Threat #1: Monetary policy that’s perpetually stuck in crisis mode
A decade of low yields has had a profound effect on retirement security.
- Low rates today mean assets may have a lower value in the future — increasing liabilities for pension managers.
- To ensure they have enough to meet those liabilities, pensions have less to work with to fuel long-term growth.
- Many individual investors are forced to annuitize assets at a time when interest rates have never been lower.
- Low returns leave pensioners faced with three choices:
- Live on lower levels of income than anticipated.
- Work longer, if they are able.
- Invest in riskier assets with higher income potential – and greater potential for losses.
Threat #2: The growing weight of public debt
Faced with the slowest, most anemic recovery in history, unabated public spending continued across the developed world. And as debt increases around the globe, it’s forcing tough policy and funding decisions that could impact millions of retirees.
Policy makers have limited funds.
- Retirement benefits, education, and infrastructure compete for a share of those budgets.
- As public debt increases, funding for retirement benefits and other social services decreases.
Threat #3: Old age dependency keeps growing
For public and private retirement systems to succeed, the number of younger individuals paying into the system has to be large enough to support the number of people taking payments out of the system. The problem today? These fundamentals have been eroding for decades.
- Raise the retirement age
- Reduce retirement benefits
- Bring more people into the system via immigration
Threat #4: Climate change
From megastorms and megadroughts to rising ocean temperatures and other environmental factors, climate change can have a dramatic – and often overlooked–impact on global retirement security.
By 2100 the Iberian Peninsula will be susceptible to megadroughts that can last up to 15 years. There are millions of retired expats in Spain.2
US coastal areas experienced $306 billion in storm-related losses in 2017.3
Threat # 5: An eroding quality of life for retirees
After the financial crisis, unemployment continued to climb – even when markets started to rebound. High unemployment can have a profound effect on retirement security:
- It reduces the tax revenues needed to fund pensions, healthcare, and social services.
- It limits employment opportunities for those who want – or need – to keep working.
In 2014 the US spent $9,403 per person on healthcare, with the next highest country being Luxembourg at $6,812 per person.4