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Global crisis on the horizon for those approaching retirement

Retirement crisis

A global retirement crisis is bearing down on workers of all ages.

Spawned years before the Great Recession and the 2008 financial meltdown, the crisis was significantly worsened by those twin traumas. It will play out for decades, and its consequences will be far-reaching.

Many people will be forced to work well past the traditional retirement age of 65. Living standards will fall and poverty rates will rise for the elderly in wealthy countries that built safety nets for seniors after World War II. In developing countries, people's rising expectations will be frustrated if governments can't afford retirement systems to replace the tradition of children caring for aging parents.

The problems are emerging as the generation born after World War II moves into retirement.

"The first wave of under-prepared workers is going to try to go into retirement and will find they can't afford to do so," says Norman Dreger, a retirement specialist with the consulting firm Mercer in Frankfurt, Germany.

The crisis is a convergence of three factors:

- Countries are slashing retirement benefits and raising the age to start collecting them. These countries are awash in debt since the recession hit. And they face a demographics disaster as retirees live longer and falling birth rates mean there will be fewer workers to support them.

- Companies have eliminated traditional pension plans that guaranteed employees a monthly check in retirement.

- Individuals spent freely and failed to save before the recession and saw much of their wealth disappear once it hit.

Those factors have been documented individually. What is less appreciated is their combined ferocity and global scope.

"Most countries are not ready to meet what is sure to be one of the defining challenges of the 21st century," the Center for Strategic and International Studies in Washington concludes.

Mikio Fukushima, who is 52 and lives in Tokyo, worries that he might need to move somewhere cheaper, maybe Malaysia, after age 70 to get by comfortably on income from his investments and a public pension of just $10,000 a year.

People like Fukushima who are fretting over their retirement prospects stand in contrast to many who are already retired. Many workers were recipients of generous corporate pensions and government benefits that had yet to be cut.

Jean-Pierre Bigand, 66, retired Sept. 1, in time to enjoy all the perks of a retirement system in France that's now in peril. Bigand lives in the countryside outside the city of Rouen in Normandy. He has a second home in Provence. He's just taken a vacation on Oleron Island off the Atlantic coast and is planning a five-week trip to Guadeloupe.

"Travel is our biggest expense," he says.

UNDER SIEGE

The notion of extended, leisurely retirements is relatively new. Germany established the world's first widely available state pension system in 1889. The United States introduced Social Security in 1935. In the prosperous years after World War II, governments expanded pensions. In addition, companies began to offer pensions that paid employees a guaranteed amount each month in retirement - so-called defined-benefit pensions.

The average age at which men could retire with full government pension benefits fell from 64.3 years in 1949 to 62.4 years in 1999 in the relatively wealthy countries that belong to the Organization for Economic Cooperation and Development.

"That was the Golden Age," Mercer consultant Dreger says.

It would not last. As the 2000s dawned, governments - and companies - looked at actuarial tables and birth rates and realized they couldn't afford the pensions they'd promised.

The average man in 30 countries the OECD surveyed will live 19 years after retirement. That's up from 13 years in 1958, when many countries were devising their generous pension plans.

The OECD says the average retirement age would have to reach 66 or 67, from 63 now, to "maintain control of the cost of pensions" from longer lifespans.

Compounding the problem is that birth rates are falling just as the bulge of people born in developed countries after World War II retires.

Populations are aging rapidly as a result. The higher the percentage of older people, the harder it is for a country to finance its pension system because relatively fewer younger workers are paying taxes.

In response, governments are raising retirement ages and slashing benefits. In 30 high- and middle-income OECD countries, the average age at which men can collect full retirement benefits will rise to 64.6 in 2050, from 62.9 in 2010; for women, it will rise from 61.8 to 64.4

In the wealthy countries it studied, the OECD found that the pension reforms of the 2000s will cut retirement benefits by an average 20 percent.

Even France, where government pensions have long been generous, has begun modest reforms to reduce costs.

"France is a retirees' paradise now," says Richard Jackson, senior fellow at the CSIS. "You're not going to want to retire there in 20 to 25 years."

