How well prepared are we to sustain ourselves and future generations into old age? A new report from the World Economic Forum (WEF), created in collaboration with Mercer, We’ll Live to 100: How Can We Afford It?, provides a disconcerting view.
While the global average life expectancy at birth just a few generations ago was only 34 years, today it is 711?– with roughly half of those born today in the developed world expected to live past 100.2?Global wealth has expanded almost continuously for the past 50 years3, while poverty rates fell by half between 1990 and 20104.
These changes are undeniably positive. Yet the shifting demographics and new economic realities are also significantly impacting formal and informal social insurance systems designed for a different time.
According to the new report, our existing global patchwork of long-term savings systems, laws, regulations, schemes, and products is woefully inadequate to support current and future generations into old age. In some countries, a larger and longer-lived retiree population is relying on outdated public and private pension systems that are unsustainable, meaning that they are inadequate to meet the financial promises being made. In others, a rapidly rising middle class is finding that there is virtually no system in place to help them save for old age.
Inaction is not an option. Among the eight countries included in the WEF report (Australia, Canada, China, India, Japan, Netherlands, UK, and US), the current gap between aggregate savings and expected annual retirement income needs stands at $70T today – one and a half times the combined GDP of the countries studied. And without immediate and concerted action, these eight countries are on course to face a combined shortfall of $400T by 2050 – a growth in the gap of $28B each day.
The problem is not simply a retirement issue, but is one component of a broader financial wellness issue that is undermining productivity and placing people in financial jeopardy at many points throughout their lives. Helping to find solutions to this problem goes to the core of Mercer’s mission to make a difference in in the lives of people by advancing their health, wealth, and careers.
In our view, progress will result from multiple stakeholders coming together to take action. Governments, employers, and financial intermediaries jointly have both the incentive and the ability to help societies and individuals mend the long-term savings gap. Each stands to reap huge rewards by helping to ensure that their citizens, employees, and customers are able to save efficiently and appropriately for the future.
But success will require bold action. Given the size of the gap today and the speed with which it is increasing, it is critical that all stakeholders act without delay to begin mending the gap.
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