The biggest financial risks in retirement are "inflation" and "longevity." How can we happily navigate the 100-year life era?
In response to the “20 million yen retirement problem,” what we really need to think about is “how much money is enough.”
Having money to dip into is only natural
The figure of 20 million yen is merely the difference between the average income and expenses for pension-earning households. From this, one thing is clear:The average pension household has assets sufficient to dip into, and they are doing so as a matter of course because they are drawing those assets down.
This “average” is something like the following.
Income: 210,000 yen
Expenditures: 260,000 yen
Retirement allowance: 17–20 million yen
Surprisingly,you receive about 20 million yen as a retirement allowance. For people in pension-earning households today, even without savings during working years, 20 million yen can be covered by retirement funds.
If you already had some savings to begin with, you would probably spend at least the retirement allowance.Money cannot be taken to heaven, so spending it is rational.
Conversely, those who say “not enough” may betrying to save pension as savings. If they are aiming to siphon off money from the working generation as pension savings, that would be a truly awful situation.
Inflation poses a deadly blow to the elderly
In reality, the real risks to retirement finances are not merely that money runs out, butinflation and living longer than expected.
It may be hard to grasp inflation when prices haven’t risen much, but Japan’s fiscal condition is poor and the economy is weak, sothe risk of sharp inflation accompanying a yen depreciation is real.
Even with rapid inflation, the working generation won't be too troubled because wages would rise about as much as prices.
The problem is the elderly. Since pension cannot rise as rapidly as inflation, the real value of benefits drops. In former Russia, a similar situation forced the elderly to subsist on crops grown in gardens.
In Russia, elderly people could not buy groceries, so they grew vegetables in household plots and managed to survive for about 7–8 years. If a distance of 5–6 kilometers from home required travel, the elderly often walked 10 kilometers without money for bus fare.biblion.jp/articles/eae7K…
To respond to this,keep the money saved for retirement in inflation-resistant assets such as stocks, real estate, and dollars (foreign currency).
However, it is never wise to immediately touch financial assets after retirement, soworking generations should study gradually and acquire literacy to avoid being swindled by bad operators.
Why a 90-year-old grandmother can live comfortably without money problems
Another risk isthe risk of living too long.
If deficits continue as in reports, the longer one lives, the more assets dwindle, and if one becomes bedridden or develops dementia, substantial caregiving costs are required. The latter is a lifelong expense.
If caregiving costs exceed savings, it will trouble children and grandchildren as well. This is something many people want to avoid.
To deal with the “longevity risk,”owning stable income-generating financial assetssuch as dividends from stocks or real estate is the solution. This allows continuing to cover deficits without depleting assets.
My step-grandfather was a lifelong bureaucrat who understood money well.He held assets in stocks and real estate and owned a rental apartment in front of his house.
Even though it was only a two-room apartment in a provincial city, it provided enough rental income to cover deficits. The step-grandfather has passed away, but the current 90-year-old grandmother who inherited this arrangement lives a healthy, money-not-anxious lifewithout money troubles.
Looking at this, the key remainsto build assets in “stocks” and “real estate” early and establish a foundation of income gain to survive in a 100-year life. It’s not just the amount but knowledge (literacy) as well. I hope to guide people who think this way onto the right path.
