New York Estate Planning & Elder Law Blog
As the generation born after World War II approach retirement age, the emerging problems regarding the retirement crisis quickly approach. Coupled with the Great Recession and the 2008 financial meltdown, the dream of retirement is being tarnished by the global retirement crisis bearing down on workers of all ages.
The consequences of a failing government retirement system is being tested by the simple facts that the traditional retirement age has increased from 65 to 70 as well as elderly poverty rates. Instead of traditional retirement systems, children are forced to care for aging parents. Supposedly, “the first wave of under-prepared workers are going to try to go into retirement and will find they can’t afford to do so.”
As reported by Associated Press, there are three main factors that have contributed to the “retirement crisis.” Cutbacks in retirement benefits is the first factor. Due to overspending in other areas of government and an increasing deficit, countries have lessened the retirement benefits, and have raised the age to collect benefits. Coupled with retirees living longer lives and the decreased global birth rate, there are less resources available to support the retirement system — posing a huge threat.
Secondly, a cut to private pensions has contributed to the retirement crisis. Because employers have eliminated the traditional pension plans, retirees will not be able to collect monthly checks.
And lastly, yet most notably, retirees’ failure to save before the gross impact of the recession is a contributing factor. It is likely retirees spent freely, with probably little worries, relying on their pending retirement benefits, only to watch their retirement wealth disappear before their eyes.
Prior to the 21st Century, the expectation of retirement was viewed as the “Golden Years.” Retirees looked forward to reaching the age of 63 to enjoy leisurely days of defined benefit pensions, which are pensions that offered employees a guaranteed amount each month in retirement. Now, the golden years of retirement are under siege with governments and companies revamping their pension plans because they cannot afford them. Today, people are living 13 years longer (after retirement) than in 1958. Compounding the problem is the decreased birth rate. In response, benefits are being slashed and the retirement age is increasing. It is projected in order to “maintain control of the cost of pension plans” the average retirement age will increase to 66 or 67.
The Great Recession forced governments to pump money into rescuing the banks, and threw many people out of work. Less money was available for government pensions. Furthermore, people were unable to save for retirement; and some were further punished when the banks decided to cut interest rates thereby effecting people’s investments.
However, hope is still alive. The rising worldwide stock markets and real estate values are slowly rehabilitating countries’ financial status. The U.S. retirement accounts hit a record $12.5 trillion the first three months of 2013, and continued to increase. With all that said, still be prepared for changes in the government pensions, mostly affecting the wealth, and longer careers.