The fate of government pensions is important because they are the cornerstone of retirement income. Across the 34-country OECD, governments provide 59 percent of retiree income, on average.

THE FINANCIAL CRISIS MAKES THINGS WORSE

The outlook worsened once the global banking system went into a panic in 2008 and tipped the world into the worst recession since the 1930s.

Government budget deficits swelled in Europe and the United States. Tax revenue shrank, and governments pumped money into rescuing their banks and financing unemployment benefits. All that escalated pressure on governments to reduce spending on pensions.

The Great Recession threw tens of millions out of work worldwide. For others, pay stagnated, making it harder to save. Because government retirement benefits are based on lifetime earnings, they'll now be lower. The Urban Institute, a Washington think tank, estimates that lost wages and pay raises will shrink the typical American worker's income at age 70 by 4 percent - an average of $2,300 a year.

Leslie Lynch, 52, of Glastonbury, Conn., had $30,000 in her 401(k) retirement account when she lost her $65,000-a-year job last year at an insurance company. She'd worked there 28 years. She's depleted her retirement savings trying to stay afloat.

"I don't believe that I will ever retire now," she says.

Many of those facing a financial squeeze in retirement can look to themselves for part of the blame. They spent many years before the Great Recession borrowing and spending instead of saving.

The National Institute on Retirement Security estimates that Americans are at least $6.8 trillion short of what they need to have saved for a comfortable retirement. For those 55 to 64, the shortfall comes to $113,000 per household.

THE ASIA CHALLENGE

In Asia, workers are facing a different retirement worry, a byproduct of their astonishing economic growth.

Traditionally, Chinese and Koreans could expect their grown children to care for them as they aged. But newly prosperous young people increasingly want to live on their own. They also are more likely to move to distant cities to take jobs, leaving parents behind. Countries like China and South Korea are at an "awkward" stage, Jackson says: The old ways are vanishing, but new systems of caring for the aged aren't yet in place.

Yoo Tae-we, 47, a South Korean manager at a trading company that imports semiconductor components, doesn't expect his son to support him as he and his siblings did their parents.

"We have to prepare for our own futures rather than depending on our children," he says.

China pays generous pensions to civil servants and urban workers. They can retire early with full benefits - at 60 for men and 50 or 55 for women. Their pensions will prove to be a burden as China ages and each retiree is supported by contributions from fewer workers.

The elderly are rapidly becoming a bigger share of China's population because of a policy begun in 1979 and only recently relaxed that limited couples to one child.

China is considering raising its retirement ages. But the government would likely meet resistance.

THE END OF TRADITIONAL PENSIONS

Corporations, too, are cutting pension costs by eliminating traditional defined-benefit plans. They don't want to bear the cost of guaranteeing employees' pensions. They've moved instead to so-called defined-contribution plans, such as 401(k)s, in the United States. These plans shift responsibility for saving to employees.

But people have proved terrible at taking advantage of these plans. They don't always enroll. They don't contribute enough. They dip into the accounts when they need money.

They also make bad investment choices - buying stocks when times are good and share prices are high and bailing when prices are low.

Several countries are trying to coax workers to save more.

Australia passed a law in 1993 that makes retirement savings mandatory. Employers must contribute the equivalent of 9.25 percent of workers' wages to 401(k)-style retirement accounts.

In 2006, the United States encouraged companies to require employees to opt out of a 401(k) instead of choosing to opt in. That means workers start saving for retirement automatically if they make no decision.

EASING THE PAIN

Rebounding stock prices and a slow rise in housing prices are helping households recover their net worth. In the United States, retirement accounts hit a record $12.5 trillion the first three months of 2013.

But Boston College's Center for Retirement Research says the recovery in housing and stock prices still leaves about 50 percent of American households at risk of being unable to maintain their standard of living in retirement.

