A new global report delved into a number of trends affecting retirement security for individuals in 15 countries–and the outlook is not exactly sunny.
Prior to the COVID-19 pandemic, the study found that retirement programs were deeply strained because of an aging population and low interest rates. Additionally, defined benefit pension plans were being phased out and replaced with employee-funded defined contribution plans. More and more, individuals were expected to self-fund a larger portion of their retirement income, even though many were unprepared to take on the task. The financial, healthcare and community shockwaves of the pandemic just further exacerbated an already precarious situation.
Conducted in early 2021, the global survey is a collaboration between Dutch life insurance heavyweight Aegon, and nonprofits Transamerica Center for Retirement Studies (TCRS) and Instituto de Longevidade MAG, a Brazilian based organization maintained by the Mongeral Aegon Group.
Bleak outlook, with few bright spots
The study found that very few workers are financially ready for retirement, with just 41% in the U.S (compared to 22% worldwide), achieving a “high” score on Aegon’s retirement readiness index. And again, the pandemic was no friend to the situation with 45% of U.S. workers (36% globally) experiencing negative impacts to employment including layoffs, furloughs, and/or reductions in working hours or pay.
Almost four in 10 people globally are concerned about running out of money in retirement (38 global, 39 percent U.S.) and more than 40% of workers consider themselves “habitual savers,” a number that jumps to more than half with U.S. workers. Overall, an impressive 60% of workers have a retirement strategy (78% in the U.S.), but relatively few have it written down (19% global, 38% U.S.). Notably, workers whose employment was negatively impacted by the pandemic are slightly more likely to have a strategy than those whose employment was not impacted.
“People have the potential to live longer than ever before, and it is remarkable that so many are focused on preparing for their future retirement amid the upheaval of the pandemic. Despite their efforts, however, many people are at risk of not achieving a financially secure retirement,” said Catherine Collinson, CEO and President of Transamerica Institute and TCRS.
Social Security, employers key to “future-proofing” retirement
Workers agree that countries need to prioritize reforming Social Security programs in a bid to help “future-proof” retirement. The report found that most people think the government needs to take action and only 9% saying it “should not do anything because social security will remain perfectly affordable in the future”. Additional corrective action could help safeguard retirement including universal access to retirement savings arrangements, automatic savings and other applications of behavioral economics, guaranteed lifetime income solutions, financial education and literacy, lifelong learning, longer working lives and flexible retirement, and affordable quality health care. Aspirationally, respondents wished for a positive view of aging and an age-friendly world in which “all people can thrive.”
Globally, there is also agreement that employers play an important role in helping employees save and prepare for retirement, a role that the survey sponsors say should be “encouraged, incentivized, and supported” through public policy. They note that throughout the pandemic and beyond, “employers have played a critical part in helping employees navigate a public health crisis, prioritize work-life balance, protect and improve their financial situations, and safeguard their physical and mental health.”
“Working together–policymakers, industry, employers, and individuals–we can design more inclusive, equitable systems that address the ever-changing retirement landscape, in a way that provides greater flexibility and security for people to work and retire on their own terms,” said Collinson.
Lynn Brackpool Giles is a contributing editor to 401(k) Specialist. Giles is a former Managing Director of Communications and Consumer Services for the Financial Planning Association (FPA), where she oversaw all corporate, legislative, and consumer communications. In her current journalistic practice, she is a frequent contributor to numerous financial services industry publications.