Ap Impact: The World Braces For Retirement Crisis

Living standards will fall, and poverty rates will rise for the elderly in wealthy countries that built safety nets for seniors after World War II. In developing countries, people's rising expectations will be frustrated if governments can't afford retirement systems to replace the tradition of children caring for aging parents. "The first wave of under-prepared workers is going to try to go into retirement and will find they can't afford to do so," says Norman Dreger, a retirement specialist in Frankfurt, Germany, who works for Mercer, a global consulting firm. — Countries are slashing retirement benefits and raising the age to start collecting them. [...] they face a demographics disaster as retirees live longer and falling birth rates mean there will be fewer workers to support them. Fukushima, who works in private investment, worries that he might have to move somewhere cheaper, maybe Malaysia, after age 70 to get by comfortably on income from his investments and a public pension of just $10,000 a year. [...] companies began to offer pensions that paid employees a guaranteed amount each month in retirement — so-called defined-benefit pensions. The OECD says the average retirement age would have to reach 66 or 67, from 63 now, to "maintain control of the cost of pensions" from longer lifespans. Compounding the problem is that birth rates are falling just as the bulge of people born in developed countries after World War II retires. The higher the percentage of older people, the harder it is for a country to finance its pension system because relatively fewer younger workers are paying taxes. In response, governments are raising retirement ages and slashing benefits. In 30 OECD countries, the average age at which men can collect full retirement benefits will rise to 64.6 in 2050, from 62.9 in 2010; for women, it will rise from 61.8 to 64.4. In the wealthy countries it studied, the OECD found that the pension reforms of the 2000s will cut retirement benefits by an average 20 percent. "France is a retirees' paradise now," says Richard Jackson, senior fellow at the Center for Strategic and International Studies. If rich countries don't cut pension costs even more, says Standard & Poor's, a credit-rating agency, their government debt will more than triple as a percentage of annual economic output by 2050. "For some middle-income people, it will mean canceling the RV" — the recreational vehicle that has become a symbol of retiree life in America. Government budget deficits — the gap between what governments spend each year and what they collect in taxes — swelled in Europe and the United States. Tax revenue shrank, and governments pumped money into rescuing their banks and financing unemployment benefits and other welfare programs. [...] government retirement benefits are based on lifetime earnings, and they'll now be lower. The Urban Institute, a think tank in Washington, estimates that lost wages and pay raises will shrink the typical American worker's income at age 70 by 4 percent — an average of $2,300 a year. When the financial crisis struck five years ago, the world's central banks cut interest rates to record lows to stop the economic free-fall. "The low-interest rate environment has been brutal," says Catherine Collinson, president of the Transamerica Center for Retirement Studies. Yoo Tae-we, 47, a South Korean manager at a trading company that imports semiconductor components, doesn't expect his son to support him as he and his siblings did their parents. China pays generous pensions to civil servants and to urban workers who toiled in inefficient state-owned factories. China also tightly regulates investing, limiting access to assets that are more likely to generate the returns workers need to build a healthy retirement account. "Things that you and I take for granted, like being able to invest in mutual funds or being able to buy stocks and bonds, are in their infancy in China," says Josef Pilger, leader of Ernst & Young's Asia-Pacific pension practice in Sydney, Australia. In the United States, 26 percent of workers with 401(k) and other defined-contribution plans take loans or make hardship withdrawals before they reach retirement, according to a study by HelloWallet, which offers online services that help people with their finances. Retirement specialist Teresa Ghilarducci of the New School for Social Research in New York says the voluntary plans "work for a robot with an Excel spreadsheet," not for people trying to pay bills and care for children who aren't thinking decades ahead to retirement. Employers must contribute the equivalent of 9.25 percent of workers' wages to 401(k)-style retirement accounts. Workers started receiving statements that showed retirement savings piling up, says Nick Sherry, who helped design the program as a cabinet minister. Rebounding stock prices around the world and a slow rise in housing prices are helping households recover their net worth. Boston College's Center for Retirement Research says the recovery in housing and stock prices still leaves 50 percent of American households at risk of being unable to maintain their standard of living in retirement.