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The World Isn't Prepared for Retirement (bloomberg.com)
An anonymous reader writes: Most online quizzes are relatively mindless, promising to reveal which vegetable, sandwich or rock band best represents your personality. That was not the case for a short online test given to 16,000 people in 15 countries this year. It revealed just how unprepared a good chunk of the world is for retirement. The three-question test, given as part of the Aegon Retirement Readiness Survey 2018, measured how well people understand basic financial concepts. Many of the participants failed the quiz, with big potential consequences for their future security.
Beyond the sobering lack of financial literacy, there were some rather curious data in Aegon's annual survey, published on Tuesday. For example, some 20 percent of workers surveyed in China envisioned spending retirement with a robot companion. But before we get to that, take a look at this question -- which only 45 percent of people around the world got right: Q. Do you think the following statement is true or false? "Buying a single company stock usually provides a safer return than a stock mutual fund."
The possible answers? True, false, do not know and refuse to answer. Sixteen percent of people got it wrong. "Do not know" was chosen by 38 percent. In the U.S., 46 percent of workers got it right. Good for you, America -- though Germany beat you handily. (The answer, in case you were wondering, is false.) It was an inflation question that had the highest percentage of wrong answers, however. More than 20 percent of workers didn't grasp how higher inflation hurts their buying power. Given that declining health was the most-cited retirement worry, at 49 percent, and health care is an area (in the U.S., especially) with high cost inflation, well, that makes the subject something older folks should have down cold.
Beyond the sobering lack of financial literacy, there were some rather curious data in Aegon's annual survey, published on Tuesday. For example, some 20 percent of workers surveyed in China envisioned spending retirement with a robot companion. But before we get to that, take a look at this question -- which only 45 percent of people around the world got right: Q. Do you think the following statement is true or false? "Buying a single company stock usually provides a safer return than a stock mutual fund."
The possible answers? True, false, do not know and refuse to answer. Sixteen percent of people got it wrong. "Do not know" was chosen by 38 percent. In the U.S., 46 percent of workers got it right. Good for you, America -- though Germany beat you handily. (The answer, in case you were wondering, is false.) It was an inflation question that had the highest percentage of wrong answers, however. More than 20 percent of workers didn't grasp how higher inflation hurts their buying power. Given that declining health was the most-cited retirement worry, at 49 percent, and health care is an area (in the U.S., especially) with high cost inflation, well, that makes the subject something older folks should have down cold.
Thanks for posting the question.
The difference in risk is so much that it's a fundamentally different activity, for the most common types of "single stock" people buy, and the most common type of mutual fund.
Typically when people buy a single stock they choose a new company with a lot of hype. The "value" of the stock is based on the hype. The most common mutual funds are index funds and the like, where you're invested in not only 100 different companies, but 100 different *mature*, profitable companies. It's very, very likely that in a big group of companies which have been making money for 100 years, most of them will keep doing what they've been doing - making money.
Investing in an index fund is just that - investing, putting money aside now so you'll have it later, and have more. Trying to guess which new company will do best, indeed trying out OUTguess everyone else, is fundamentally *gambling*, not investing.
Even if you guess right that Fitbit or Tesla will do well in the future, that expectation os already built into the current stock price. For that investment to be good long term, the company has to do BETTER than everyone expected them to. That's straight up gambling when you buy a single stock and it's a young company.
The continual slide of wages vs inflation, the endless fun-ride of being 'obsoleted', being excluded through ageism, the effective death of the pension, and a bevy of other factors all align to basically ensure that nobody aside from people on the far upper end of middle class and the wealthy are able to retire.
Everybody else is just ignored by the system, and when the time comes, those that "have theirs" will fail to comprehend why they (everyone else) failed to save for retirement, will blame the victims who really would have loved to save for retirement, will refuse to take up the slack in society, because "they have theirs", and through it all, the people that have been systematically shafted because they were not born rich enough to get a suitable head start on this fun-ride will become an epicenter for systemic illnesses, and societal drains that the others will refuse to pay for.
But dont let that bother your little heads too much. Because the downward pressure of this disadvantaged class will further pull the upper middle class down, due to mandated tax increases and a yawning social welfare crisis caused by the earning gap, which will further push the next generation of upper middle class into serfdom.
Want to prevent this horrible nightmare future? It's really easy in principle, but impossible to implement in reality: Put a stop to the ever increasing wage gap, drive up baseline wages, and drive down top earnings, so that the middle class grows again instead of shrinks.
