Zeno Swijtink
05-22-2010, 09:19 PM
I.H.T. SPECIAL REPORT: NET WORTH
Retirement Just Got a Little Harder
By CONRAD DE AENLLE
Published: May 18, 2010
https://graphics8.nytimes.com/images/2010/05/19/your-money/19iht-nwretire-ready/19iht-nwretire-ready-popup.jpg
If retirement planning has grown more complicated and time consuming, it’s because life itself is like that.
Life spans are longer than ever, stretching out retirements many more years, and before the stretching begins, many of us live in more places and hold more jobs through our careers than in the past. Each of these developments can make it harder to set aside enough money for retirement or even to know what enough will be.
Governments and employers are having trouble getting by, too, as recent events in Europe make clear. That threatens to add another layer of complexity and uncertainty for individuals and families that had counted on those institutions.
With few exceptions, the state and occupational pension systems that we continue to pay into will not leave us high and dry, financial planners say. But they may leave us short when it comes to financing a comfortable retirement, so it’s up to us to make up the difference.
“Liability for pension provision is going to fall unavoidably on the shoulders of virtually every man and woman on the planet,” said Bill Blevins, managing director of Blevins Franks International, a large London firm of financial advisers. “Governments can’t afford to do it at a time when populations are aging and there are fewer people paying the bills. It’s quite a conundrum.”
Specialists on retirement benefits speak of three pillars. State pensions compose the first; occupational pensions, the type provided through employers or trade unions, are the second, and personal savings make up the third.
The first pillar is a bit wobbly these days, with population growth slowing in many countries, leaving fewer workers to pay for current retirees’ benefits. Then there is the recent — or is it continuing? — economic crisis, which has raised debt loads to uncomfortable levels.
The second pillar has changed, too, planners say. Just how sturdy it is will increasingly be up to you.
“There has been a consistent shift in the employer-sponsored pillar from defined-benefit plans to defined-contribution,” said Brent Beardsley, head of asset management practices for the Americas for the Boston Consulting Group.
The first type is the old-school plan that pays a certain portion of an employee’s final salary multiplied by the number of years on the job. How to meet the obligation using the money that the employer and/or employee put into the pot is the employer’s problem.
In the second type of plan — the 401(k) in the United States is perhaps the best-known version — both sides usually still pay in, but the amount of retirement benefits depends on how the employee invests the contributions and how the markets do.
“Companies started shifting away” from defined-benefit plans because they were more expensive for them,” Mr. Beardsley said. “In the early 2000s, they were banking on returns from the markets after they got carried away with promising future benefits. They couldn’t pay and they did silly, risky things. Companies said, ‘Why are we doing this?’ and they decided to shift risk and return onto employees.”
Developments like economic uncertainty, aging work forces and the off-loading of responsibility from institutions to individuals affect public and private retirement systems nearly everywhere. How these issues are handled, and how successfully, varies from one place to another.
A recent survey by the Mercer consulting firm assessed pension provision in 11 large economies and assigned scores based on such factors as adequacy (the extent to which retirees’ financial needs will be covered), sustainability (programs’ soundness and stability) and integrity (a grab-bag category that includes clarity of communication and strength of regulation).
The Netherlands was at the top of the heap, followed by Australia and Sweden. Japan brought up the rear, with China and Germany rounding out the bottom three.
A characteristic common among higher-rated countries is a more aggressive shift in pension provision from state systems to private ones. That is occurring even in places like Sweden, where the state long has had a dominant role in economic life
The Australian program gets high marks for its state-mandated but employer-based defined-contribution plan. All workers have 9 percent of their pay withheld and funneled into the equivalent of mutual funds managed by private-sector professionals.
Weaning citizens elsewhere off a substantial dependence on social security-style state programs, which many authorities see as essential for keeping them solvent, is likely to remain problematic.
“People are very fearful of losing what they’ve got,” said David Knox, senior partner in Melbourne for Mercer’s retirement, risk and finance practice. “That’s why change is always difficult.”
Political leaders in France and Greece know all about that. Plans announced in recent weeks to cut benefits in Greece and raise the age at which French workers can start collecting their pensions were met with widespread protests.
Public disenchantment won’t change the economic and demographic realities that governments face, however. Like it or not, consultants say, there will be widespread diminishment in state benefits.
That could end up making retirement planning — what to do about that third pillar — simple after all.
“There’s an increasing requirement to be your own keeper,” said Mr. Blevins, the London financial planner. “Save as much as you can as soon as you can because other plans are not dependable.”
Elizabeth Ruch, a financial planner at Waddell & Reed in San Diego, agrees. She considers state pension benefits “icing on the cake.” But you have to bake the cake yourself.
“I appreciate governments for what they do for us, but I’d rather do as much of it myself as I can,” she said. “Granted, we only have so much discretionary income available and it might have to go into a variety of places, but some has to go into providing for your needs whenever you decide to retire.”
It may be prudent not to count heavily on your state pension, but don’t count it out, either. Paradoxical though it may seem, the economic crisis that has put it in greater jeopardy could also help save it.
“The effect of the crisis,” Mr. Knox said, “plus the aging population, gives governments an excuse to do something. They knew about the aging population, and when you add on the effect of the crisis, they know they must be prepared because when it happens next time we’ll have a much older population. Those are good reasons for governments today to say to their populations, ‘We have to do something better.”’
