WEF report reveals that retirees may run out of money a decade before they die.
Retirement income studies repeatedly reveal that retirees are worried their savings won’t last as long as they will.
And, as the latest World Economic Forum (WEF) white paper Investing in (and for) Our Future reveals, many retirees around the world will outlive their savings by as much as a decade or more.
The report finds how retirement account balances aren’t increasing enough to cover rising life expectancy. Australia’s retirement shortfall increased by around five per cent last year.
“The size of the gap is such that it requires action from policymakers, employers and individuals,” said report co-author Han Yik, head of institutional investors at the World Economic Forum.
Mr Yik suggests that unless more is done soon, retirees will have no choice but to tighten their belts and pre-retirees will need to postpone retirement.
“You either spend less or you make more,” he added.
In Australia, the WEF calculates that 65-year-olds, on average, have enough savings to cover just 9.7 years of retirement income. That leaves the average male with a gap of 9.9 years and women, who live longer, face a 12.6-year gap.
WEF estimates were based on having enough income to cover 70 per cent of pre-retirement pay and didn’t include Centrelink or other government welfare payments in the total.
The report estimates a retirement savings gap of around 10 years for men in the UK, Australia, Canada and the Netherlands, with longer-living women in those countries facing an extra two to three years of financial uncertainty.
However, those countries are doing much better than Japan, where the retirement savings gap is 15 years for men and almost 20 years for women. This, says Mr Yik, is most likely attributed to a longer than average life expectancy in Japan coupled with a nationwide predilection for safe investments that produce smaller gains over time. As a result, average savings in Japan are only enough to cover 4.5 years of retirement.
YourLifeChoices research in recent years has showed shoed the extent of retirees’ concerns they will run out of money before they die. In the 2019 Ensuring financial security in retirement survey, retirees were asked how confident they were that their savings and income would enable them to maintain their current lifestyle for as long as they live. Almost four in 10 said “not very” or “not at all”. Another 17 per cent were unsure whether their savings would last.
While the population may look to the government to bail them out of this predicament, it seems that globally, governments are handballing that responsibility back onto the individual, by shifting to more defined contribution plans, account-based pensions and introducing retirement income streams over traditional taxpayer-funded pensions.
“All the risks that governments and employers used to have, we’ve shifted that onto workers,” said Mr Yik.
At the current rate the retirement shortfall gap is widening, the world’s collective retirement savings gap could exceed $400 trillion, up from $70 trillion in 2015, says the report. The US’s savings gap will be the largest at $137 trillion, followed by China at $119 trillion and India at $85 trillion.
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