No. You are not such an amazing talent that you "deserve" to earn 100 times or more than the average person.
No. You arent.
No. NO YOU AREN'T.
Baloney. If you want a low fee fund with returns just invest in a index linked fund. They are managed by algorithms so they have very low fees (0.03%)
in the stock market. And that includes retirement programs. The gig economy, outsourcing & offshoring eliminating middle class jobs and the constant assault on Unions means they have no opportunity and with most living paycheck to paycheck they have no opportunity to save.
And nobody's going to convince me that half Americans are just irresponsible spend thrifts or lazy bums; especially since Europe is having none of these problems. Even if they are, what the hell is wrong with our civilization if that's the case? I thought America was the greatest country on earth. God's country and all that rot. Bullshit. Something's wrong. Something outside our control. And let's face it, we know damn well what it is
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You speak like a young person. Not much use after 55? Really?
Perhaps we should just practice euthanasia, to "clear" the old, infirm people out of the workforce.
I'm 51. I can still code circles around my younger peers, and my experience helps me avoid traps they regularly fall into. I don't think those abilities will suddenly disappear in four years.
That is another important and common case, having stock solely in the company one works for. That's uniquely high risk because if something goes bad with the company you can lose your job and your savings, at the same time.
I will probably soon have an opportunity to get into my employer's stock pre-IPO, and it will probably jump right after the IPO, so it would be a good idea for me to get in. BUT I don't want both my job and my savings to subject to whatever happens with this company, so I'll be looking to get out pretty quick. I'll have to look at the plan details to see how I can do that, and when. I may well keep the stock and switch jobs.
"The real missing question?"
The real missing question is right there, in the headline: "The World Isn't Prepared for Retirement". What the fucking!!!???
"The world" is very well prepared for retirement, thank you very much. This, like mass assassinations, is very much a USA-only problem and the solution is, again just like in the mass assassinations case, very much fucking obvious for everybody but USA: you fucking collect taxes, and you pay fucking retirement pensions out of these taxes. Problem solved; no need to understand stock versus mutual funds, compound interests or stock versus public debt evolution.
"The real missing question?"
The real missing question is right there, in the headline: "The World Isn't Prepared for Retirement". What the fucking!!!???
"The world" is very well prepared for retirement, thank you very much. This, like mass assassinations, is very much a USA-only problem and the solution is, again just like in the mass assassinations case, very much fucking obvious for everybody but USA: you fucking collect taxes, and you pay fucking retirement pensions out of these taxes. Problem solved; no need to understand stock versus mutual funds, compound interests or stock versus public debt evolution.
One small problem in this is that many countries who claim to have this "solved" weren't counting on an aging population. That will make it incredibly difficult to simply collect "fucking" taxes to pay "fucking" retirement pensions.
As far as I know, only the following countries have universal pensions: Bolivia, Botswana, Brunei, Guyana, Kosovo, Namibia, Netherlands, New Zealand, Samoa, Suriname, Seychelles.
The others that do have some sort of public pension have some sort of means-test for their pensions and pensioners often rely on private pensions in these countries. This is the case of many of the countries in Europe.
Unfortunately, because of population dynamics and budgetary indiscretions, some countries which have massive shortfalls in their public pensions have taken drastic steps such as seizing private pension funds to make up for public pension shortfalls (like Argentina, Poland, Portugal, Russia, and Hungary). Expect to see more of this as the aging population dynamics put more pressure on public pension funds. This will of course delay the day of reckoning for government pension plans and they will eventually need to choose between lower benefits (angering the current pensioners) or higher taxes on an increasingly smaller working population (compromising the future).
Of course voters can (and will) remain blissfully ignorant of stock vs mutual funds, compound interest or stock versus public debt evolution and vote accordingly (as they generally do)...
It's a verifiable fact that Millennials are worse off than their parents and grandparents.
Not so fast... Millenials are worse off as a group by their own individual choices, because they buy more goods and services that are not really needed and make worse deals than their parents or grandparents --- for example, many of them are swindled into taking on student loan debts by allowing themself to incur expenses that are unjustifiably large VS benefit.
and sitting quietly waiting to go to work (or better yet, working 16 hours a day) then the nasty little heathens deserve what they get.
What kind of crap are you spewing? Nobody "deserves" to get anything from anybody other than the agreed upon goods, services, or compensation in exchange for $$$, work, or services provided.
