Retirement and savings rates worldwide 1

The Future of Saving: The Role of Pension System Design in an Aging World an International Monetary Fund report published in 2019 has some interesting views and is worth a read by those who are interested in how we as global citizens are dealing with an ageing population. The purpose of the reports is to showcase policy-related analysis and research being developed by IMF staff members and are published to elicit comments and to encourage debate. So here are some of the conclusions reached.

Ageing challenge and saving.

Ageing populations will have important consequences for the evolution of saving rates across countries. Under current policies, public pension outlays in advanced and emerging market economies will increase by an average of 1 to 2½ percentage points of GDP, respectively, by 2050, depressing public saving.

The impact on private and aggregate saving depends on, coverage, benefits promised to the elderly, and when they would start receiving those transfers. Thus, the appropriate responses to the ageing challenge will vary across countries and will have to account for country-specific policy and institutional settings, including how pensions are determined and financed.

For instance, in countries with relatively high saving rates and inadequate social security systems, increasing generosity may be warranted. In rapidly ageing countries with relatively low saving rates and rising pension liabilities, the challenge will be to increase saving ratios in a sustainable way. For today’s younger generations in many countries, saving more for the future will become increasingly important to ensure retirement income security.

Public pension system reforms.

Overly generous pension benefits (owing to high benefit ratios or low statutory retirement age) can interact with projected demographic trends to lower aggregate saving. Reducing public pension generosity (for example, curtailing early retirement benefits or reducing benefit ratios) could attenuate long-term fiscal vulnerabilities and moderate the fall in aggregate saving.

To counter these trends, today’s workers will need to prepare for the future by saving more and extending their work lives. In advanced economies where pensions have been largely reformed, for those born between 1990 and 2009, simulations suggest that increasing the retirement age by five years (from today’s average of 63 to 68 in 2050) would close half the projected gap in benefit ratios relative to today’s retirees.

If members of the same years were to put aside an additional 6 percent of their earnings each year, they would close the other half of the gap in the benefit ratio. Financial sector and labour market policies could support such behavioural changes.

Balancing sustainability and equity considerations.

The distributional consequences of pension system reform can be significant. While ongoing and planned reforms will improve pension system sustainability, average benefit ratios are projected to decline sharply in many countries. Thus, additional pension system reforms would need to be carefully calibrated to avoid undercutting the welfare of future retirees and fueling poverty among the elderly.

One option would be to link additional increases in retirement age to longevity gains, with adequate provisions for the poor, whose life expectancy tends to be shorter than average. To minimize unintended negative consequences of such programs on aggregate saving (either through excessive fiscal costs or indirectly by crowding out private saving), antipoverty programs should be carefully designed and targeted.

New research exercise and falls

Falls are a problem for seniors and those who love them. On December 28, 2018 a review was published of the research that looked at the impact of exercise on falls among seniors. The research was a Meta-analysis called Association of Long-term Exercise Training With Risk of Falls, Fractures, Hospitalizations, and Mortality in Older Adults and it was written by Philipe de Souto Barreto, PhD.

Dr. Barreto, asked the question “What is the association of long-term (≥1 year) exercise with the risk of falls, fractures, hospitalizations and death in older adults?” 

In this meta-analysis of 40 long-term randomized clinical trials of 21 868 participants, exercise significantly decreased the risk of being a faller and injurious faller but did not significantly reduce the risk of fractures. Long-term exercise, particularly moderate intensity, multi-component training with balance exercises, performed 2 to 3 times per week, appears to be a safe and effective intervention for reducing the risk of being a faller/injurious faller in seniors. Exercise did not, however, diminish the risk of multiple falls, hospitalization, and mortality

This meta-analysis showed that long-term exercise had modest but significant association with reduced risk of becoming a faller and an injurious faller, but not a faller with multiple falls, in older adults. Moreover, exercise was associated with a nonsignificant reduction in the risk of sustaining a fracture. Exercise benefits occurred without increasing the risk of mortality and hospitalization.

Furthermore, this study further extends current knowledge by examining for the first time the association of exercise with the risk of being a faller with multiple falls. However, multiple falls were not reported in some of the largest, well-conducted original studies.

The study consistently found that exercise decreased the risk of injurious falls by about 26%. Regarding fractures, the study contributes to this still not well-established field by showing that exercise seems to protect against fractures; although the primary finding was not statistically significant. The positive results suggest that long-term exercise might lead to a reduction in the risk of fractures. 

The study found that vigorous-intensity is as safe as moderate-intensity exercise. Exercise frequency of between twice and thrice a week was associated with decreased mortality, whereas more than 3 times per week was associated with increased risk of being a faller; therefore, the best exercise frequency seems to be 2 to 3 times per week.

The association between exercise frequency and risk of becoming faller might be dependent on the fall-related vulnerability of the population, with higher risks in more vulnerable participants; indeed, among studies with exercise frequency of 4 or more times per week. It is possible that the dose-response idea implying that “more exercise is always better” might not fully apply for the most vulnerable older adults. The potential mechanisms involved require further investigation, but it could be related to overtraining: excessive exercise leads to diminished immunity and energy metabolism according with animal models and is associated with reduced calorie intake, worse sleep, and negative psychological patterns in young and middle-aged adults. 