Retirement Just Got a Little Harder
By CONRAD DE AENLLE
Published: May 18, 2010
https://graphics8.nytimes.com/images/2010/05/19/your-money/19iht-nwretire-ready/19iht-nwretire-ready-popup.jpg
If retirement planning has grown more complicated and time consuming, it’s because life itself is like that.
Life spans are longer than ever, stretching out retirements many more years, and before the stretching begins, many of us live in more places and hold more jobs through our careers than in the past. Each of these developments can make it harder to set aside enough money for retirement or even to know what enough will be.
Governments and employers are having trouble getting by, too, as recent events in Europe make clear. That threatens to add another layer of complexity and uncertainty for individuals and families that had counted on those institutions.
With few exceptions, the state and occupational pension systems that we continue to pay into will not leave us high and dry, financial planners say. But they may leave us short when it comes to financing a comfortable retirement, so it’s up to us to make up the difference.
“Liability for pension provision is going to fall unavoidably on the shoulders of virtually every man and woman on the planet,” said Bill Blevins, managing director of Blevins Franks International, a large London firm of financial advisers. “Governments can’t afford to do it at a time when populations are aging and there are fewer people paying the bills. It’s quite a conundrum.”
Specialists on retirement benefits speak of three pillars. State pensions compose the first; occupational pensions, the type provided through employers or trade unions, are the second, and personal savings make up the third.
The first pillar is a bit wobbly these days, with population growth slowing in many countries, leaving fewer workers to pay for current retirees’ benefits. Then there is the recent — or is it continuing? — economic crisis, which has raised debt loads to uncomfortable levels.
The second pillar has changed, too, planners say. Just how sturdy it is will increasingly be up to you.
“There has been a consistent shift in the employer-sponsored pillar from defined-benefit plans to defined-contribution,” said Brent Beardsley, head of asset management practices for the Americas for the Boston Consulting Group.
The first type is the old-school plan that pays a certain portion of an employee’s final salary multiplied by the number of years on the job. How to meet the obligation using the money that the employer and/or employee put into the pot is the employer’s problem.
In the second type of plan — the 401(k) in the United States is perhaps the best-known version — both sides usually still pay in, but the amount of retirement benefits depends on how the employee invests the contributions and how the markets do.
“Companies started shifting away” from defined-benefit plans because they were more expensive for them,” Mr. Beardsley said. “In the early 2000s, they were banking on returns from the markets after they got carried away with promising future benefits. They couldn’t pay and they did silly, risky things. Companies said, ‘Why are we doing this?’ and they decided to shift risk and return onto employees.”
Developments like economic uncertainty, aging work forces and the off-loading of responsibility from institutions to individuals affect public and private retirement systems nearly everywhere. How these issues are handled, and how successfully, varies from one place to another.
A recent survey by the Mercer consulting firm assessed pension provision in 11 large economies and assigned scores based on such factors as adequacy (the extent to which retirees’ financial needs will be covered), sustainability (programs’ soundness and stability) and integrity (a grab-bag category that includes clarity of communication and strength of regulation).
The Netherlands was at the top of the heap, followed by Australia and Sweden. Japan brought up the rear, with China and Germany rounding out the bottom three.
A characteristic common among higher-rated countries is a more aggressive shift in pension provision from state systems to private ones. That is occurring even in places like Sweden, where the state long has had a dominant role in economic life
The Australian program gets high marks for its state-mandated but employer-based defined-contribution plan. All workers have 9 percent of their pay withheld and funneled into the equivalent of mutual funds managed by private-sector professionals.
Weaning citizens elsewhere off a substantial dependence on social security-style state programs, which many authorities see as essential for keeping them solvent, is likely to remain problematic.
“People are very fearful of losing what they’ve got,” said David Knox, senior partner in Melbourne for Mercer’s retirement, risk and finance practice. “That’s why change is always difficult.”
Political leaders in France and Greece know all about that. Plans announced in recent weeks to cut benefits in Greece and raise the age at which French workers can start collecting their pensions were met with widespread protests.
Public disenchantment won’t change the economic and demographic realities that governments face, however. Like it or not, consultants say, there will be widespread diminishment in state benefits.
That could end up making retirement planning — what to do about that third pillar — simple after all.
“There’s an increasing requirement to be your own keeper,” said Mr. Blevins, the London financial planner. “Save as much as you can as soon as you can because other plans are not dependable.”
Elizabeth Ruch, a financial planner at Waddell & Reed in San Diego, agrees. She considers state pension benefits “icing on the cake.” But you have to bake the cake yourself.
“I appreciate governments for what they do for us, but I’d rather do as much of it myself as I can,” she said. “Granted, we only have so much discretionary income available and it might have to go into a variety of places, but some has to go into providing for your needs whenever you decide to retire.”
It may be prudent not to count heavily on your state pension, but don’t count it out, either. Paradoxical though it may seem, the economic crisis that has put it in greater jeopardy could also help save it.
“The effect of the crisis,” Mr. Knox said, “plus the aging population, gives governments an excuse to do something. They knew about the aging population, and when you add on the effect of the crisis, they know they must be prepared because when it happens next time we’ll have a much older population. Those are good reasons for governments today to say to their populations, ‘We have to do something better.”’