Even as Economies Around
the World Improve, People Are Worried About Retirement
While many investors are optimistic that the markets have
done well after the huge test of a worldwide pandemic, retirement security remains
a long-term worldwide challenge.
If you are worried about
your own retirement, know that you are not alone. It seems that the entire world
population shares your woe with the lingering impacts of inflation being at the
top of the list of concerns.
And, the worries are not
limited to lower income levels. Wealthier households are concerned too. The report
states, “Saving was already a challenge. And now, as they ponder the prospects of
higher prices, longer lives and the potential for reduced retirement benefits,
many individuals doubt whether they will be able to put the pieces together at
all. Overall, 48% of this group of affluent investors ($100,000+ in investable
assets) worry that retirement won’t even be an option, including 38% of those with
$1 million or more in assets.”
5 Key Issues
Threatening Retirement Security
Natixis cites 5 key concerns in 2023 that do warrant
anxiety:
1.
Inflation
Over the last year, we
have all gotten a hands on lesson on the immediate impacts of inflation. And, this
experience has made inflation the number one investment concern for both retirees
and those not yet retired. Seventy three percent of retirees and 60% of those not
yet retired rank inflation as their biggest financial fear followed by: a large
unexpected expense, taxes, healthcare costs, job security, and cash flow.
What to think about:
Inflation is a significant risk to retirement security. If the cost of goods and
services rises, you will need more savings to fund the difference.
It can be a good idea to stress test your
retirement finances by running scenarios at different rates of inflation. This is
possible using the NewRetirement Planner, a 360 degree retirement planning platform.
Gain total control over your money and make better decisions about your future.
2.
Rising interest rates
Like with
low inflation, we had all gotten used to low interest rates. Over the past two
decades low rates created favorable conditions for borrowers, businesses, and
investors. However, the low rates made it hard for retirees who were seeking
predictable income and growth from relatively safe investment vehicles like bonds.
(See low risk high-return investments.) The low rates also changed how the money
in pensions was managed.
With rates on
the rise, there are serious implications for both individual investors and pension
administrators.
Individual Investors: Rising rates
brings good news and bad to individual investors. The bad is that borrowing now
costs more. And, higher borrowing costs can lower the value of owned assets like
homes. The good (especially for retirees) is that rising rates mean that it is
easier to generate income off of savings. However, there is strong evidence that
very few people understand this correlation:
In a simple
quiz, Natixis asked individual investors about bonds. Only 2% of investors passed
with only 52% even attempting an answer and 48% simply replying, “I don’t
know.”
The lack of knowledge many be why only 22% of investors report adding
bonds to their portfolio as rates have risen.
Pensions: In the long run, higher rates
will help pensions address shortfalls in their funding ratios meaning that
pensions should become more solvent.
And, it is
important to note that federal pensions like Social Security are impacted
negatively by low rates which has been a contributing factor to the system being
slated to run out of money within the next 7–15 years. (Learn more about when
Social Security might run out.)
What to
think about with regards to higher rates:
- Watch borrowing
costs.
- Learn about bonds. Keep an eye on interest rates and consider your
investment strategy carefully.
- Consider how you want to balance the risks and
rewards of being invested in the stock markets vs. the rising returns that
fixed-income investments currently offer. (A bucket strategy can be a good
solution.)
- If you have a pension, it is always a good idea to ask your
administrator about the risks to your future payments.
- Evaluate the role of
home equity in your retirement plan and perhaps scale back your long term rate of
appreciation.
3. Public
debt
Over the past 20 years, public debt has risen across the
world. The good news? The unique combination of higher prices, higher wages, and
economic growth boosted projections for the tax revenues needed to make good on debt
obligations. As a result, many countries saw their debt to GDP ratio decline
significantly in 2022. In the US, public debt declined from 159.9% of GDP to 144%.
The bad news? We still have a lot of debt.
And, 77% of of individual investors who are still working and 73% of retirees worry
that high levels of public debt will result in reduced benefits down the road.