The findings on the best exercise frequency, suggests that the best exercise regimen for protecting older people against diverse adverse events would be moderate-intensity, multi-component training comprising balance exercises, performed 2 to 3 times per week; a session duration of 30 to 60 minutes (average of 50 minutes, according to studies on injurious falls analysis) should be safe and effective. Exercise is associated with a modest decrease in the risk of becoming a faller, an injurious faller, and potentially sustaining a fracture in older adults. 

The future is bright

Looking forward to 2019 and beyond, I see that a wonderful future is waiting for us as humans. Humankind will create wonders on Earth, we will build cities on the moon and Mars. There will be artificial general intelligence that surpasses our level of thinking, molecular assemblers constructing the necessities of life from the soil, resurrected dinosaurs grazing the soil alongside de novo unicorns, and probes departing for the nearest stars.

There will be wealth beyond measure, in an age of plenty for all. Hunger and disease will be banished, even as we engineer all of the greatest dreams of past visionaries into reality.

The present, seen from the perspective of futurists two or three centuries past, already appears a golden age of staggering, near-magical machinery. An era of grand wealth and comfort, in which even the poorest of the wealthy nations live the lives of nobility, immune to famine and pestilence.

But our cities and our achievements, the towering spires and the internet, the freeways and clinics, are little more than monuments to their originators. The engineers and the creators and the visionaries of this modern world of ours are long dead or even now dying of old age.

It is a noble thing to build a greater technology, to generate the wealth of choice and capability that will aid billions in years to come. To contribute to the construction of the golden future, one step at a time is right and proper.

We put fences around graveyards. That is a foolish thing, a wished-for separation of concerns that do not and cannot exist. Every city, every building, every road is a tribute to the dead who created them.

Every last cultivated part of our environment was touched by someone who is now no more, gone to oblivion. When we walk into the doors or drive over the asphalt, it becomes a tribute for us as well. For our generation.

Whatever we strive to build, no matter how noble, no matter how useful, it will be nothing more than a monument, a marker destined to be worn down to nothing while we no longer exist if what we do does not contribute to the good of all. 

The true value of building a better future can only exist when we are all assured of living to participate in that future, in health and vigour, of sound mind and body.

A house can only be a house and a tribute if its architect and/or resident are alive in the hearts of those who live on. Yes, we should build wonders, because we can, because we can dream into existence a far better world. But of greater importance than any other technology, we must build the means to end suffering, to enable life to continue for all of us without suffering.

Until we do, we are merely marking time until we break this cycle. When we do, all that we achieved will have more meaning. The continuing story, the progression, the achievements of humankind will be celebrated.

How much do you need for retirement?

On January 14, 2019, the Royal Bank of Canada (RBC) released the 2019 RBC Financial Independence in Retirement Poll, which uses findings from a poll conducted by Ipsos of over 2,000 Canadians online for RBC in November.

There are problems with online polling but we can assume that the figures they use are fairly good, but they are not definitive. 
How much do you need for retirement? Many experts claim that a person should have between 50 and 70% of their current income a year in retirement. In Canada, if a person is working, they can expect that the Canada Pension Plan will replace between 25 to 30% of their working income. If you add the Old Age Security Benefit most Canadians can expect to have about 35 to 40% of their income covered by our government programs. This means that if you want to follow the guidelines by the experts you need to come up with a saving strategy or work for a company that has a pension plan that will replace between 15 to 35% of your current yearly income. 

 According to the survey, Canadians believe that they need $1 million to fund a comfortable financial future. As Canadians look to retirement, we hope to amass this amount in private savings held in TFSAs, RRSPs and other un-registered investment accounts. 

In the survey, Canadians have identified their top four motivators to accumulating such a nest egg. These motivators are 
1. being debt-free
2. having things to make life more comfortable
3. having money to take part in desired experiences
4. having enough to travel wherever you want.

However in Canada that million dollars is not a goal for all of us, in British Columbia, we need a little more than a million, we need about $1.07 million. Albertans think they need $916,000, those in Saskatchewan and Manitoba cite $907, 000 and Ontarians just $872,000. Quebecers need just $427,000. The figures are interesting when we compare them to the national average of $787,000. Men believe they’ll need $942,000, compared to women at just $650,000. I wonder why this is so as women tend to outlive men so should need more.

Canadians are prepared, according to the poll to take four actions to achieve the financial independence we want. These actions are: 
1. spend less on non-essentials [74%] 
2. eat out less [59%]
3. postpone major purchases [45%]
4. cut back on travel [34%]. 

Our goals as Canadians this year appears to be to delay gratification, live within our means, eliminate debt, and then grow our retirement income.

If you retire with debt, the debt can cause you some worry, but the good news is Canadians said clearly that they don’t want to live with debt and certainly don’t want to carry debt into retirement and if we are able to achieve our goals then we as a country are in good shape for the future.