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Issues in retirement security are growing economic concerns and societal issues over the ability of individual workers and other individuals in society to have an economically secure retirement.
Main issues appear to arise from the general inability of maintaining the economic life-cycle model, that anticipates people to make proper savings during their working lives and eventually exhaust these resources in retirement in order to retain their existing consumption level. [1]
The issues of economic security in retirement pertain to the following concerns. [2]
One of the biggest issue in the current world and also in USA concerning retirement security is the inability to adequately save money for the retirement. [3] Personal saving rate in U.S. is currently near half the level, that was 50 years ago. [1] The rate has increased after the financial crisis in 2009, but still reaches only about 8% of net personal income. [4] Approximately two thirds of Millennials do not save money for retirement at all and half of the American households with someone aged 55 years or more has the same problem. [3] In addition, there is a significant demographic change coming in the next 30 years where the increment of people older than 65 years compared to working age population will be substantially greater. [3] Longevity of the population in the United States is also emerging as a crucial factor for future retirement security, average life expectancy in 2017 of males and females at the age of 65 has increased since 1940 by 6 and 7 years to 84 and 87. [3] This upward trend is expected to rise further. [5]
Millennials (born between 1981 and 1991) are among the most endangered generations. About a one fifth of them are already worried about their retirement security and about a half fear they will not be able to retire when they plan to. According to certain financial experts, they are recommended to save 15 to 22 percent of their income in order to keep their lifestyle standards during retirement period. This figure is double the amount advised to previous generations. [6]
Next problem arising can be the employer-sponsored retirement plans that represent the biggest possibility of retirement income after social security. The NIRS (National Institute for Retirement Security) found out that from the two-thirds of Millennials working for companies and employers offering any type of retirement plan, only half of them (one-third altogether) actually take part. [6] This is caused by the fact that from the two-thirds mentioned only about a half of them are in fact eligible to participate in an employer-sponsored retirement plan, which is far lower proportion compared to previous generations (GenX, Boomers). [6] One of the possible solutions of this particular problem could be shortening of the waiting period for employees to become eligible to reach those plans. [3] Auto-enrollment into the retirement plans for employees with an option to adjust or exit the can also lead to improvement. [7]
Better education, regarding personal finance, retirement savings, pension plans and investing, could represent another way of improving retirement security. [3] Recent OECD's study cites that less than a quarter of working Americans regard themselves to be "knowledgeable investors", furthermore this number can be even lower in reality, because from the OECD's study on financial education emerged, that people often can not fully assess their financial skills and tend to overrate their knowledge in this particular area. [8] Another finding was general impression among people that financial information is very intricate and even difficult to find. [8] Better knowledge and education about financial matters results in more profound awareness of retirement security and can eventually enhance future investment and retirement planning. [3]
Retirement is the withdrawal from one's position or occupation or from one's active working life. A person may also semi-retire by reducing work hours or workload.
In the United States, a 401(k) plan is an employer-sponsored, defined-contribution, personal pension (savings) account, as defined in subsection 401(k) of the U.S. Internal Revenue Code. Periodic employee contributions come directly out of their paychecks, and may be matched by the employer. This pre-tax option is what makes 401(k) plans attractive to employees, and many employers offer this option to their (full-time) workers. 401(k) payable is a general ledger account that contains the amount of 401(k) plan pension payments that an employer has an obligation to remit to a pension plan administrator. This account is classified as a payroll liability, since the amount owed should be paid within one year.
A pension is a fund into which amounts are paid regularly during an individual's working career, and from which periodic payments are made to support the person's retirement from work. A pension may be:
A pension fund, also known as a superannuation fund in some countries, is any program, fund, or scheme which provides retirement income.
In the United States, Social Security is the commonly used term for the federal Old-Age, Survivors, and Disability Insurance (OASDI) program and is administered by the Social Security Administration (SSA). The Social Security Act was passed in 1935, and the existing version of the Act, as amended, encompasses several social welfare and social insurance programs.
The pensions crisis or pensions timebomb is the predicted difficulty in paying for corporate or government employment retirement pensions in various countries, due to a difference between pension obligations and the resources set aside to fund them. The basic difficulty of the pension problem is that institutions must be sustained over far longer than the political planning horizon. Shifting demographics are causing a lower ratio of workers per retiree; contributing factors include retirees living longer, and lower birth rates. An international comparison of pension institution by countries is important to solve the pension crisis problem. There is significant debate regarding the magnitude and importance of the problem, as well as the solutions. One aspect and challenge of the "Pension timebomb" is that several countries' governments have a constitutional obligation to provide public services to its citizens, but the funding of these programs, such as healthcare are at a lack of funding, especially after the 2008 recession and the strain caused on the dependency ratio by an ageing population and a shrinking workforce, which increases costs of elderly care.