What to think about: Many
people worry that public debt will mean reduced Social Security and Medicare in the
future. Regardless of what will happen, it is more important than ever to create and
maintain your own comprehensive retirement plan – paying close attention to your own
longevity and to your retirement income sources. The NewRetirement Planner can help
you.
4.
Demographics
Because of increases in life expectancies and a
reduction in the birth rate, developed countries now have more people who are older
and no longer working.
This translates to a crisis for public
benefits which are built on a simple premise: you need more people paying into the
system than there are people taking benefits out.
What to think about:
Understand your own life expectancy and how that impacts your retirement savings
needs.
Consider the need for a young enough
population of workers who 1) pay into the system and 2) provide needed products and
services.
5.
Unrealistic expectations and understanding of risks
Natixis
reports that individual investors underestimate what is needed for a secure
retirement. Most people do not understand how long retirement will last or how much
money will be required to fund retirement.
They also have unrealistic
expectations about investment returns. And, according to Natixis, “The gap between
what’s expected and what’s realistic is greatest in the US, where it is 123%.
Investors say they expect 15.6%, but advisors call 7% realistic.”
What to think about: The
NewRetirement Planner can help you plan for future unknowns and gain confidence that
you can create a plan for financial security no matter what happens.
For example, the system will help you:
-
Run scenarios with different:
- Rates of return on investments
- Longevity
ages
- Retirement dates
- Inflation values
- Discover how much you need
in savings for a secure retirement (under different conditions)
- Explore other risks:
- How to cover a
long term care need
- The implications of guaranteed income vs. relying on stock
returns
How Are the
Natixis Rankings Compiled? And, Where Does the United States Rank for Each
Category?
The Natixis survey creates an overall retirement
security score that is based on 18 different performance indicators that are grouped
into the following 4 categories:
Will they be able to generate the income
they need to sustain themselves through retirement? Can they be confident the
financial systems supporting their retirement funding will be resilient through
short-term disruptions? Do they have access to the healthcare needed to address the
physical challenges of aging? What will their quality of life be like during this
vulnerable point of life?
1.
Finances in retirement
This category addresses old-age
dependency, bank non performing loans, inflation, interest rates, tax pressure,
governance, and government indebtedness.
These are the big external financial
pressures that can impact an individual’s finances. The study says that:”Finances in
Retirement is a particularly important index, as it reflects the strength of a
country’s financial system and the ability of the government to provide for its
citizens in retirement.”
How does the United States rank? Due to
inflation and government indebtedness, the U.S. is holding at number 13th on this
measure. However, non-performing loans, interest rate, and tax pressure scores
improved over the past year.
The top 10 include: Switzerland, South
Korea, Australia, Singapore, Luxembourg, Ireland, Chile, New Zealand, Norway, and
Canada.
2.
Material well being
This category measures how well retirees
can support themselves in retirement and looks at income equality, income per
capita, and unemployment.
How does the United States rank? The
United States has improved to rank 21rst in this category. In previous years it did
not even score in the top 25 largely because of income inequality. However,
according to the report, by the end of 2022, the United States’ unemployment rate
reached its lowest level in over 50 years, matching the unemployment rate from just
before the pandemic. Income inequality in the US has also stabilized in the last
decade, in part due to the rapid growth in wages for low-paying jobs amid the
post-COVID revival of the service industry.
The top 10 countries for material well
being in retirement include: Norway, Slovenia, Iceland, Czech Republic, Netherlands,
Switzerland, Ireland, Germany, Malta, and Luxembourg.
3.
Quality of life
These are the factors that the study uses to
determine quality of life for retirees: happiness, air quality, water and
sanitation, biodiversity and habitat, and environmental factors.
How does the
United States rank? On these measures, the United States ranks 21st. Most
environmental indicators saw slight increases (air quality, water and sanitation,
environmental factors) with the exception of biodiversity and habitat, which saw a
slight dip (from 66% to 61%). The happiness score also slightly decreased (from 84%
to 81%).
