The gap between the number of years retirees and pre-retirees expect to save for retirement
Pre-retirees expect to save 12 years less than current retirees in the UAE.
Current retirees who have successfully managed to retire based on what they have saved in the past their example is not being followed by the current generation. The pre-retirees think that it will take them less time to reach the same level. Where is this confidence coming from?
Is it because the current generation will earn more than their previous one? Approx since 1980 western countries have seen a trend difference in the middles class wealth distribution. The wealth distribution stopped going in favor towards the majority of the people (middle class and lower class) and started to go more towards the wealthiest 5% and 1% of the people. In the USA right now more than 50% of all earnings go to the richest 1%.
Perhaps pre-retirees are correct to assume that with less time, they can make more money. Is this true? Let's see what happens if you save 18 years instead of 30 years.
Example 1) You save $15,000 for 30 years with a compounded growth of 5%. This will be after 30 years $1,046,411.85.
Example 2) You save $15,000 for 18 years (12 years less) with a compounded growth of 5%. This will be after 18 years $443,085.06.
The difference is that the retiree in example 1 who saved for 30 years has more than double the amount than the pre-retiree in example 2. With prices going up (inflation), wealth going towards the richest 5% and 1% and salaries not increasing double digit, do you really think it's a good idea to save 12 years less for your retirement?
‘Reproduced with permission from The Future of Retirement Generations and journeys, published in 2016 by HSBC Holdings plc.’
Posted on Wed, June 7, 2017
by Simon Snelder filed under