I was watching THIS Video on “The Coming Retirement Crisis” where they basically told about how many people have unfunded pensions so either they wont get retirement or if they are retired the payments will stop or they just plain worry they wont have enough due to our current lives being so expensive its almost impossible to save for retirement.
Also its not just the US but also in other countries. For example France just raised its retirement age and is trying to cut benefits.
Canada is in much the same boat as employers do what they can to give workers less and less for pensions. Governments are at some point going to have to force this issue by legislating increases to public pension plans such as the Canada Pension Plan from employers and employees. Either that or people will be working until they die which will make it more difficult for younger people to find jobs.
I’m worried that the homeless encampments we’re seeing in certain cities are only going to expand as the elderly try to make the most out of savings and SS.
But there is an upside to this. I think a critical mass of white elderly folks living on the streets is what it will take to move politicians to do something to make housing more affordable.
You might be on to something because there are a growing number of people “retiring” just to live in their RV’s. Many times those RV’s are parked up and down city streets or in parks. I’m also seeing many retirees living in cheap campgrounds.
Not just the cost of housing but also medical care in the later years. Never having kids and having a lucrative career has enabled me to save aggressively for retirement. I’m in pretty good shape now financially but I still worry that long term care or illnesses when I’m retired will suck my accounts dry and then I’ll be stuck in the worst quality of nursing homes.
Certainly a possibility. Financial advice for retirement planning seems to often focus on replacing some percentage of your income so as to sustain your current lifestyle; rarely do they talk about potentially needing to live in an assisted-living facility for several years. The national average for this is about $48,000 per year, and an "average’ assisted-living facility ain’t all that nice. The average assisted-living stay is 28 months, but of course it could be substantially longer.
To be fair, if you’re in AL then you’re probably no longer a homeowner or globetrotter, so those expenses go away - but $48K per year is still a stretch (or outright impossible) for many current and future retirees.
Like you, my wife and I have no kids and good jobs, and have been saving aggressively for retirement. As a federal employee I am anticipating a pension someday, but we won’t be screwed if it gets reduced or even eliminated; we will live well after we retire, and we don’t anticipate any problems with paying for an extended period in assisted living if the need arises.
Not necessarily because there are so many fewer younger people that there could well be a worker shortage. I would–if I were young enough for it to matter–of a situation in which there are only two working people for every retiree and the workers revolt because too much of their production is going to the retireds. It is not so much a matter of money as of goods.
Concerns in the UK as well. In part because of the move away from nicely funded (defined benefit) company pensions (which, in the days of “A job for life”, pretty much made sure people were OK) to money purchase schemes which often have too ready access to the cash and too often allow people to be stupid with it.
(To be fair, there has recently been much more emphasis on getting people to save for retirement, and company schemes which include both employer end employee contributions. But there is a generation to go before this solution works its way through the system.) (No doubt others have a far better understanding of these schemes than I do; as I spent a decade and a half self-employed, I was pretty distant from the detail of how these schemes work.)
However, I suspect the looming retirement crisis in the UK is the more complex issue of Equity Release (Reverse Mortgage in the US, I believe). Promotion is incredibly aggressive, and uptake is booming.
Time was, when you needed to move to assisted living your house could be sold to fund it, with your heirs pocketing whatever funds were left. But if you have already signed over your home for cash to support you in retirement, that may no longer be an option - so what happens next?
So here we are, hurtling towards a situation where hundreds of thousands of people will be reaching the point of needing assisted living, and having no way to pay for it. Of course, all the advertising for equity release shows happy retirees in their nice suburban house living a comfortable lifestyle - very attractive. But you only need to take two steps back to get a view of a looming disaster.
I have been saying all of this for years. It seems to me that the expectation of a comfortable retirement has been a momentary blip in history, and we will regress to the mean of elders living with their children for support. Sure, there are some people who had big enough incomes to put away enough (they think), and some small number still have pensions, but the vast majority will be painfully poor. Universal single payer health care in the US would help, yah?
The video also talks about the problem of outliving your money when so many people live well into their 80’s and beyond. Where will the money come from?
I’m 40 and have been self employed for my entire working life. I’ve got little to no retirement savings and other than the few bucks I’ll get from the Ohio pension fund for my time on city council, no pension to speak of.
I’ve resigned myself to dying destitute. But it’s ok, I think I’ll have a lot of company.
