Economic Growth

Retirees will outlive their savings by a decade

An elderly couple sit on a bench next to crocus flowers in a park in Duesseldorf March 17, 2010.  REUTERS/Ina Fassbender

Women will face the toughest burden. Image: REUTERS/Ina Fassbender

Johnny Wood
Writer, Forum Agenda
Our Impact
What's the World Economic Forum doing to accelerate action on Economic Growth?
The Big Picture
Explore and monitor how Economic Progress is affecting economies, industries and global issues
A hand holding a looking glass by a lake
Crowdsource Innovation
Get involved with our crowdsourced digital platform to deliver impact at scale
Stay up to date:

Economic Progress

The good news for many of the world’s major economies is that people are living longer. But with longevity comes challenges - and a new report suggests retirees around the globe will outlive their savings, leaving many facing an uncertain future.

The World Economic Forum’s Investing in (and for) Our Future report, looks at life expectancy and savings provisions across six major world economies.

The findings show that people should expect to live longer than the pot of money they have saved for retirement, by between eight to almost 20 years on average, with the highest burden on women.

Image: Investing in (and for) Our Future

As the chart shows, most male retirees in the six economies included in the study can expect to live around a decade longer than their retirement funds can pay for. The savings deficit is even greater for women, who live on average two years longer than men.

Significant differences also appear between economies. Japan’s combination of longer lifespans and lower average savings - because they invest in safer assets, with fewer gains over time - is leaving retirees there particularly exposed.

Japan’s ageing population

Life expectancy in at birth in Japan is the highest in the OECD countries - 87.1 years for women and 81 years for men.

Women in Japan can expect to outlive their pension provisions by almost two decades, which is substantially longer than other economies.

The problem is compounded by a shrinking and ageing population as the birth rate continues to drop - new figures show the Japanese population fell by 444,000 people last year, as the fewest number of babies were born since records began in 1899.

The government recently withdrew a report that cast doubt on the ability of the public pension system to cope with the ageing population.

Golden years

Why are people outliving their retirement savings? Poverty has decreased just as medical advances and improved healthcare provision have increased.

Along with other factors like greater global awareness of the benefits of a healthy diet and regular exercise, this means people are living longer.

By the middle of this century the proportion of over 60s in the world’s population is set to reach 22%, almost double the 2015 figure, according to UN figures.

Our aging population has placed unsustainable pressure on government and employer-sponsored pension systems, leading to a growing trend for individuals to take responsibility for financing their own retirement. But savings have failed to keep pace with the decline in traditional pension plans, leading to the current retirement savings deficit.

Have you read?

Rethinking risk

In order to close the savings gap, the World Economic Forum report suggests, individuals and policymakers must ensure that pension investments are able to generate sufficient returns to see retirees through their post-work years.

A new investment approach is needed, which involves governments not only rethinking the traditional one-size-fits-all approach to pensions, but also resetting attitudes to risk. By reducing, or realigning pension investment regulations, individuals will be free to make investment decisions that increase long-term returns to cover their specific retirement situation.

Typically, a retirement investor’s mindset is risk-averse and values consistent saving over a long time period. However, the report highlights the need for young and middle-aged savers to realign their pension investments, to embrace greater short-term risks that generate higher long-term returns.

“The real risk people need to manage when investing in their future is the risk of outliving their retirement savings,” states Han Yik, Head of the Institutional Investors Industry at the 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.”

Pot luck

The report highlights the need for greater diversification of future pension investments, away from traditional, safe, equity and fixed-income assets that prize liquidity over long-term growth. As pension investments are often long-term, portfolios should include alternative assets that yield higher returns but tie in investors over a greater timespan.

To help spread risk, investors must be free to move beyond purely domestic assets and seek returns in other parts of the world, which helps insulate portfolios against economic slumps in their home economy.

But, while the size of a person’s retirement pot is important, there is also the matter of how quickly, or wisely, it is spent. Research to date calculates retirees will withdraw a constant rate of 4% of their portfolio each year, which the report suggests may be misleading. In practice, people spend more in the early years of retirement and less as they age.

Policymakers must put in place robust and creative solutions to protect retirees as they age, such as pooled annuity funds, to allow flexible spending while ensuring savings last through retirement.

Closing the savings gap requires governments to evaluate, and prevent, pension regulations hampering an individual’s ability to make the best long-term choices for their investments, which allow future retirees sufficient funds to relax and enjoy their golden years.

Don't miss any update on this topic

Create a free account and access your personalized content collection with our latest publications and analyses.

Sign up for free

License and Republishing

World Economic Forum articles may be republished in accordance with the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International Public License, and in accordance with our Terms of Use.

The views expressed in this article are those of the author alone and not the World Economic Forum.

Related topics:
Economic GrowthJobs and the Future of WorkHealth and Healthcare Systems
World Economic Forum logo
Global Agenda

The Agenda Weekly

A weekly update of the most important issues driving the global agenda

Subscribe today

You can unsubscribe at any time using the link in our emails. For more details, review our privacy policy.

Eurozone recovery begins and other economics stories to read

Kate Whiting

May 17, 2024

About Us



Partners & Members

  • Join Us

Language Editions

Privacy Policy & Terms of Service

© 2024 World Economic Forum