Rising life expectancies expected to up global savings gap to $400 trillionStaff Writer | May 29, 2017
The global economy cannot bear the burden of rising life expectancies unless the structure of global retirement systems changes, according to a paper from the World Economic Forum.
World The World Economic Forum
The paper lists five factors that are putting additional strains on global retirement systems: A lack of easy access to pensions, a long-term low-growth investment return environment, low levels of financial literacy, inadequate savings rates and the high degree of individual responsibility in managing retirement plans in a world where defined contribution plans dominate.
According to the paper, the population of people at least 65 years old — the traditional age at which people retire — will increase to 2.1 billion in 2050 from 600 million today.
All these factors will result in a gap of $427.8 trillion between the global amount of retirement savings actually saved and needed in 2050, up from $66.9 trillion in 2015.
The paper says the gap in the U.S. specifically is growing at $3 trillion every year, “the equivalent of five times the annual U.S. (defense) budget, or 60% of BlackRock (BLK) (the world's largest asset manager) assets under management, which in 2016 stood at $5 trillion.”
The U.S. gap is projected to rise to $136.8 trillion in 2050 from $27.8 trillion in 2015.
Other large increases in shortfalls are projected to be China's shortfall, expected to rise to $118.7 trillion from $10.7 trillion and India, projected to rise to $85.4 trillion from $3.5 trillion.
The principles that the paper proposes to address these catastrophic shortfalls includes sharing risks to reduce the burden on individuals such as a collective defined contribution system with pooled investments and longevity risk. ■