The pensions crisis is massive and represents a time bomb that is being ignored my virtually every government in the western world. It is a problem that will almost certainly be brushed aside until it is too late to tackle at all, in fact many analysts say it is all ready too late to fix it and that millions of people are going to find that they are unable to afford to retire at all.
In 2010 the Social Security Trustees Report stated that the unfunded pensions obligations int he USA, as of August 2010, was approximately $5.4 trillion, this was up from $1 trillion in 2008. That is the amount of money that would need to be set aside today just to cover the current obligations, in addition to this the amount being set aside for future pensions would also have to increase. This represents a massive increase in the tax burden which is politically unacceptable to any of the political parties.
The problem is accelerating because the ratio of pensioners to working tax payers is increasing every year. Back in the 1950s the ration was 5.1:1, so for every pensioner there were over 5 people paying taxes. By 2009 that ratio had dropped to 3:1 and it is expected to be at 2.2:1 by 2030.
If nothing is done there will come a time very soon when the pensions liabilities of the major western economies will be greater than the tax revenue available to fund it. When this happens there will be no money to cover the bill, which means pensions will be cut, there is no choice, it is a mathematical fact.
So, how can you protect yourself from this situation?
There are a few simple options available.
- Pay in to a separate private pension that is ring-fenced from the state liability. If you have left it too late for your planned retirement date, then you will have to look to option 2.
- Work longer. This is the most likely option for most people. It is probable that we will see the retirement age rising in the next few years to 70 year old – and possibly higher in some countries.
- Find somewhere cheaper to live. If you have a guaranteed pension that is lower than you need to live in the first world economies of Europe and North America, then you could take that pension where the value is multiplied. There are many countries that are financially, politically and socially stable, who don’t have the massive fiscal debts we have in the first world, where you can live a life of luxury for less that a poverty existence in the USA.
For many the idea of working longer to save more is the last thing they want and many who are still a long way from retirement age simply cannot afford to put more money aside. This just leaves the option of finding somewhere cheaper to live.
International Living Magazine conducted a survey of places to retire that offer the best in terms of quality of life and named Ecuador as the number one place in the world to retire. It has the US Dollar as its currency, a strong economy and a top rate health service. This is an option for many, that will allow them to avoid the hash realities of the growing pensions crisis.