All i'm saying is the people who claim to be living paycheck-to-paycheck and unable to afford to save at all for retirement or future needs are Full of Shit: if they are spending any money on non-essentials, then they are Not "unable", but they CHOOSE not to --- The fact they DO have the choice to spend the $$$ on Non-Essentials PROVES that the Money would be available to save for their future, BUT they choose to prioritize the Immediate non-essential Luxury as MORE IMPORTANT or PRIORITIZED over saving for Retirement and prioritized over saving to help build an emergency fund or improve their overall Financial well-being.
The $50 to $80 / Month Cable TV or Netflix bill PLUS exorbitant Smartphones with unnecessary features are GREAT examples, because the purchase is 100% on Audivisual entertainment. The equipment alone (such as Televisions) are luxury items, and so is cable service.
Millenials' grandparents' likely never owned TVs or Smartphones, let-alone pay an equivalent of $60/Month for such items.
There are plenty of free ways to be entertained, such as taking walks down the street, or riding a bike to the nearest library, those are also activities that promote thought, higher productivity, and potential aid to professional development.
That's just two high-ticket examples.... Another example is: What kind of Vehicle people choose to buy. Don't claim to have no choice and be living paycheck-to-paycheck and having purchased a brand New $30K+ vehicle; that has a high loan-servicing cost, a high rate of interest that will be paid over the life of the vehicle, AND a higher insurance rate, when a used $12K vehicle of an appropriate type well-researched purchase (Including the expected lifecycle costs to insure and maintain) would have (A) Met the needs, and (B) Resulted in lower monthly costs: Again, this is a case where "Live paycheck-to-paycheck" was NOT dictated by the marketplace, or by the wage, But it was the result of management decisions made by the individual.
Also, better plan on a few major market crashes wiping out your savings.
No... Markets are cyclical, and crashes are part of it in fact: multiple market crashes are EXPECTED
to happen over a period of 50 years, and they don't wipe out any savings --- they are a temporary decrease in market value - stock returns will be negative for that year, but on average adding up positive and negative years the result comes out 10% ahead annualized given a sufficiently long time horizon.
Crashes, the business cycles, and major events are the REASON people don't put 100% of portfolio value in an asset class. For example, you perhaps choose 75% of the savings in company stocks and 25% in Fixed-Income/Bonds, Real-Estate funds, Inflation-Protected Securities, other debt securities, convertibles, or Hedging options, and similar instruments.
During the years immediately after the "Crash"; the NAV of the Stock position shrinks, and the portfolio's Cash position then becomes overweight --- e.g. You will have less than 75% of the target allocation in stock and more than 25% in cash. Every 1, 3, 6 months, or 12 months, the manager rebalances the portfolio if it deviates from the target allocation by a sufficient threshold% and dollar amount (but usually just perhaps once a year or two to minimize fees), therefore, after a market crash the portfolio will be getting rid of Cash or selling the Hedging assets and BUYING stock to bring the portfolio back to the target percentages, which means you will get maximum advantage of the market crash by purchasing more stock while the price is still low ---- On the other hand, after a year when your funds perform extremely well, then the stock allocation will .exceed 75% of your portfolio value, therefore, when rebalance occurs you will be selling Stock mutual fund shares and buying into your other funds that Hedge the stocks risk
Or we could stop spending so much fucking money on our massive, embarrassing military. We could shave 200 billion off of that and we'd still be spending more than twice that of the next largest military budget.
All this shit sounds like someone else's problem until you realize that the aging population you're talking about is going to become your responsibility sooner or later. Maybe not responsible for anyone now, maybe never will be directly responsible for anybody in the future, but you will *personally* carry a lot of baggage and suffer a measurably lower quality of life because we've decided that this is a problem that is "too expensive" to fix.
We trot around the world banging a drum screaming and shouting about how we're the "good guys" when we're more than happy to let millions of people live in abject poverty, homelessness, and undernourishment.
But taking care of people who can't afford to care for themselves is the bread and butter of "ethical" neo-liberal capitalism, so by all means, lets trust our future not to scientists or philosophers or people who are paid to think about long-term consequences, and instead put it in the hands of people who, whenever inadequately regulated and monitored, *reliably* destroys some part of the economy in a smash-and-grab get rich scheme.
Sadly, appartently very few are disciplined enough to actually invest money like that and would instead have spent that on things like a better car, bigger house, or a vacation vs investing it. Those fools need SS to be taken or they would truly be penniless. The numbers I see for 401K and savings balances are terrifying...
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