Retirement savings gap growing
Longer life spans and disappointing investment returns will help create a $400 trillion retirementsavings shortfall in about three decades, a figure more than five times the size of the global economy, according to a World Economic Forum report.
That includes a $224 trillion gap among six large pension-savings systems: the U.S., U.K., Japan, Netherlands, Canada and Australia, according to the report issued late last week.
Employers have been shifting away from pensions and offering definedcontribution plans, a category that includes 401(k)s and individual retirement accounts and makes up more than 50 percent of global retirement assets.
That heaps more risk onto the individuals, who often face a lack of access to the right options as well as the resources to understand them, according to the World Economic Forum report. Stock and bond returns that have trailed historic averages in the past decade have also contributed to the gap.
“We’re really at an inflection point,” said Michael Drexler, head of financial and infrastructure systems at the World Economic Forum. “Pension underfunding is the climate-change moment of social systems in the sense that there is still time to do something about it. But if you don’t, in 20 or 30 years down the line, society will say it’s a huge problem.”
A shortfall of $400 trillion could be reached by 2050, the forum said. The figure is derived from the amount of money government, employers and individuals would need to provide each person with a retirement income equal to 70 percent of his or her annual earnings before leaving the workforce.
The gap is partially driven by an aging world population. Life expectancy has risen on average by about a year every five years since the middle of the last century, and half of babies born in the U.S. and Canada in 2007 may live to 104, according to the report.
Governments can ease the financial burden by increasing the target retirement age, Drexler said. People would also benefit from improved financial education and services.
“A lot of the good solutions already exist somewhere in the world. Just no one has figured them out all together,” Drexler said.