You’ve likely been told too many times to count that saving for retirement early is essential. So much so, in fact, that it’s probably become a bit like background noise.
And we hear you: It can be hard to motivate yourself to save your dollars now for a goal that’s so far down the road, especially when you could be planning a trip to Cabo. But what if we told you that, around the world, the gap between what people need to live a comfortable retirement and what they will actually have for retirement is going to reach $400 trillion by 2050?
That’s trillion, with a “t.”
Did that wake you up? We’ll put that number into some context for you. That total deficit is based on an analysis by the World Economic Forum of retirement savings in eight developed countries: Australia, Canada, China, India, Japan, the Netherlands, the United Kingdom, and the United States. What the study considers “comfortable” is retirees having an annual retirement income equal to 70% of what they were making before they left the workforce, whether their sources of income are from the government, their employers or personal savings.
Unfortunately, the U.S. is predicted to lead the retirement shortfall: The gap in retirement savings here is supposed to grow at $3 trillion a year, reaching $137 trillion by 2050 (gulp).
The report lists a number of reasons for why they see this big shortfall coming. One of them is increased life expectancy: The over-65 population is expected to increase from 600 million today to 2.1 billion by 2050. Plus, the report estimates, people who were born in 2007 can expect to live until 103 — and planning for a retirement where you think you’ll live to be a centenarian is a lot different than planning for one where you expect to live until your 80s.
Another unsurprising factor is the lack of access to pension plans, which are slowly going away, and underfunded government social programs. The study found that 48% of the retirement age population (60 to 70 years old) aren’t even being offered a pension.
“Pension underfunding is the climate-change moment of social systems in the sense that there is still time to do something about it,” Michael Drexler, head of financial and infrastructure systems at the World Economic Forum, said to Bloomberg. “But if you don’t, in 20 or 30 years down the line, society will say it’s a huge problem.”
Complicating the retirement shortfall is that a lot of the retirement savings vehicles offered these days (like 401(k) plans and Individual Retirement Accounts) require savers to be proactive about contributions and picking investment options. Unfortunately, the study found that financial literacy is low among global citizens, which makes it hard to figure out how to save properly for retirement.
Now before you cut up your credit cards and move back into your parent’s basement so you can start saving for retirement, remember that you’ve still got time on your side. The best thing you can do is simply to get started saving for retirement if you haven’t already. Here are a few quick tips to help kick start your retirement savings.
If you’re already saving, it may be time to revisit your contributions and figure out how much more you can contribute, or what you can do to make saving that much easier.
The takeaway? There’s no need to panic, you just need to stop putting saving for retirement off — after all, you can’t wait around for the world to fix itself.