|PAUL WISEMAN, AP Business Writers|
Spawned years before the Great Recession and the 2008 financial meltdown, the crisis was significantly worsened by those twin traumas. The crisis 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 — to 70 or even longer. Living standards will fall, and poverty rates will rise for the elderly in wealthy countries that built safety nets for seniors after
The problems are emerging as the generation born after
"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
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 after overspending last decade and racking up enormous deficits since the recession. Now, 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 cost employees nothing and guaranteed them a monthly check in retirement.
— Individuals spent freely and failed to save before the recession, and they saw much of their wealth disappear once it hit.
Those factors have been documented individually. What is less appreciated is their combined ferocity and their global scope.
"Most countries are not ready to meet what is sure to be one of the defining challenges of the 21st century," the
He's considering moving somewhere cheaper in retirement, maybe
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
"We're both enjoying our second lives immensely and with gratitude," Case says.
A BRIEF GOLDEN AGE
The notion of extended, leisurely retirements, like the ones Bigand, Case and Wiktor are enjoying, is relatively new. German Chancellor
In the prosperous years after
It got even better in the 1980s. Many countries began to coax older employees out of the workforce to make way for the young. They did so by reducing the age employees became eligible for full retirement benefits.
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
That created a new, and perhaps unrealistic, "concept of retirement as an extended period of leisure, "
Then came the 21st century.
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.
People were living longer: 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
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.
"France is a retirees' paradise now," says
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 government's share ranges as high as 86 percent in
If rich countries don't cut pension costs even more, says Standard & Poor's, a credit-rating agency, their government debt will more than triple as a percentage of annual economic output by 2050. The debt of most countries would drop to what is commonly called junk status.
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 setting money aside for old age. In the U.S., households took on an additional
"People are going to be shocked at how little they have," says
THE FINANCIAL CRISIS MAKES THINGS WORSE
As if demographics weren't burden enough, the outlook became worse when the global banking system went into a panic in 2008 and tipped the world into the worst recession since the 1930s.
Government budget deficits — the gap between what governments spend each year and what they collect in taxes — swelled in
That escalated pressure on governments to reduce spending on pensions or raise revenue.
The Great Recession threw tens of millions of people out of work worldwide. For many who kept their jobs, pay has stagnated the past five years, even as living costs have risen, making it tougher to save for retirement. In addition, government retirement benefits are based on lifetime earnings, and they'll now be lower.
"I don't believe that I will ever retire now," she says.
She also worries about her children, all in their 20s: "I don't think my three sons will ever retire" because pay raises have been so weak for so long.
Less money from a government pension isn't the only factor weighing on future retirees. When the financial crisis struck five years ago, the world's central banks cut interest rates to record lows to stop the economic free-fall. That also punished people with much of their money in investments that pay interest.
"The low-interest rate environment has been brutal," says
The crisis also frightened many away from the stock market. Stocks can be riskier than other investments, but they yield more long term. Many investors have shunned stocks while the world's stock markets have soared. In the U.S., the Dow Jones industrial average has risen more than 140 percent since
The past five years have been so tumultuous that some people have abandoned investing.
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
South Korean public pensions pay an average of just
"Things that you and I take for granted, like being able to invest in mutual funds or being able to buy stocks and bonds, are in their infancy in
THE END OF TRADITIONAL PENSIONS
Governments aren't alone in cutting pensions. Corporations are, too. The traditional defined-benefit pensions they long had provided are vanishing. Companies don't want to bear the risks and costs of guaranteeing employees' pensions. They've moved instead to so-called defined-contribution plans, such as 401(k)s in the U.S., which shift responsibility for retirement savings to employees.
The problem with these plans is that people have proved terrible at taking advantage of and managing them. 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; often buying stocks when times are good and share prices are high and bailing when prices are low. Investment returns from defined-contribution plans are typically 0.76 percentage points lower than returns on defined-benefit plans, according to the consulting firm
Many have raided their retirement accounts to pay bills. In the U.S., 26 percent of workers with 401(k) and other defined-contribution plans take loans or make hardship withdrawals before they reach retirement, according to a study by HelloWallet, which offers online services that help people with their finances. Americans withdraw
NUDGING WORKERS TO SAVE
Several countries are trying to force — or nudge — workers to save more for retirement.
When politicians were debating the plan, only about half of Australians supported it. Within six months, approval rose to 85 percent. The difference: Workers started receiving statements that showed retirement savings piling up, says
EASING THE PAIN
Rebounding stock prices around the world and a slow rise in housing prices are helping households recover their net worth. In the U.S., retirement accounts — defined-contribution and defined-benefit plans combined — hit a record
However, net worth is merely climbing toward a level considered inadequate at its peak in 2007.
Only half of all Japanese say they've even thought about how to finance their retirement. And 63 percent are counting on getting most of their income from a government pension system that's going broke.
When they look into the future, retirement experts see more changes in government pensions and longer careers than many workers had expected:
— Pension cuts are likely to hit most retirees but should fall hardest on the wealthy. Governments are likely to spend more on the poorest among the elderly, as well as the oldest, who will be in danger of outliving their savings.
— 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
McHugh reported from
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