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Japan Provides Valuable Insights on Retirement

It’s easy to become focused on our own situation — for example the retirement problems facing us here in the US — and miss what’s happening in the rest of the world. Those “external” events can — and do — affect us and can also provide us with important insights to our own problems. In this regard, Japan provides valuable insights on retirement.

Japan provides valuable insights on retirement

As different as our two countries are in many ways, Japan and the US have many similarities, especially when it comes to the economy and entitlement programs.

  • While poverty among the elderly is no worse than it is in the United States, recent surveys show hardly any Japanese know how much money they will have to live on in retirement. Fewer than one in five has a plan on how to spend it.
  • The average Japanese person is 44.8 years old, the oldest average for any nation in the world, according to the CIA World Factbook’s 2011 estimate. (The average American is 36.9.)
  • Retired Japanese outnumber the nation’s children. The Japanese government has had to borrow heavily to keep up with social security spending. Government debt now exceeds $12.1 trillion, or more than twice the economy’s annual output.
  • The current maximum government pension (equivalent to Social Security) for a Japanese worker who retires after 40 years in the system is a little less than $10,000 a year.
  • The retirement age in Japan has risen from 60 to 65. Since 2004, benefits are indexed according to demographics – the fewer workers there are to support a growing number of retirees, the lower the benefits.
  • As in the U.S. Social Security system, current workers are taxed to pay for those already retired – a method known as pay-as-you-go.

This should all sound very familiar to anyone thinking about retirement. And there’s more:

  • HSBC has polled adults in 15 nations for the last five years about retirement. The survey of 1,000 Japanese in May 2009 found that 97 percent did not know how much retirement income they would have. (The same survey done in the United States found 86 percent did not know what their retirement income would look like.)
  • A Nomura poll in July of 1,000 Japanese born between 1947 and 1949 found only 20 percent had put together a retirement plan. Two-thirds didn’t know how much they’d have to live on in retirement until, at best, a few months before they quit working.

Around the world, those approaching retirement have suffered from disastrous economic recession, lack of planning and unrealistic expectations that government, company pensions and other income sources will be sufficient to carry them through their “golden years.”

Now those unrealistic expectations are meeting hard economic realities. We can’t truly rely on anyone other than ourselves to provide for us. Social Security is teetering on the brink, although removing the income cap on paying into the system would substantially relieve that problem. Corporate pensions are a thing of the past and 401(k)s and other retirement plans were never meant to carry the whole financial load, even for those who are fully contributing.

The coming economic disaster facing Americans, as more and more of us retire, does not face Americans alone. It is a worldwide problem and as such the size and scope of the crash — when and if it comes — will be much greater than most of us expect. Japan provides valuable lessons on retirement that can benefit all of us.

Click here to read more about Japan’s aging population and the valuable lessons on retirement we can learn from them.

Posted in Planning for Your Retirement, Retirement Plan Challenges, Social Security, The EconomyComments (0)

Tips on Retirement Planning

In my research, I occasionally come across something unusual. Like this. I don’t recall ever having seen anything from the Gonzalez Inquirer – Serving Gonzalez County, Texas and the surrounding areas since 1853,  but here are some great tips on retirement planning:

Don’t think of your home as a retirement asset.

Whether you are a new homeowner or near retirement, you should not think about your home as a retirement asset, for these reasons:

  • A home is, first and foremost, a place to live, and you will always need a place to live.
  • Your home is an inherently un-diverse investment.
  • A home may be subject to debt, which means it is less valuable than it appears and could be an ongoing expense when living in retirement.
  • Relying on a home as retirement savings tends to discourage other saving.

Maximize Roth assets.

A Roth IRA or 401(k) can provide tax-free income, if you hold the account for five years and have attained age 59 1/2.  Roth IRAs also have the added benefit of being exempt from the tax rules requiring distributions starting at age 70 1/2 .

I have to take issue with this one because of the fees and expenses involved with mutual fund investments (like 401(k)s and IRAs). In addition, as baby boomers retire in larger and larger numbers, they’ll have to start taking distributions which will certainly put a heavy strain on the price of stocks, possibly driving prices down and decreasing the value of all our retirement investments.

Have a retirement income plan.

Some financial professionals suggest 80 percent of your pre-retirement income is a good retirement income goal. With this goal you can then compare your expected monthly retirement income from Social Security and any pension plan to your target monthly retirement income amount.

Plan for inflation and increasing health care costs.

Inflation and health care costs are twin traps that can erode the value of your retirement plan if you do not consider and plan for them

Maximize Social Security as insurance protection.

For most Americans the decision to defer Social Security payments as long as possible is an important action to ensure not outliving one’s assets. Social Security is typically a large source of retirement income, and its value is enhanced because it is government guaranteed and provides inflation-adjusted payments.

Here, we also have a potential problem and it’s another big one, once again thanks to baby boomers.

The longer we wait to retire, the greater our payments are projected to be — if the system is still solvent. And that’s a big “if” especially if all the other boomers decide to do the same thing and Congress continues to play chicken with entitlement programs.

Stress test your retirement plan.

For example, how would your retirement plan work if your investments grow at 3 percent a year instead of 8 percent? Stress testing your retirement plan could suggest you change your planning assumptions.

It would be fair to say that at few times in our history have futures of so many been so precarious. It would be well for all of us to consider our uncertain economy and take advantage of these tips on retirement planning.

Click here to read more on retirement planning from the Gonzalez Inquirer. I’m sure they’ll appreciate the traffic to their website.

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