Habitual thinking is a very dangerous trap.
Just as house prices have been rising for the past 20 years, many people mistakenly believe that house prices will rise forever. However, as a consumer product, a house also has a lifespan, which is affected by a variety of factors, and house prices cannot rise forever. Good locations don't stay the same forever, and it's possible that the old town will be replaced by the new one.
The current pension landscape
Over the past few decades, pensions have risen every year and have been growing for 18 consecutive years. This year's pension has also risen by 3%. Although the replacement rate has declined in recent years, former retirees are still barely able to make ends meet.
However, for the post-80s and post-90s generation, the future pension environment will undergo significant changes with the continuous strengthening of two important trends:
1. The proportion of the elderly population is constantly increasing
2. The number of births is declining
Trends in the geriatric population
By the end of 2021, the number of elderly people aged 60 and above in China reached 267 million, accounting for 18.9% of the total population.
It is expected that by 2025, this proportion will exceed 20%, and the total amount will exceed 300 million.
By 2030, this proportion will reach more than 25%, and by 2035, it will exceed 30%, and the number of elderly people aged 60 and above will exceed 400 million.
By 2050, the proportion of the population aged 60 and over is expected to reach 34.6% (source: Nature), and the elderly population may be close to 500 million.
Trends in the population at birth
In contrast, from the post-60s to the post-90s, the number of births in each generation is about 20 million. However, starting from the post-10s, the number of births began to decline, with less than 10 million births after the 20s, and even more unimaginable in the number of births after the 30s.
Pension challenges ahead
When the post-80s and 90s generation retires, they will face an environment where the elderly population will double and the number of new births will be halved.
Under the current pay-as-you-go pension system, the pension paid by the current young people is used to pay the pension of the current retirees.
In the future, the pension received by the post-80s and post-90s generations will depend on the pensions paid by the post-10s and post-20s who worked at that time. However, the number of pensioners has increased, while the number of pension contributors has decreased significantly.
Conflict between residential investment and pension funding
What's even more worrying is that the post-80s and post-90s generation will use their income for the next 20 years to buy a house, and if it is assumed that they can work for 35 years, the income for 20 years will be used to buy a house, the income for 10 years will be used for daily life, and the remaining 5 years of income will need to cope with 30 years of retirement.
Therefore, it is far from enough to rely on the overall social security pension alone.
The future of retirement
The retirement life faced by the post-80s and 90s generations will be completely different from that of their parents. The parents have enjoyed the demographic dividend, economic dividend and real estate dividend of reform and opening up, while the post-80s and 90s generations need to reserve pensions as soon as possible.
According to the 2020 census data, 21.9% of the retired elderly need to continue to work to maintain their livelihood, 34.67% of the retired elderly rely on pensions, 32.66% of the elderly need family support, but the proportion of the elderly with property income is less than 1%.
Therefore, for the post-80s and 90s generation, it is particularly important to plan and reserve pensions as soon as possible, and the sooner you start, the better.