Although many rumors have been floating around about the GOP wanting to reduce the maximum contribution limits on 401(k)s from $18,000 per year to just $2,400, it is a relief that the majority in the GOP have not supported it and it has not found its way into the current GOP tax plan. It is not wise to exacerbate an already existing problem of people, in general, simply not having enough for retirement and relying heavily on Social Security money that simply isn’t really there. There is not a coming retirement crisis, but rather a crisis has already begun, and the U.S. is far from being alone.
In the majority of places around the globe, retirement is a foreign concept. People simply work until they die, or are unable to work and then must rely on their families to provide for them. In the majority of places, retirement is not an available option. It is only in the “developed world” that we have this idea of eventually no longer working in order to enjoy greater free time and flexibility at an older age. So, in a sense, there isn’t really a crisis except for those that have come to expect what was provided to forefathers and assumed to continue to exist forever into the future. That isn’t necessarily a bad thing. Life isn’t just about working, and if there is money available to create a comfortable lifestyle, then why not enjoy it?
Here’s the problem. The current systems in the developed world that exist to supply people a comfortable retirement are not sustainable. According to the World Bank, from 1980 to 2015, personal savings amongst the world’s citizens increased by a tiny 3.6%, while inflation of the world’s currencies raised by a far more dramatic amount in excess of 200%. Personal savings are going nowhere but down, while inflation and government spending continue to rise. The idea of comfortable retirement in the parts of the world where it is currently enjoyed will soon be gone.
Far greater numbers of people are entering retirement than have ever done so before, as the aging portion of the population represents a much greater portion than it has in the past. In 1980, approximately 6% of the world’s population was over the age of 65, and in 2015, the number rose to 8%. It’s not a stretch to imagine with greater birth rates in the 1950s and 1960s and continued improvements in medicine that the percentage could increase to 10% to 12% in the next decade or so. Under current systems of reliance on social programs from government, an ever-greater portion of people are relying on an ever-shrinking portion of the population to pay for their retirement. At the same time, each new generation of retired people view retirement plans from the government as less of a supplemental income and more of a primary income. Because of the drastically decreased amount of savings, based upon the perception that the public is there to pay for the retired, the reliance is also becoming greater.
There is now a vicious cycle in place. As people enter retirement, there isn’t enough public money to pay for the increased reliance, because more people are leaving the work force and not contributing additional taxes, while inflation continues to rise. So, in order to make up for the tax revenue shortfall, governments must push their central banks to create more currency, increasing inflation further. This cycle will eventually collapse, and when it does, generations of people who assumed retirement was a given and that they did not need to save for it, will find themselves in dire straits. People in developed nations are about to feel the pain of “third world” nations.
It is likely that the vast majority of people reading this article have two options ahead of them. You can begin saving drastically more for your retirement than your parents, or you need to accept that you very well may be working until the day you die. The concept of retirement just might be gone for everyone. Thank your government and the people who believed it was a wise idea to depend on them for lifetime income for that. Maybe it sounds too much like an exaggeration and too much of a gloomy diagnosis to assume these things, but I personally don’t see quite how the world will reverse it.
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