You might be inclined to believe that rising life expectancies have been a positive thing. They have been good in many ways. However, it has also created some financial challenges, particularly for people planning to retire.
The existing Social Security system was not setup for people to live as long as they are. Payments have been reduced to account for rising life expectancies. The retirement age has also been increased. This means that we need to come up with alternative ways to make sure seniors can make ends meet in their Golden Years.
According to most financial experts, if citizens have sufficient information, they will be able to make the right decisions. This will result in an increase in income and help them better compliment their Social Security and pension earnings. This is important, because a series of problems are causing the Social Security and pension systems to fall short of what people need.
Correct financial planning for retirement involves increasing and improving citizens’ information about their future public pension. It also involves focusing on increasing private savings and perfecting the current instruments of complementary social provision, which must be prepared for a horizon full of challenges as a result of the demographic transition.
Seniors need to understand the various steps that they need to take to minimize financial challenges during retirement. They may need to consider using nontraditional options, such as taking out reverse mortgages. A reverse mortgage gives seniors access to money based on the equity in their home. They can get a loan of 50% or more of the value of their home, which doesn’t have to be paid back until they die. A reverse mortgage payment calculator can help you figure out what you can expect from a reverse mortgage. You will get a monthly payment that can go to paying a variety of financial expenses.
A complementary social welfare system like Social Security, regardless of whether the scope is individual or collective, has to respond, at least partially, to the challenges of sufficiency, longevity, dependency, the gender gap and innovation that affect society. In this way, they will become an adequate offer to meet the needs of the population of the 21st century.
Information is fundamental to meet the challenge of sufficiency, since if the right information is available, the right decisions can be made and this will lead to an increase in income and, therefore, to a better complementarity of the Social Security program and public pensions. Likewise, if the requirement for information is evident in the case of the public administration, this commitment is also demandable from private entities, which must inform and stimulate savings in a global and continuous manner. We must avoid doing so only at specific moments, such as the end of the year, and avoiding “selling” the product only for the tax advantage it brings.
Insurance products have more capacity than financial products to cover longevity risk, since they mutualize it. But even so, longevity risk can be so high that insurance companies have difficulties in covering it and this means that these products can be excessively high priced. To reduce this risk, biological age can be taken into account in actuarial calculations.
As far as dependency is concerned, I would recommend improving the information and management of these benefits, speeding up the assessments by the competent Administration, lowering their costs and including assistance benefits so that these products can adequately face the challenges that the challenge of dependency entails.
The wage gap generates a pension gap between men and women. In annual terms, according to data from one report, a woman receives $10,157 less than a man on average each year. This means that she will pay less into her Social Security and pension plans. However, in the field of supplementary provision, it can be stated that these products are prepared to counteract part of the challenge posed by the gender gap, by using unisex tables that prevent a differentiation in the calculation of the private pension. Women’s ability to save compared to men’s is a pending challenge.
Millennials save and do so for a specific purpose, and given the time of the life cycle in which they find themselves, the preference for spending is greater than the preference for saving. Hence, one idea underlying the new products is that they can save every time they spend, and for this reason, applications are being designed that allow rounding off purchases paid with a card, so that the difference between the price and the rounding off is transferred to an account or to a product for retirement. Some applications, instead of remunerating purchases with a discount, allocate this amount to the purchaser’s savings. Supplementary pension products, from the more traditional ones, which prioritize liquidity aspects, to the more innovative ones, which include in their design the preferences and needs of this generation, are suitable for covering the savings needs of the younger generations.
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