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China’s Young Generation Abandoning the Idea of Saving for Retirement
China’s Youth Are Giving Up on Saving for Retirement
China wants young people to put money away for retirement. Tao Swift, an unemployed 30-year-old, is not interested in hearing it.
“Retire with a pension?” he asked. “I don’t hold much hope that I can definitely get my hands on it.”
Mr. Tao, who lives in the southern city of Chengdu, is not alone in thinking this way. On social media forums and among friends, young people are questioning whether to save for old age. Some are opting out, citing the shortage of jobs, low pay, and their ambivalence about the future.
Their skepticism betrays the enormous challenge for China’s leaders. Over less than three decades, the country has changed from a young society to an aging one. Seven straight years of plummeting births are pushing up the day when there will be fewer people working than retirees.
The fast-changing demographic profile is putting tremendous strain on China’s existing underfunded pension system. An average retirement age of 54, among the lowest in the world, has made this stress more acute.
A grinding economic slowdown, the worst since China embraced capitalism four decades ago, is leaving many people out of work or with little room to put money aside.
China has passed a demographic Rubicon just as many other countries have before it. The problem of underfunded retirement programs is not unique to China, either. But China’s demographic and economic troubles are colliding, shaking confidence in the pension system.
China is aging so quickly that over the next quarter-century, 520 million people, or nearly 40 percent of its current population, will be older than 60. And over the next decade, the public pension will run out of money, according to the Chinese Academy of Social Sciences, a government research institution.
“Because of the aging population, people are skeptical about their future pensions,” said Tao Wang, the chief China economist at UBS. “They worry that in the future, the payout would be less.”
China’s leaders could begin to tackle the problem by raising an “alarmingly low” retirement age, Ms. Wang said. They have talked about doing so gradually but haven’t yet taken action.
Recent history has also contributed to the problem. Until the 1980s, China had a planned economy, and state-owned enterprises paid salaries to workers until their deaths. As officials took on market-oriented reforms, they also set out to create a more inclusive pension system.
In the first decades after China opened its economy to the world, the Communist Party prioritized growth, forgoing the investment needed to build a broader social safety net. And as officials reformed state-owned enterprises in the 1990s, tens of millions of people lost their jobs.
Officials began to create a new pension system that would eventually cover most of the population under three pillars. The first is a public and mandatory program that has the largest enrollment, with just over a billion people. It is made up of a basic plan for the jobless in rural and urban areas, as well as migrant workers, covering more than 550 million people, and an employment-based plan that covers 504 million employees.
The second pillar of China’s pension system is private and employment-based. It is voluntary for companies and covers far fewer people.
The third and most recent, also private and voluntary, is a personal pension. It was introduced in 2022. With the public pension coming under more financial stress, officials started offering tax benefits much like an individual retirement account in the United States.
The rollout of private pensions, which are still in pilot programs in dozens of cities, coincided with alarming news: China’s population was beginning to shrink for the first time in its modern history.
Working professionals like Xuan Lü, 27, are required to contribute part of their salary to one of the public pensions. Mr. Xuan, who is an exhibition planner in Beijing, said he didn’t think too much about the roughly 5 percent of his income that is set aside each month.
“It’s too early to worry about these things,” he said.
But over the past year, another problem has emerged: More people, whether they are unemployed or doing part-time or freelance work, are pausing their contributions or simply opting out.
“The number of people who have decided tactically not to contribute or join the system is quite large,” said Dali Yang, a professor at the University of Chicago. “It has gone up very substantially.”
Experts also caution that if China doesn’t change the retirement age, it will need to reduce the benefits, which they say may be too generous in some cases. In 2022, the national average monthly payment for the public employment pension was $500, and just $28 for the basic state pension. But the contributions and benefits varied drastically depending on the city and province.
There are thousands of different pension plans, and each is managed by a local authority. How much retirees receive is linked to a local government’s finances and the size of a given pool of pensioners. Some pensions have as few as 30,000 participants, according to one study.
In some prosperous regions, as many as eight workers support each retiree. But in poorer areas, there are about two workers for every retiree.
With pressures mounting, worried Chinese officials and experts have taken to nagging young people to save and enroll in the private pension scheme.
One well-known professor has urged young people to skip their daily coffee and put the money into a fund. Another has warned young people that the basic pension will not be enough to survive on when they are old.
For some young people, the urgent calls are backfiring.
Even those a little older are not easy to persuade.