When they look into the future, retirement experts see more changes in government pensions and longer careers than many workers had expected:

Cuts in government pension programs like Social Security will likely hit most retirees but will probably fall hardest on the wealthy

Those planning to work past 65 can take some comfort knowing they'll be healthier, overall, than older workers in years past. They'll also be doing jobs that aren't as physically demanding. In addition, life expectancy at 65 now stretches well into the 80s for people in the 34 OECD countries - an increase of about five years since the late 1950s.

"My parents retired during the Golden Age of retirement," says Mercer consultant Dreger, 37. "My dad, who is 72, retired at 57. That's not going to happen to somebody in my generation."

___

McHugh reported from Frankfurt, Germany, Kurtenbach from Tokyo. AP writers Bernard Condon in New York, Fu Ting in Shanghai, Youkyung Lee in Seoul and Sylvie Corbet in Paris contributed to this report.

Join the discussion

1000|Char. 1000  Char.
cg5346 December 29 2013 at 11:33 PM

Well I had money saved for retirement also about $56,000.00 in an IRA but dfue to the realestate fraud when I was transferred from Las Vegas to Ohio by my company I put my house on the market just as it began to fail. Of course I lost my house and therefore had to pay my moving expenses from my IRA and of course I was taxed because I removed the money before I turned the correct age. But I thought I could rebuild my IRA because I was still working, well that went bust when five months after I had my family moved to Ohio I was terminated because the company I worked for Embarq communications was merging with Century Telephone, I was expendable.I had just turned 62 so I had no chloice I had to go into retirement. I lost approximatly $800.00 per month on my Social Security because I took it earlier than 66 and I lost approximately $350.00 on my jpension per month because I was only 62. and their was absolutely nothing I could do about any of this.So working past retirement age went up in smoke for me because I tried to find a job but to no avail because most phone companies are downsizing. i am now 67 yrs old and thanks to The Lord above my wife and I have managed to continue on and live a decent life.

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1 reply
Andrew dist inc cg5346 December 30 2013 at 12:18 AM

God Bless You

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ejh2727 December 29 2013 at 11:49 PM

I spent over 40 years building a union pension. We voted, as a local union, and took negotiated wages and placed them into savings rather than on the check. I retired at 59.
I have no apologies. No regrets.
It amazisies me when people brag they do not pay any union dues. These are the ones that depend on the company or the country, neither of which can be trusted!
Join a union and build your own.
SSI? I paid into it, Forced by law. It is mine! Not an entitlement, but a paid for, by ME, savings. Forced by law.
No apologies, no regrets.

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1 reply
whydothat ejh2727 December 30 2013 at 12:04 AM

Social Security benefits are too generous to those collecting now at the expense of others retiring later. The current retired population is greedy and will not let the benefits be cut now. People paid a small percentage of cost of what they are getting in benefits.

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JOHNNY December 29 2013 at 11:09 PM

cant wait to enjoy my retirement. browsing the malls and checking out the parks,zoos and beaches.

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Cathy December 29 2013 at 10:00 PM

Has anyone ever mentioned how much it costs to be a caregiver and how much it takes to care for your loved one over 11 years? Massive! A million dollars of retirement (careful saving) has left Us... basically me still caring for my husband and 200,000 left. I am just 53. My husband had a massive stroke 11 years ago and requires 24/7 care. Company bankruptcies have taken our pensions. I suppose once we lose it all we too will get by on the kindness of taxpayers. Thank you. I am glad we paid in while we could. 500.00 per month is better than nothing when we end up living on the street. I wonder how the CEO's will ever get by when they retire?

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1 reply
voineal Cathy December 30 2013 at 2:35 AM

Cathy, I agree it can get VERY expensive, that is why when disaster strike, people need to really put all the options in perspective.
For anyone in that situation, please explore ALL your options before you run out of your hard earned money.
After you're done with the Hospital/Emergency/Rehab bills, is time to take a very close look at your LONG TERM care needs and unexpected expenses. Regardless of your care needs:
Your most expensive option is to have caregivers come at your home to give you care.
The next expensive will be a Long Term Rehab, Assisted Living Facility, or Nursing Home.
One of the best option (quality of care and cost) is to find a good Adult Foster Care Home , if there are any in your state/county. If not, it might be best to move to a state where AFCH are available.
The least expensive option is if you have a family member(s) to take care of you, however, depending on the care you need, it usually means that the family member giving you care will cease to have a social life or in many cases any freedom outside the house, and will usually end up overstressed, overburdened, in other words, burned out.
And of course, there is the option of giving all your assets away and have the state/Medicare pay for your care.
I am sorry about your husband, and I wish all the best to you and your husband.

