Switzerland ranks amongst the world’s wealthiest nations and yet, with a public pensions fund loss of CHF 1.5 billion in 2018, it is estimated that unless successive governments are prepared to address this problem seriously, the public pensions pot will have run dry by 2031!
If this can happen in a wealthy country like Switzerland, where else is it happening and what can individuals do about it? The answer, unfortunately, is that it is happening globally and individuals need to take it very seriously indeed.
In the west, Baby Boomers have enjoyed good retirement incomes thanks to a system that badly miscalculated the age at which people could retire and for how long they would draw a retirement income. Shifting global demographics have meant that as we live longer, healthier lives, and birth rates fall, the landscape is changing. In Latin America, for example, the ratio of working age people to retired people has dropped dramatically. This means that taxes levied on the people who are generating growth are stretched to pay for those who are not. In 1970, there were 11 working age people for every 1 retiree in Latin America. By 2050, there will only be 3 workers to every retiree. Countries the world over, no matter how wealthy they are, have an alarming pension liability deficit.
For most young people today, planning for retirement is as low-down as it can get on their list of priorities. That was also true 30 years ago, because most young people can’t even contemplate retirement until it gets too close for comfort. By that point, it is too late: time and time again, inadequate pension provision catches people out… and before they know it, the chance of retiring with a decent income is out of reach.
However, if you started making a regular contribution of $300 a month into a pension plan at age 30 looking to retire at 65, assuming a conservative annual growth rate of 5.00% a year, you would build a retirement fund of $ 340,827. If you delayed this by 10 years and only started at age 40, your retirement fund would be reduced by almost 50% to just $ 178,652.
A combination of facing reality, starting early and compound annual growth rates will make all the difference to your financial well-being in the future. For that reason, while pension planning may not be the sexiest subject for a young client to be thinking about, addressing it early with the help of a trusted financial adviser may be one of the best decisions they will ever make.