Retirement stress
Steps towards financial well-being
The biggest source of stress for people is not related to health or family. Rather it is linked to finances, and more specifically retirement. And no wonder: we live longer in retirement, governments are increasingly indebted and there are fewer tax payers to serve the elderly. But who is the financial doctor we are turning to for a checkup and advice? At SWISS FIN LAB, we wanted to find out how to help people best. So we asked them.
79% of people are concerned with how well they can live in retirement
A global survey conducted
135 respondents were surveyed globally across age and gender on retirement. The most shocking number to us was that 79% of people are concerned with how well they can live in retirement, as the number one financial concern. It was a conclusion that was valid across regions, ages and employment situation. Distant runner ups were the risk of losing the ability to work, and financial security for the family in case of death.
There are several reasons why retirement comes out as the number one concern for most people:
- It is the most expensive financial life goal most of us will face
- Planning for a distant and uncertain future is difficult
- Our financial options are limited if we run out of money at an old age
The widening pension gap
Many people still consider it a government task to care for us in retirement. The harsh reality is, however, that there is a widening pension gap: the difference between what you will need financially in retirement, and what you are likely to get from the government and your retirement savings. There are number of factors widening the pension gap, also relative to previous generations:
- We continue to live longer, almost doubling the time in retirement from the last generation
- The amount of taxpaying workers relative to retirees continues to fall
- Government finances have worsened in recent decades with ever-increasing debt-to-GDP ratios.
To make a bad situation worse, most corporate pension schemes have moved from guaranteeing a defined contribution in retirement, to leaving the investment responsibility to the individual worker and retiree.
How much do I need in retirement?
There are many factors that make it difficult to plan for retirement. Not least how much money is needed in retirement.
The amount needed in retirement varies crucially by life expectancy and spending needs across countries, but our calculations suggest that the amount should not be underestimated. For a 50-year old woman, the following figures should be considered for a comfortable living standard in an urban area.
Key challenge: An uncertain future
The key challenge related to retirement, is the uncertainty of the future for planning, as well as an understanding of how much to save and invest. This should not come as a surprise, as many factors should be considered into this equation:
- What will I need when I get older, and how much will it cost?
- How long can I expect to live, and what happens if I live to be 100?
- What can I expect from the government and my corporate pension fund?
- How should I invest my savings?
But while the above factors make the equation complicated, reasonable estimates can be considered for most of them. It is better to plan with approximate numbers than don’t plan at all. But who is there to help?
Who is there to help?
Another surprising result from our survey is that the respondents do not have a trusted partner that they can rely on when it comes to retirement planning. 78% of respondents rely on themselves for retirement planning, and only 17% consider their bank for retirement planning, as an example. This weights against 57% of respondents saying that they should either “start planning” or “need help” when it comes to retirement.
78% of respondents rely on themselves for retirement planning
The needed solution
We believe a solution for retirement planning needs to cover:
1. Clarity: Overview of a the personal financial situation of the individual, projection of future wealth, and amount needed in retirement.
2. Certainty: Investment solution to cover guaranteed income structures and insurances to cover downside risks.
3. Convenience: A digital platform to update the financial situation, store relevant documents and share when needed with partners.
In upcoming articles, we will cover retirement needs and related investment solutions in further details.
ABOUT SWISS FIN LAB
At SWISS FIN LAB we are dedicated to help people reduce financial stress. We do that by providing our investment APIs to financial institutions and new online financial offerings, as well as application development. While financial life goals such as retirement are challenging, we think that the right set of calculations will help people understand how much they need, how to invest for it over time, and how to consider risk scenarios. For more information on our offering, see our product site www.financial-life-goals.com
This article was written jointly be Mark Andersen, Bernhard Obenhuber and Nicolas Camenzind. We will be excited to hear your thoughts on our series of investment notes. Contact us anytime via contact@financial-life-goals.com
