10.10.2023

Bridging the Pension Gap

The pension gap, broadly understood as the difference between the income one requires in retirement to live comfortably and what one actually receives from pension schemes, is a pressing concern for many. According to a report by the World Economic Forum, the global pension gap was expected to reach a staggering $400 trillion by 2050, increasing by 5 per cent each year.
Accordingly, the expectation of retirement provision has deteriorated significantly, especially since the start of the Corona Pandemic 2020. According to a survey by the Association of German Banks, 45% of respondents fear that they will be in a poor financial position in retirement – a full 64% expect to have significantly less money available than during their working lives.
Nevertheless, engagement with one’s own pension provision has declined since 2020: Only 35% of respondents have already seriously considered their own pension. Half of the 18-29 year olds have hardly or not at all dealt with it so far.
This data highlights the urgency of addressing the issue. Several factors, such as the increased life expectancy, in the past half-century in many European countries, coupled with the volatile nature of financial market fluctuations, have added significant strain to traditional pension systems. With these systems under duress, many face growing uncertainties about the adequacy of future pension payouts. 
The silver lining, however, is that you don’t have to rely entirely on traditional systems.Proactive planning, such as diversifying into non-traditional tangible investments, presents opportunities to mitigate risks and ensure a more stable retirement.

Proactive Measures for Individuals

1. Start Early: The principle of compounding is a powerful one. Simply put, the sooner you start contributing to a retirement fund, the more you allow your investments to grow, reaping the benefits of compounded growth over time.
2. Regularly Review Your Pension Forecast: Periodic checks and consultations with financial advisors can provide clarity about the projected income from your current pension scheme. If there’s a shortfall, early detection gives you ample time to adjust your savings strategy.
3. Diversify Your Investment Portfolio: Traditional pension schemes, typically tied to the financial markets, are subject to volatility. Diversifying your investments can protect you against unforeseen economic downturns and help you secure a more prosperous future.

The Power of Tangible Investments

Investing in tangible assets, such as art, precious metals, collectibles, and commodities, offers an alternative avenue for those looking to spread risk and ensure a stable retirement income.  Here’s how these can be instrumental:
1. