Living Longer Amid GlobalizationIncreased global competition and longer lifespans require us to think differently about how we plan for retirement.
Two megatrends shaping the 21st century are globalization and longer life expectancy. Cross-border economic activity has accelerated dramatically since the 1980s, as nations from Asia, Africa, Latin America, the Middle East, and former Soviet Union have swapped old socialist philosophies for freer market policies. These countries are vast, comprising some 85% of the world's population and workforce, 2/3 of commodities production, and almost 50% of world economic output according to the World Bank. While some see these faraway places supplying only cheap goods and labor, many foreign countries are now sending record numbers of students to college and universities. China, for example, which sent fewer than 50,000 students to college in 19761 now sends 25 million--a few million more than we do in America.2 Much of this newly cultivated human capital will compete with Americans in many "brainier" sectors going forward.
Amid globalization, we forget that Americans are living longer, a trend that may continue into the future as science and technology extend our lives. Nobel Laureate Robert Fogel at the University of Chicago, one of the leading theorists on human lifespan and productivity, believes there's a good chance we and our children will live well into our 80s or 90s--maybe longer.3 That means planning for longer retirements than our parents and grandparents did in the mid-20th century.
These two features--global competition and longer lifespan--require us to think hard about working and saving. It has put an enormous premium on formal education, something that should start earlier than many of us believe. Recent studies at Harvard University suggest that early childhood schooling--starting at age 3--helps build greater learning capabilities for life.4 And in America, learning equals earning: US Census data notes that households with a college degree earned approximately 60% more than those with only a high school diploma.5 Households where higher degrees were obtained earned even more, and unemployment rates have also been lower for those with more education during the recent economic slowdown.
And while most of us think college or grad school ends while we're in our 20s, we should all prepare for lifelong education and retooling--either in classrooms or online--to remain economically competitive for our longer lives in the globalizing world. This will require additional savings for not only our children, but for ourselves as well.
In low yielding times when bank accounts pay less than 1% on deposits, saving properly for increased education costs and longer lifespan requires sound financial planning. Indeed, to save for a bachelors and masters degree, that will cost roughly $550,000 in 18 years, you'll need to invest $23,557 per annum per child and earn 3% on your money. If returns are boosted to 5%, contributions can drop to $19,600 per annum, and if you're lucky enough to earn 7%, it drops further to $16,223. That's the power of compounded returns.
The same kind of compounding math applies to retirement savings. HSBC's latest Future of Retirement study has found that the average retirement across the globe is expected to last 18 years while average retirement savings are expected to last for just 10 years. Currently 55% of the working population is not preparing adequately or at all for a comfortable retirement (in line with the global average), with a fifth (20%) saving nothing at all (compared with 19% globally).6
Living longer with several job changes over time, many of us won't retire until our 70s. An increase in returns compounded over 40 years of working and saving can dramatically improve the quality and length of your retirement years. While globalization means increased economic labor competition, it also provides investment opportunities: we can now invest in dozens of countries whose financial markets were out of reach 30 years ago.
Longer life and globalization, simply said, means we need to think about saving more and investing more in education. And the earlier we start saving, the better. Sound investing requires professionals to help formulate strategies tailored to your unique situation regarding age, children, income, risk tolerance, etc. We can't be ostriches with our heads in the sand when it comes to working and investing; the problems won't disappear. With a little effort and proper planning, there's no reason we can't enjoy our longer lives in the 21st century.
1. Facts and Details, http://factsanddetails.com/china.php?itemid=337.
2. China Daily, http://www.chinadaily.com.cn/china/2007-10/17/content_6184870.htm.
3. Robert W. Fogel, July 21, 2011, "Longer Lives and Lower Health Costs in 2040: Business Class," http://www.bloomberg.com/news/2011-07-21/business-class-longer-lives-and-lower-health-costs.html.
4. Linus D. Wright, October 14, 2012, "School at Age 3. No More 12th Grade."
5. The New York Times, http://www.nytimes.com/2011/10/10/us/recession-officially-over-us-incomes-kept-falling.html?_r=0.
6. The Future of Retirement, published in 2013 by HSBC Insurance Holdings Limited, London.
HSBC's The Future of Retirement program is a world-leading independent study into global retirement trends. It provides authoritative insights into the key issues associated with aging populations and increasing life expectancy around the world. The latest Future of Retirement campaign is the seventh in the series and is based on interviews with 15,866 people in 15 countries. Since the Future of Retirement program began in 2005, more than 125,000 people world-wide have been surveyed. Visit: http://www.hsbc.com/1/2/retirement/future-of-retirement.