Currently showing: Funding longer lives > Longevity risk

07 May 13 16:07

People spend the younger part of their lives working hard in exchange for a promise from the government or employers that when they retire, they would be well taken care of. However, due to poor management, low returns on assets, as well as mortality improvement, many pension plans are underwater and headed for bankruptcy.

Restructuring is essential, and many plans offer lump-sum benefits to retirees to reduce longevity risks. Some companies choose to unload their pension risks (either longevity risks or both investment and longevity risks) to insurance industry. It is important for all of us to have a good understanding about funding longer lives as we want to avoid breaking promises made to those who spent their youth and energy to make our society better.

Category: Funding longer lives: Longevity risk, Pension/retirement

1 Comment

Brian Ivanovic - 12 Jun 2013, 9:52 p.m.

It's been interesting to hear the emerging dialogue in the US about restructuring or eliminating 401K plans. As I understand it some would like to see the plans eliminated and some portion of the balance of funds in the plans would be credited by the government with a minimal interest rate. Depending on the commentator the motivations for this change in retirement savings plans vary. Some see this issue as a frank acknowledgement that only a minority of Americans have saved enough for retirement and most others are not in an optimal positon to know how to manage and invest their assets. Leaving things as is will cause a very big social problem over the next 20 years. Others see this dialoge as being more about generating additional renevue from "excess" balances held in 401K plans and eliminating tax advantaged savings. As I get closer to retirement I have mixed emotions about this discussion. On the one hand I have lived thru some severe market corrections which have contributed to my gray hair burden. Certinaly during the down market cycles having even a minimal rate of return on my existing investements would reduce my blood pressure. On the other hand most of the retirement calculators out there seem to have only one message; SAVE MORE, so having a cap placed on invested assets or the rate of return on retirement savings doesn't seem very fair or motivating. What's the responsibility of governments vs. individuals to address the retirement savings gap?

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