Can You Afford to Stop Working?

retiring in Japan

According to an updated analysis of the Employee Benefit Research Institute “Retirement Readiness Ratings”™ (RRRs) approximately 56.7 percent of Early Baby Boomers, 58.5 percent of Late Boomers, and just under 58 percent of Gen Xers are projected to not run short of money in retirement.

A household is considered to run short of money in EBRI’s model if aggregate resources in retirement are not sufficient to meet minimum retirement expenditures, defined as a combination of deterministic expenses from the Consumer Expenditure Survey (as a function of age and income) and some health insurance and out-of-pocket, health-related expenses, plus stochastic expenses from nursing-home and home-health care.




Across all generations, in excess of 40% of people are financially unprepared to support themselves in retirement. Which group are you in?

The pressure on global state pensions will naturally increase as birth rates drop and average life expectancy continues to move upward. Consequently, the number of elderly in society is growing while the number of younger people is shrinking. Countries such as France, Sweden and the USA are aging somewhat slower but at an appreciable rate. In Asia the two countries most affected are Japan and South Korea. Japan is already the oldest society in the world, while South Korea is undergoing rapid aging.

Birth and death rate trends in japan since 1950

File:Bdrates of Japan since 1950.svg



Among the challenges that many country’s retirement systems face, is the decline in the percentage of employees covered by Defined Benefit (DB) schemes. Since these schemes have traditionally provided the most security for their members, this is a worrying fact. However, even for those clients who are members of a defined benefit scheme there is no room for complacency. It was reported in November 2011 that FTSE 100 companies’ pension deficits had grown by £27 billion since the end of the previous week. On the other side of the globe in America the funding deficit of S&P 1500 company defined benefit schemes reached a post-World War 2 high in September 2011. Many more company schemes worldwide may face future difficulties if market conditions do not foster recovery and sustained growth.

Whilst away from their home countries, many people will choose to fund a personal pension plan that allows them to save and invest money for later life, in line with their requirements and expectations.

Compounding is the process by which an investment increases in value by ever-increasing amounts each year, assuming that the interest paid on those investments is then reinvested . While the rate of interest itself may not change, the actual amount of interest grows as it is being earned on a larger sum.

For example, if at the age of 25 you invest $10,000 in an account paying 6% interest annually, by the time that you reach the age of 65 [without having contributed additional funds] that amount will have grown to $102,857 (See Example A). If a higher return of 8% is assumed, your deposit will have grown to $217,245 (See Example B). And if you contributed $5,000 additional funds annually (roughly $100 per week) into the account paying 6% interest, the amount will have grown to $867,667, and paying 8% interest, the amount will have grown to $1,512,528 (See Example C).

What these charts show is that while it may require considerable discipline to invest funds for a time many years away, the benefits of doing so can be substantial. The earlier you start to plan and save, the greater the benefits for you later and the less reliant you will be upon governmental and occupational pension schemes which are increasingly overpopulated and underfunded.



Example A: Amount invested $10,000:
Compound vs Simple Interest

bulletpointlogo copyNote: Taxation and fees or charges are not taken into account.
Figures are not adjusted for inflation.

Example B: Amount invested $10,000:
Compound vs Simple Interest

bulletpointlogo copyNote: Taxation and fees or charges are not taken into account.
Figures are not adjusted for inflation.

Example C: Amount invested $10,000 with
$5,000 additional per year: Compound Interest

Note: Taxation and fees or charges are not taken into account. bulletpointlogo copy
Figures are not adjusted for inflation.

Sources and Further Reading

- Employee Benefit Research institue - Report, July 2014

- Japan Statistics Bureau; Statistics Yearbook, 2014