There is no quick fix to the global pensions crisis. Many people simply do not save enough for their old age, while government pension schemes face unprecedented strains. A new World Economic Forum report looks scary.
Otto von Bismarck, who introduced the first pensions for workers over 70 in the 1880s when life expectancy in Prussia was just 45, could hardly have anticipated his social innovation would lead here. Life expectancy today in Australia for a 65 year old is that they will live well into their 80s.
We’re getting older. For the first time ever there are more people over the age of 65 than there are under the age of five. And life expectancy for senior citizens has never been better. However most retirees only have 10 years worth of savings while they may live for another 20 years.
The gap between what people currently save and what they need for an adequate standard of living when they retire points towards a financial black hole for younger generations.
In just eight countries with some of the largest pension markets or biggest populations – Australia, Canada, China, India, Japan, Netherlands, UK and USA – the retirement savings gap is projected to balloon to $400 trillion by 2050, unless remedial measures are taken. It already stood at $70 trillion in 2015.
Because of this only 32% of people expect to completely stop working at the point of retirement.
Governments are running out of money to fund pension systems. In Australia for example we have seen Age Pensions being reduced over the last number of years as it is no longer affordable. Add to that tax cuts. Normally tax helps fund our Age Pension system and the fact that we have no sovereign fund that can be used, we can expect further cuts to Age Pensions.
Can new thinking defuse the ticking pensions time bomb? It will have to otherwise we have a major problem. The greatest risk is not an economic or share market risk it is the risk that we will run out of money.
Actually the group that I am really worried about are single older women, who due to all sorts of circumstances like being mothers, caring for elderly parents and divorce. They are already feeling the pinch
There are ways to beat the pensions timebomb.
So ladies instead of going on eHarmony or Plenty of Fish to find your knight in shining armour, make a date with a financial adviser and get your financial house in order.