Pensions in the United States consist of the Social Security system, public employees retirement systems, as well as various private pension plans offered by employers, insurance companies, and unions.
A private pension is a plan into which individuals privately contribute from their earnings, which then will pay them a pension after retirement. It is an alternative to the state pension. Usually, individuals invest funds into saving schemes or mutual funds, run by insurance companies. Often private pensions are also run by the employer and are called occupational pensions. The contributions into private pension schemes are usually tax-deductible.
Defined benefit (DB) pension plan is a type of pension plan in which an employer/sponsor promises a specified pension payment, lump-sum, or combination thereof on retirement that depends on an employee's earnings history, tenure of service and age, rather than depending directly on individual investment returns. Traditionally, many governmental and public entities, as well as a large number of corporations, provide defined benefit plans, sometimes as a means of compensating workers in lieu of increased pay.
At retirement, individuals stop working and no longer get employment earnings, and enter a phase of their lives, where they rely on the assets they have accumulated, to supply money for their spending needs for the rest of their lives. Retirement spend-down, or withdrawal rate, is the strategy a retiree follows to spend, decumulate or withdraw assets during retirement.
Mexico reformed its pension system in 1997, transforming it from a pay as you go (PAYG), defined benefit (DB) scheme to a fully funded, private and mandatory defined contribution (DC) scheme. The reform was modeled after the pension reforms in Chile in the early 1980s, and was a result of recommendations from the World Bank. On December 10, 2020, the Mexican pension system would again undergo a major reform.
Pensions in Canada can be public, private, and collective, or come from individual savings.
According to the International Labour Organization, social security is a human right that aims at reducing and preventing poverty and vulnerability throughout the life cycle of individuals. Social security includes different kinds of benefits A social pension is a stream of payments from the state to an individual that starts when someone retires and continues to be paid until death. This type of pension represents the non-contributory part of the pension system, the other being the contributory pension, as per the most common form of composition of these systems in most developed countries.
In France, pensions fall into five major divisions;
Pensions in Spain consist of a mandatory state pension scheme, and voluntary company and individual pension provision.
myRA is a type of Roth IRA account sponsored by the United States Treasury and administered by Comerica. Richard Ludlow was the executive director of the program for the U.S. Treasury.
Compared to other liberal democracies, Ireland's pension policies have average coverage, which includes 78 percent of the workforce as of 2014, and it offers different types of pensions for employees to choose from. The Irish pension system is designed as a pay-as-you-go program and is based on both public and private pension programs.
South Korea's pension scheme was introduced relatively recently, compared to other democratic nations. Half of the country's population aged 65 and over lives in relative poverty, or nearly four times the 13% average for member countries of the Organisation for Economic Co-operation and Development (OECD). This makes old age poverty an urgent social problem. Public social spending by general government is half the OECD average, and is the lowest as a percentage of GDP among OECD member countries.
Pensions in Denmark consist of both private and public programs, all managed by the Agency for the Modernisation of Public Administration under the Ministry of Finance. Denmark created a multipillar system, consisting of an unfunded social pension scheme, occupational pensions, and voluntary personal pension plans. Denmark's system is a close resemblance to that encouraged by the World Bank in 1994, emphasizing the international importance of establishing multifaceted pension systems based on public old-age benefit plans to cover the basic needs of the elderly. The Danish system employed a flat-rate benefit funded by the government budget and available to all Danish residents. The employment-based contribution plans are negotiated between employers and employees at the individual firm or profession level, and cover individuals by labor market systems. These plans have emerged as a result of the centralized wage agreements and company policies guaranteeing minimum rates of interest. The last pillar of the Danish pension system is income derived from tax-subsidized personal pension plans, established with life insurance companies and banks. Personal pensions are inspired by tax considerations, desirable to people not covered by the occupational scheme.
OregonSaves is a statewide program started in July 2017 by the State of Oregon to provide a public retirement savings program for private workers. It was estimated that more than half of Oregon's working population lacked access to a retirement savings plan through their employer, or more than one million workers in the small business heavy state. The program allows workers at businesses that do not provide an employer-sponsored retirement plan to automatically enroll in the OregonSaves program and start saving a percentage of their paychecks into an Individual Retirement Account in their name. Self-employed and gig economy workers can also sign themselves up directly through the website. OregonSaves accounts are portable and stay with workers throughout their careers.