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Failed Retirements a Growing Global Concern

Philip Moeller

If misery really does love company, then America's aging baby boomers are due for a global group hug. Citizens in a 12-nation survey overwhelmingly reported they are not ready for retirement and expect retirement outcomes to be worse for future retirees than for those who have already retired. The survey was conducted earlier this year and polled about 12,000 people. It was sponsored by Aegon, a large global financial services firm, and the Transamerica Center for Retirement Studies.

"The situation has become more dire than just a year ago," Aegon said in its 2013 Retirement Readiness Survey. "People in general feel less prepared for retirement and do not adequately understand the steps they need to take."

The survey presented a retirement readiness index and said none of the dozen countries fared well. German citizens are in the best shape for retirement, but Germany's national score was only in the upper range of the lowest-ranking category. And readiness was worse in 2013 for all countries compared with last year, due primarily to rising levels of uncertainty about the economy and investment performance.

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On a scale of zero to 10, the average index rating for all 12 nations was 4.89 in 2013, down from 5.19 in 2012. Here are the individual index readings for each country:

Canada: 5.24 (not ranked in 2012)

China: 5.41 (not ranked in 2012)

France: 4.75 vs. 5.08

Germany: 5.48 vs. 5.88

Hungary: 4.73 vs. 4.80

Japan: 4.30 vs. 4.63

Netherlands: 4.88 vs. 5.54

Poland: 4.63 vs. 4.96

Spain: 4.40 vs. 5.02

Sweden: 4.83 vs. 5.10

United Kingdom: 4.86 vs. 5.28

United States: 5.19 vs. 5.57

"The 12 countries covered by the survey account for almost 85 percent of global pension assets (not including Social Security funds)," the Aegon report said. "By the end of 2011, the United States alone had amassed $17.5 trillion in pension assets, accounting for 56 percent of the global total. This is followed by the United Kingdom with $3 trillion, or 10 percent, of global pension assets."

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The report laid out five key findings and recommendations:

1. Finding: Lack of retirement readiness is an emerging global crisis for governments, employers and individuals.

Recommendation: Government benefits require reforms to remain sustainable. Employers are evolving from pension providers to enablers. Personal responsibility is now paramount.

2. Finding: Most people expect future generations to be worse off in retirement than current retirees.

Recommendation: Governments and employers have "de-risked" their pension offerings and transferred those risks to individuals, which has led to a greater financial reliance and squeeze on families. As governments and employers implement such changes, their plans should include resources to help individuals take personal responsibility so they can dial down risk in their own retirement.

3. Finding: Delaying retirement offers an obvious solution, but many people are forced into retirement by health problems. Also, few employers offer effective programs to help employees who wish to phase into retirement rather than leave work entirely.

Recommendation: Policymakers and employers can help employees by enabling longer working careers, providing options for a phased retirement and offering benefits (e.g., life insurance, disability, long-term care) which can financially protect them if they are unable to work. Employees should have a backup plan if forced into retirement sooner than expected.

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4. Finding: Widespread retirement illiteracy among consumers worsens their retirement readiness.

Recommendation: Equipping individuals with the right tool kit and confidence to ask good questions and make informed decisions is critical for success. Retirement readiness is more than just saving and investing. It involves setting goals concerning lifestyle, income needs and family support, as well as charting a clear path for achieving those goals. Employers can play a greater role in offering retirement-preparation services to their employees.

5. Finding: Investors are wary about retirement-related risks and need help understanding and selecting appropriate retirement investments.

Recommendation: Providing financial and protection products can help individuals decrease risk in retirement with certain guarantees, and help them avoid investment losses, long-term care expenses or erosion due to inflation.

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