A global retirement crisis is bearing down on workers of all ages.
Spawned years before the Great Recession and the 2008 financial meltdown, the crisis was significantly worsened by those twin traumas. It will play out for decades, and its consequences will be far-reaching.
Many people will be forced to work well past the traditional retirement age of 65. Living standards will fall and poverty rates will rise for the elderly in wealthy countries that built safety nets for seniors after World War II. In developing countries, people's rising expectations will be frustrated if governments can't afford retirement systems to replace the tradition of children caring for aging parents.
The problems are emerging as the generation born after World War II moves into retirement.
"The first wave of underprepared workers is going to try to go into retirement and will find they can't afford to do so," says Norman Dreger, a retirement specialist with the consulting firm Mercer in Frankfurt, Germany.
The crisis is a convergence of three factors:
• Countries are slashing retirement benefits and raising the age to start collecting them. These countries are awash in debt since the recession hit. And they face a demographics disaster as retirees live longer and falling birth rates mean there will be fewer workers to support them.
• Companies have eliminated traditional pension plans that guaranteed employees a monthly check in retirement.
• Individuals spent freely and failed to save before the recession and saw much of their wealth disappear once it hit.
Those factors have been documented individually. What is less appreciated is their combined ferocity and global scope.
"Most countries are not ready to meet what is sure to be one of the defining challenges of the 21st century," the Center for Strategic and International Studies in Washington concludes.
Retirement in the U.S. is becoming increasingly unpredictable because millions of Americans just aren't saving enough.
"Universally, the answer is the average American is not saving enough in their 401(k)," said Chris Hopkins, vice president at Chattanooga's Barnett and Company Investment Counsel. "I think we're going to see that emerge as a significant issue over the next 10 to 20 years."
As baby boomers continue to transition from pension-based retirements to mostly 401(k)-funded retirement, Hopkins said many are coming up short. Ideally, he says workers should be socking away 10 to 15 percent of their income into their 401(k)s, though many find that impossible.
Some of Hopkins' clients are working longer than expected because their retirement accounts took a hit during the Great Recession, they failed to save enough or they just still enjoy working. More are finding part-time employment in retirement. Others are actually being pushed to retire early, after losing work later in life and being unable to find employment.
"They're in a little more precarious position, because they're going to live longer lives," Hopkins said. "It means they're going to have to make some conscious decisions to throttle down their spending."
The notion of extended, leisurely retirements is relatively new. Germany established the world's first widely available state pension system in 1889. The United States introduced Social Security in 1935. In the prosperous years after World War II, governments expanded pensions. In addition, companies began to offer pensions that paid employees a guaranteed amount each month in retirement -- so-called defined-benefit pensions.
The average age at which men could retire with full government pension benefits fell from 64.3 years in 1949 to 62.4 years in 1999 in the relatively wealthy countries that belong to the Organization for Economic Cooperation and Development.
"That was the Golden Age," Mercer consultant Dreger says.
It would not last. As the 2000s dawned, governments -- and companies -- looked at actuarial tables and birth rates and realized they couldn't afford the pensions they'd promised.
The average man in 30 countries the OECD surveyed will live 19 years after retirement. That's up from 13 years in 1958, when many countries were devising their generous pension plans.
The OECD says the average retirement age would have to reach 66 or 67, from 63 now, to "maintain control of the cost of pensions" from longer lifespans.
Compounding the problem is that birth rates are falling just as the bulge of people born in developed countries after World War II retires.
Populations are aging rapidly as a result. The higher the percentage of older people, the harder it is for a country to finance its pension system because relatively fewer younger workers are paying taxes.
In response, governments are raising retirement ages and slashing benefits. In 30 high- and middle-income OECD countries, the average age at which men can collect full retirement benefits will rise to 64.6 in 2050, from 62.9 in 2010; for women, it will rise from 61.8 to 64.4
In the wealthy countries it studied, the OECD found that the pension reforms of the 2000s will cut retirement benefits by an average of 20 percent.
Even France, where government pensions have long been generous, has begun modest reforms to reduce costs.
"France is a retirees' paradise now," says Richard Jackson, senior fellow at the CSIS. "You're not going to want to retire there in 20 to 25 years."
The fate of government pensions is important because they are the cornerstone of retirement income. Across the 34-country OECD, governments provide 59 percent of retiree income, on average.
THINGS GET WORSE
The outlook worsened once the global banking system went into a panic in 2008 and tipped the world into the worst recession since the 1930s.
Government budget deficits swelled in Europe and the United States. Tax revenue shrank, and governments pumped money into rescuing their banks and financing unemployment benefits. All that escalated pressure on governments to reduce spending on pensions.
The Great Recession threw tens of millions out of work worldwide. For others, pay stagnated, making it harder to save. Because government retirement benefits are based on lifetime earnings, they'll now be lower. The Urban Institute, a Washington think tank, estimates that lost wages and pay raises will shrink the typical American worker's income at age 70 by 4 percent -- an average of $2,300 a year.
Leslie Lynch, 52, of Glastonbury, Conn., had $30,000 in her 401(k) retirement account when she lost her $65,000-a-year job last year at an insurance company. She'd worked there 28 years. She's depleted her retirement savings trying to stay afloat.
"I don't believe that I will ever retire now," she says.
Many of those facing a financial squeeze in retirement can look to themselves for part of the blame. They spent many years before the Great Recession borrowing and spending instead of saving.
The National Institute on Retirement Security estimates that Americans are at least $6.8 trillion short of what they need to have saved for a comfortable retirement. For those 55 to 64, the shortfall comes to $113,000 per household.
Corporations, too, are cutting pension costs by eliminating traditional defined-benefit plans. They don't want to bear the cost of guaranteeing employees' pensions. They've moved instead to so-called defined-contribution plans, such as 401(k)s, in the United States. These plans shift responsibility for saving to employees.
But people have proved terrible at taking advantage of these plans. They don't always enroll. They don't contribute enough. They dip into the accounts when they need money.
They also make bad investment choices -- buying stocks when times are good and share prices are high and bailing when prices are low.
EASING THE PAIN
Rebounding stock prices and a slow rise in housing prices are helping households recover their net worth. In the United States, retirement accounts hit a record $12.5 trillion the first three months of 2013.
But Boston College's Center for Retirement Research says the recovery in housing and stock prices still leaves about 50 percent of American households at risk of being unable to maintain their standard of living in retirement.
When they look into the future, retirement experts see more changes in government pensions and longer careers than many workers had expected:
Cuts in government pension programs like Social Security will likely hit most retirees but will probably fall hardest on the wealthy.
Those planning to work past 65 can take some comfort knowing they'll be healthier, overall, than older workers in years past. They'll also be doing jobs that aren't as physically demanding. In addition, life expectancy at 65 now stretches well into the 80s for people in the 34 OECD countries -- an increase of about five years since the late 1950s.
"My parents retired during the Golden Age of retirement," says Mercer consultant Dreger, 37. "My dad, who is 72, retired at 57. That's not going to happen to somebody in my generation."
Staff writer Kevin Hardy contributed to this report.