Mind the Retirement Gap

Published on August 22, 2017

Mind the Retirement Gap

An aging population and poor investment returns will result in a worldwide retirement savings gap in the trillions of dollars. According to a recent World Economic Forum (WEF) Report, in three decades the figure will be an astounding $400 trillion, comprising a $224 trillion gap among six large pension-savings systems: the U.S., U.K., Japan, Netherlands, Canada and Australia (with China and India accounting for the remainder). Experts warn that the savings shortfall for U.S. citizens may balloon to $3 trillion a year.

What’s causing this retirement savings gap? Quite simply, employer-funded pensions have become a thing of the past. Employers are now more likely to offer employees a defined-contribution plan, which includes 401(k)s and individual retirement accounts. The bottom line is that this retirement instrument puts more risk on the employee, who may lack access to the right options as well as the resources to understand them. Plus, lower returns in both stock and bond investments have contributed to the gap. In fact, for the past decade, long-term investment returns have been significantly lower than historic averages.

Another factor: longer life expectancies for which more retirement savings are required.

The WEF calculations are based on publicly available data on government programs such as Social Security in the U.S.; employer-based contributions and individual savings. The calculation assumes that workers would retire between the ages of 60 and 70.

Filling the Gap

How does one not get caught in the retirement gap? One way is to shore up your own reserves and take control of your investments through self-direction of your retirement savings. While there is no safety net, financial literacy is the first line of defense against falling into rather than filling the retirement gap.

A self-directed retirement plan puts the individual in control of their retirement savings. The investor can place their retirement savings in nontraditional assets that they already know and understand such as real estate, mortgages and other loans, private hedge funds, precious metals, limited partnerships, commercial paper and notes, and more.

For information about ensuring that your retirement savings minds the gap through self-direction, contact Next Generation Trust Company at (888) 857-8058 or Info@NextGenerationTrust.com. We do not give investment advice and strongly recommend you consult your trusted financial advisors about whether a self-directed Traditional or Roth IRA, SEP or SIMPLE IRA, or a self-directed 401(k) is best for you.