“To be honest, I don’t expect to be living on my retirement salary and covering my future retirement life with it,” said Leon Li, 37, a driver for Didi, China’s equivalent to Uber. Mr. Li lost his job at a market research firm last year after working there for more than a decade. He had a pension with the company that he will continue to pay into for the next two years to meet the minimum 15-year threshold to qualify for benefits after retirement.
By contrast, Cesar Li, 27, hasn’t enrolled in the basic public pension plan because, he said, it is too expensive. Mr. Li, a freelancer, said he had noticed that more older people were claiming pensions and fewer young professionals were paying into the system. He echoed a concern that other young people have expressed — that their retired parents or grandparents sometimes receive twice the salaries of their working family members.
Cesar Li and his friends sometimes discuss the future, he said, and joke about who will take care of them when they are old. “We may end up alone and die at home,” he added.
With fewer young people and more old, the gap between workers and retirees will only get bigger.
“This can only be left to fate,” Mr. Li said. “I have no control over it.”
Li You contributed research.
News
Is now the right time to invest in gold as prices have cooled?
The price of gold has climbed to record highs recently and has remained strong through much of April. And, that growth continued until the precious metal traded at around $2,390 per ounce on April 19, 2024. But since, growth in the price of the precious metal has cooled, with gold’s price now hovering around $2,300 per ounce.
This lull in gold’s price may represent an investment opportunity.
In general, investing is centered around buying assets when prices are low and selling them when prices are high – generating a profit on the difference between the two. So, considering the declines in gold’s price over the past few days, now may be the time to make your investment. But is buying gold during this lull in prices really a good idea?
Compare your gold investment options among leading brokers now.
Gold prices have cooled. Should you buy in now?
With gold’s price down from recent highs, you may be wondering if now is the right time to buy in. There are several reasons the dip in gold’s price may represent an opportunity to buy. Here are some of the biggest:
Prices may rise again
If looking at a gold price chart shows anything for certain, it shows that changes in the overall growth of the medal come in fits and spurts. Periods of price growth are typically followed by periods of declines and vice versa.
But with inflation rising in recent months – and with gold’s reputation as a safe-haven asset that can hedge against inflation – it only makes sense that the price of the precious metal will eventually start to head up again in the future. While attempting to time that directional change may be tricky, buying the precious metal while the price is down gives you the opportunity to take advantage of any upward movement that may be ahead.
Add gold to your portfolio now before prices have a chance to rise.
You may be able to make a quick profit
Gold isn’t known as an asset in which you can earn a quick return, but in today’s market, that may be the case. Don’t forget that in January, gold was trading at just $2,000 per ounce. And, by mid-April, the commodity’s price had climbed to around $2,400 per ounce. That’s about 20% growth in a matter of months, much of which happened since March 1 – an impressive climb for any investment asset.
Perhaps more importantly, gold’s price growth through the beginning of 2024 shows that the commodity doesn’t have to be a buy and hold style investment that you keep in a safety deposit box or precious metal depository for years to come. There’s also the possibility that the commodity’s price could climb further ahead, making it a compelling way to potentially generate a quick profit.
There are other benefits of investing in gold
There are other benefits of investing in gold that have little to do with the price growth seen thus far in 2024 – or the lull in prices seen over the past couple of days. Those benefits include:
- Inflation protection: Gold has long been considered an inflation hedge, and for good reason. When inflation drives the prices of consumer goods and services up – and the value of the dollar down – gold’s price tends to rise. So, it could be used to maintain the value of your portfolio during inflationary economic conditions. That’s important in today’s economic environment as stubborn inflation continues to weigh on the value of the dollar.
- Portfolio diversification: Gold’s price doesn’t always move in the same pattern that bonds or stocks do. So, mixing a reasonable amount of gold into your portfolio (up to 10% of your portfolio assets) as a diversifier could protect you from losses should one or more of your traditional portfolio assets fall in value. “If you have less than 5% – 10% of your net worth in commodities & FX (forex), you should absolutely consider adding exposure to gold and other precious metals,” says Vijay Marolia, money manager and managing partner at the wealth management firm, Regal Point Capital.
The bottom line
Gold’s price has fallen from recent highs – which may represent an opportunity to tap into growth ahead. However, gold isn’t simply a “buy while it’s low and sell while it’s a high” kind of investment opportunity. The commodity can also protect your portfolio from the stubborn inflation we’ve seen thus far in 2024 while acting as a diversification tool that could increase your risk-adjusted portfolio returns. So, consider adding gold to your portfolio today while it has the potential to grow in value.
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Is now the right time to invest in gold as prices have cooled?