New report sounds a warning for many other developed nations too
There is growing fear that millions of retirees in developed nations will run out of money – and Canada is among those at risk.
The World Economic Forum (WEF) has published a report Thursday that warns that retirees in six of the world’s major economies will outlive their savings by between 8 and 20 years.
The report calls for action from individuals and policymakers to ensure that individual retirement investments are adequate to provide for the entirety of retirement years.
Women will fare worse than men, the report says, with an extra two years of life without retirement funds on average.
WEF says that government and employer-sponsored retirement plans have been under strain, but individuals’ savings have not stepped up to plug the gap in retirement savings.
As well as Canada, retirees in Australia, Japan, the Netherlands, the UK, and the US, are likely to be unable to fund their retirement on savings alone.
But the report says that there is no ‘one-size-fits-all’ solution as individual retirement needs vary but it calls for governments to roll-back regulation to allow individuals to make investment decisions that will increase their long-term returns.
Too risk averse
The WEF says policymakers must look at the risk of investments from a retiree perspective and individuals should be less risk-averse in their retirement investing.
The report says many young to middle-age savers should change their risk outlook, understanding that outliving their savings is a far greater risk to them than short-term investment risk.
“The real risk people need to manage when investing in their future is the risk of outliving their retirement savings,” said Han Yik, Head of the Institutional Investors Industry, World Economic Forum. “As people are living longer, they must ensure they have enough retirement funds to last them through their longer lives. This requires investing with a long-term mindset earlier in life to increase total savings later on.”
The report also calls for diversified savings accounts by geography and asset type.
Most retirement investment vehicles largely based on traditional equity and fixed-income investments that have the advantages of being easy to value as well as having high liquidity.
But the report says that, given the long-term nature of retirement savings, that liquidity comes at a cost and investment in alternative assets, particularly illiquid assets, can bring strong diversification benefits to a retirement investment portfolio.
There should also be a more international focus rather than the heavy domestic focus of most plans.