World Economic Forum: Retirees Worldwide Will Outlive Their Savings by a Decade – and Women Will Fare Worse
Retirees in six major economies can expect to outlive their savings by years. Women should prepare to bear the brunt of such shortfalls, going without retirement savings for at least two years longer than their male counterparts.
As government and employer-sponsored retirement plans are under strain globally, individuals have found themselves to be increasingly responsible for their retirement savings. Despite this, savings have not accelerated fast enough to make up for the deterioration of traditional retirement plans, suggests a new report by the
In six economies analysed, most male retirees can expect to live past their savings by nearly a decade. Women can expect to go even longer without their savings, as they will likely live more than 10 years without retirement savings to rely on due to their longer average lifespans.
These shortfalls can vary greatly by country and gender; men in
These shortfalls must be addressed, by both individuals and policy-makers, to ensure that seniors can enjoy life throughout their non-working years.
Governments must act to create retirement landscapes that prevent savings shortfalls. Currently, retirement policies in many countries, including
Though governments should act, they would be wise to avoid implementing one-size-fits-all retirement policies as individual retirement needs can vary greatly from person to person. Instead, governments should change, or even roll back, their regulations to allow individuals to make investments that will increase their long-term returns.
A new report from the
1. Consider risk from the perspective of someone saving for retirement
"The real risk people need to manage when investing in their future is the risk of outliving their retirement savings," said
Many people are far too risk-averse in their retirement investing. While consistent saving is important to build retirement money, being mindful of long-term returns on retirement portfolios is crucial to ensuring that an individual doesn't outlive their savings. Many young to middle-age savers should change their risk outlook, understanding that outliving their savings is a far greater risk to them than short-term investment risk.
2. Diversify the investment of saving accounts, by geography and asset type
While focusing on long-term returns is often beneficial for retirement savers, diversification can preserve those returns by mitigating overall investment risk.
Currently, most retirement investment vehicles are largely based on traditional equity and fixed-income investments that have the advantages of being easy to value as well as having high liquidity. However, given the long-term nature of retirement savings, that liquidity comes at a cost. Although they require adequate understanding and sound financial advice, investment in alternative assets, particularly illiquid assets, can bring strong diversification benefits to a retirement investment portfolio.
In this area, again, policy-makers must ensure their retirement policies do not hamper the ability of individuals to make the best long-term choices for their portfolios. In most countries, default retirement options focus on liquidity and the ability to perform daily valuations at the expense of long-term growth. Governments should consider changing or even rolling back these regulations to allow retirement savers to invest in the assets best suited to their individual retirement goals.
In addition, many retirement portfolios also tend to have a heavy domestic focus. Diversifying the geography of investments in portfolios can reduce risk to home country economic events. By expanding the locations of their investments, retirement savers, particularly savers from smaller economies, can protect themselves from market or economic slumps in an individual economy while still maximizing their returns.
Decumulation, or spending in retirement, is another key area of well-being after the working years yet there is far less research dedicated to it.
For instance, today's retirement spending projections are based on the rule that retirees will withdraw 4% of their portfolio each year they are retired. However, the
"With populations around the world living longer than ever before, we need far more creative decumulation solutions for longevity protection" says
Some countries, such as the
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