Did you make SS contributions? I didn’t for a long time since it wasn’t a requirement but I spent the last 10 years working a regular job to get SS credit and put away as much as I could in a 401K with my employer contributing. I’m 63 now and retired so it can be done. At 40 I hope you start doing that, even late in the game it’s worth trying to put something away, and you’re not that late in the game. Along with what my wife put away also we’ll do ok with our SS making things a little nicer. I wasn’t in the mood to go nuts on saving before, and I did will investing in my house and property too, but I do think I should have started to put something away when I was younger, and more when I reached your age.
Except it’s not, of course. Underfunded pensions can come about not through non-funding but by companies making optimistic assumptions about fund growth over time.
Say you’re an employer and you offer a pension. You have a pretty good idea that in 20 years time you’ll need $50,000 to fund it for whatever reason (work with me here).
Where you tell your CFO to set the predicted rate of growth can really have an impact.
If you put $10,000 in a fund and assume it’ll grow 5% annually it’ll end up at $26,532.98 in 20 years. You’ll need to invest more money to grow that $24,000. This can hit your bottom line and company growth.
If you put $10,000 in a fund and assume it’ll grow 10% annually it’ll end up at $67,274.99 in 20 years. Voila! Not only can you say on your annual report that the pension is fully funded by expectation but there’ll even be a surplus! You can CUT your investment savings and grow the bottom line THIS year! Bonuses and cocaine for everyone on the board!
And if it defaults or can’t meet it’s obligations? Two points:
It’ll be guaranteed by the Pension Benefit Guaranty Corporation so who cares?
It’s 20 years off. You’ll be retired and somewhere warm and sunny. So again, who cares?
My folks are in their early 90’s. We were upper-middle class growing up and my dad planned for retirement wisely. Now, due to mandatory withdrawals from their retirement accounts their are at the highest annual earning year of their lives, nearly 30 years into retirement. My wife and I are planning for the same type of post-retirement lifestyle.
They live modestly but comfortably, and traveled quite a bit around the world into their 80’s. It can be done if your income is middle class, assuming you are fortunate health and otherwise. I’m sure a single accident, illness, or disaster can take a big chunk of that away.
For everyone, I wouldn’t rely on pensions or even Social Security for my financial well-being, but I know that’s not possible for many.
There are some Boomers that are in for a rude awakening. They kicked their kids out once they turned 18, saying stuff like, “When I was your age, I had my own apartment! BE A MAN!!” I wonder if their kids will have more compassion and avoid saying, “When Grandpa was your age, he had his own apartment! BE A MAN!!”
The problem is how do you determine motivations? How many people gave overly-optimistic assumptions because they were looking for bonuses and blow, versus how many people gave overly-optimistic assumptions because they really believed a mature economy could grow that much and were just wrong or ill-informed or believed in the wrong politicians or economists? What is the “proper” rate to use?
There is a whole science behind figuring out what rates are actuarially sound, but all the methods require making some assumptions or informed guesses, including what interest rates will be like in 15 years, how the stock market will perform over the next several decades, and how many of the plan participants will exceed average life expectancy over the lifetime of the plan. Even relatively modest miscalculations in any of these can have a pretty substantial impact in how much money is available.
It should be a crime to contract a pension expecting it to be funded by some unrealistic return on investments. But what would the right number be? I have an idea, you probably have an idea too, but who’s to say what is appropriate?
I suggest that if we agree that society has an interest in protecting pensions from adverse stock market exposure, then let’s eliminate that risk entirely and outlaw pensions altogether. Nationalize the existing ones under PBGC (they’re already headed that way if they fail). Shore up social security and have an actual comprehensive safety net that isn’t contingent upon stock market outcomes.
Your folks are very lucky. Being upper middle class was probably the biggest factor. And having no major medical crises was fortunate, too. I’ve always worked hard and lived modestly and within my means. I see a former colleague’s retirement travel photos on social media and realize I’d be doing that, too, except that I’ve spent tens of thousands of dollars on trying to maintain my sight (which enabled me to continue working at my profession), and that, unlike my colleague, I helped my kids pay for college, a decision I’ll never regret.
I have enough put aside that, with social security and my pension (a state one and pretty stable), I’ll have enough to live on until age 90, which I doubt I’ll reach. That’s factoring in inflation.