjulius.com/
https://bloom.dearjulius.com/
https://bloom.dearjulius.com/2020/01/how-to-survive-coming-retirement-crisis.html
true
3829934206112735771
UTF-8
Loaded All Posts Not found any posts VIEW ALL Read More Reply Cancel reply Delete By Home PAGES POSTS View All RECOMMENDED FOR YOU LABEL ARCHIVE SEARCH ALL POSTS Not found any post match with your request Back Home Sunday Monday Tuesday Wednesday Thursday Friday Saturday Sun Mon Tue Wed Thu Fri Sat January February March April May June July August September October November December Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec just now 1 minute ago $$1$$ minutes ago 1 hour ago $$1$$ hours ago Yesterday $$1$$ days ago $$1$$ weeks ago more than 5 weeks ago Followers Follow THIS PREMIUM CONTENT IS LOCKED STEP 1: Share to a social network STEP 2: Click the link on your social network Copy All Code Select All Code All codes were copied to your clipboard Can not copy the codes / texts, please press [CTRL]+[C] (or CMD+C with Mac) to copy