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Susan December 29 2013 at 9:42 PM

Get wise guys, the sooner we own up to the fact that a Default should occur, the better. As it is now, we are just stalling and the interest rates are eating us alive! Procrastinating just prolongs the agony of the inevitable -- and, gives the nations we are indebted to -- more time to make very effective plans at our national expense. If we take everything from the Poor; it will still NOT satisfy this debt BUT it will hurt our American people tremendously... As it is now, we are dependent on China for our pharmaceuticals -- we really need to invest in creating pharm companies in the the good old USA...

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2 replies
Susan Susan December 29 2013 at 9:44 PM

Most of the time when you default or declare bankruptcy -- the interest is written off AND if ALL the interest could be written on this loan -- America would be in better shape... However, just to be safe and tremendously sorry, we DO NEED to invest in our own country, the good old USA...

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1 reply
Susan Susan December 29 2013 at 9:46 PM

Just to safe and NOT tremendously sorry, we DO NEED to invest in our own country, the good old USA...

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jaywpb Susan December 29 2013 at 9:56 PM

Would be interesting to know what credentials Susan holds that render her views on international economics a viable one.

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1 reply
aliloga jaywpb December 29 2013 at 10:25 PM

Why are you nitpicking? If you have a better response, say it., or are you like most that say "I am good" good like your parients were, and then hold your hand out for help?. You had 35 to 45 years to prepare for this, but because you closed your eyes and ears that it was raining or the sun was shining, and even then you still question it. "Is it raining/sun shining" you question reality.It is not the 1920's or 30's. Back then there was only on bread winner in the household, now there is 2+ and it is still not enough. It is 2000+ years and what are you still doing and saying. "I am good, and the country owes you" Wakeup people.

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west hammond December 29 2013 at 10:53 PM

"own your own home without a mortgage, and know how to maintain it"...the first step in a middleclass retirement strategy.

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SHAQ FU December 29 2013 at 9:06 PM

Fkning bullshit im gonna work my entire life and SS be bankrupt bc of the ahole policy makers that benefited the most from it

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santiagostmoritz December 29 2013 at 8:46 PM

What it's all coming down to is that people will have to work until the day they die. That's so sad. this is just another sign that people need to take more responsibility for their financial future and not leave it all in the hands of their employers.

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1 reply
peckart santiagostmoritz December 29 2013 at 9:04 PM

it also means that young people will have to take their parents into their families and homes. This could be the only good that will come out of this mess. The extended family of yesteryear instilled a sense of gratitude and respect for the elderly that is sadly missing today. Of coarse this will won't help the folks that chose not to have children

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2 replies
drixnot3 peckart December 29 2013 at 9:40 PM

My dad doesn't deserve it and my mother doesn't need it.

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Cathy peckart December 29 2013 at 10:02 PM

Yes... I have been there and done that while taking care of my husband who suffered a massive stroke and being treated for Breast Cancer. We made a wonderful group with me the only one along with good people out there helping me for little pay.

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len9677 December 29 2013 at 8:29 PM

The problem is the politicians used the money collected for everything but what it was supposed to be used for and we sat on our hands and watched them do it

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primeaubiddy24 December 29 2013 at 10:47 PM

WE NEED TO FIND HONEST PEOPLE TO RUN THIS COUNTRY NOT CROOKS. HARD WORKING PEOPLE WHO WILL DO WHATS RIGHT AND STOP CHEATING THIS COUNTY

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1 reply
Sheryl primeaubiddy24 December 29 2013 at 11:32 PM

it costs so much to run & that is art of the shame.

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1 reply
Sheryl Sheryl December 29 2013 at 11:33 PM

*part

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