Economic Pressures Reshaping Retirement Plans Globally

Economic pressures, particularly inflation, are significantly reshaping retirement plans across the globe, according to a Standard Life survey. Many baby boomers and Gen Xers are being forced to delay retirement or return to work after retiring due to escalating living costs and inadequate pensions. This trend underscores the growing urgency for more robust financial security systems

The survey revealed that 14% of UK adults aged 55 and older have returned to work after retirement, while 4% are considering doing so. Inflation, which has raised household expenses by about US$1,250 annually, is driving this shift. As a result, many retirees are finding it difficult to meet their financial needs. In fact, over a third of respondents reported that the rising cost of living has surpassed their expectations, prompting 31% to seek extra income to cover more than just essential expenses. 

Dean Butler, Managing Director for Retail Direct, Standard Life, emphasized the widespread nature of these economic pressures. “The economic landscape of the last few years has put sustained pressure on people’s finances, with all ages and stages of life impacted,” he said.

This issue extends beyond the UK, with similar trends observed in the United States. The share of people aged 65 and older in the workforce has doubled since the 1980s, reaching nearly 20%, according to the survey. The Pew Research Center reports that around 11 million Americans in this age group are employed today, contributing to 7% of total US wages, an increase from just 2% in 1987. This shift underscores the growing reliance on continued employment for older adults due to rising living costs and insufficient retirement savings. 

In Mexico, recent pension reforms introduced by former President López Obrador are aimed at strengthening the pension system. Notably, the reforms include an increase in employer contributions from 5.15% to 13.875% by 2030, as part of efforts to improve the retirement income of workers in the country's mandatory defined contribution system. These changes are set to gradually raise the overall contribution rate to 15% by 2030​, reports the International Federation of Pension Fund Administrators (FIAP). Additionally, the reform reduced the vesting period from 25 years to 15 years, which makes workers eligible for pensions more quickly.

However, these reforms are not without challenges. Small and medium-sized businesses face difficulties in adjusting to the higher contribution rates. Moreover, 60% of Mexico's workforce works in the informal sector, as highlighted by the International Labor Organization (ILO), which is excluded from these pension benefits, leaving many workers without adequate retirement security​.

Adding to these challenges, Mexico's Central Bank (Banxico) recently revised its inflation forecast, now predicting that inflation will reach the 3% target by late 2025, later than previously expected, as reported by MBN. Currently, inflation stands at 4.65%, up from 4.4%. These persistent inflationary pressures continue to strain household budgets, particularly for retirees who rely on fixed incomes that struggle to keep pace with rising costs.

As a result, many older workers are seeking ways to supplement pensions that no longer stretch far enough. Others are delaying retirement or taking on part-time roles to maintain a better standard of living. “The earlier you engage with and begin to contribute to your pension, the better your ultimate retirement outcome will be,” asserts Butler. This idea is reinforced by Suze Orman, Financial Expert, as reported by Fortune, who emphasizes the importance of starting retirement planning early, particularly for younger generations. Delaying these investments by just five or ten years, can significantly reduce the total amount accumulated by retirement, underscoring the long-term benefits of proactive financial planning, Orman states.