The top 10 are: Finland, Denmark, Sweden,
Norway, Iceland, Switzerland, Austria, New Zealand, Netherlands, and Luxembourg.
4.
Health
The health scores reflect physical wellness and the
associated medical costs. This score is specifically based on life expectancy,
health expenditure per capita, and non insured health expenditure.
The study notes that “The higher a
country’s health expenditure per person, the higher its life expectancy is expected
to be.”
How does the United States
rank? The United States ranks 25th in the health category. The US
exhibits a low score as life expectancy took a hit from the COVID-19 pandemic and an
increase in drug-related and accident deaths.
Generally, the United States does not
score particularly well in this category because our life expectancy does not move
in line with how much we spend on healthcare per person. The U.S. finishes first for
the health expenditure per capita (we spend the most on healthcare) but only 30th
for life expectancy.
The top 10 are: Norway, Japan, Luxembourg,
Iceland, Switzerland, Sweden, Ireland, France, Australia, and Netherlands.
Can a
U.S. Citizen Retire to One of the Top 5 Countries?
Here is
the run down of what it takes to retire to one of the top 5 best places to be
retired.
Warning: These are
not necessarily the easiest places to retire to from the United States — perhaps
it is best if you were born there. (Go check out the best places to retire in the
world if you are an American looking to retire abroad.)
1.
Norway
Retiring to Norway, if it were possible, would be a
huge shock — the long winter and endless darkness might make you rethink the plan.
In fact, many Norwegians actually spend their retirement in Spain or Portugal where
the cost of living is lower (and the elements are more forgiving).
According to LifeinNorway.net, “Unlike
some European countries, there is no specific retirement permit available. To live
in Norway without working, you must either already have permanent residence, or have
enough money to sustain yourself.”
2.
Switzerland
Mike Coady, a financial and expatriate expert, lists 10 reasons why Switzerland makes an
ideal retirement destination. Unfortunately, affordability is not one of those
reasons.
3.
Iceland
Retiring to Iceland would be a wintry, expensive, and
difficult proposition for a U.S. citizen. It is one of the most expensive countries
in the world.
EEA/EFTA citizens have a relatively easy
time, but Americans will face a lot of bureaucracy and, as part of the application
process, you have to prove that you can support yourself while in Iceland. As of
2019, if you don’t have an employment contract, you must have at least 189.875 ISK
(about $1500) per month in your bank account.
4.
Ireland
Ireland holds a special place in the heart of many
Americans. And, with rolling green hills, a temperate climate, tremendous natural
beauty, and friendly, outgoing people, it could be a retirement delight.
First the good news: U.S. citizens can
become an Irish citizen if you, your parents, or grandparents were born there.
The bad news? Everyone else must be able
to prove that they won’t be a burden to the state and prove at least $55,000 in
annual income. You won’t be allowed to work, must renew your permission every year
and other recently updated rules actually make it quite difficult for a U.S. citizen
to retire to Ireland.
5.
Luxembourg
Retiring to Luxembourg is possible. Expatriates
who have worked in Luxembourg and contributed to the old-age pension fund for at
least 10 years are eligible to claim a pension. There is also a system for
transferring an international pension.
The countries offers an excellent quality
of life, but at a high cost of living.
Can You
Make Your Own Home Be One of the Best Places to Be
Retired?
There is no place like home… and that can be true
for retirement despite what this study might say.
The trick – no matter where you live – is
to have adequate savings and financial resources. And, if you haven’t saved enough,
then be willing to make trade offs like working longer, downsizing, cutting
expenses, and getting creative in order to achieve financial security.
The
NewRetirement retirement planner is the ideal tool for figuring out how to make
retirement work for you (at home or abroad). This detailed system gives you almost
complete control over all the factors that can contribute to your financial well
being.
Start by entering basic information and
get some initial feedback on where you stand. Then, add more detail and more
accurately estimate for how much you need. Best of all, you can try an infinite
number of scenarios and find a way to be retired on your own terms.
Source
https://www.newretirement.com/retirement/where-are-the-best-places-to-be-retired/
