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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.
Mutual funds are pretty much a scam these days with so many fees,
This is nonsense. Fees are lower than ever.
Most of my retirement savings are in Vanguard index funds. No upfront or backend fees, 0.04% annual maintenance fee.
Here's some free advice:
1. Invest in index funds, and never in actively managed funds.
2. Never take financial advice from someone trying to sell you something.
"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)...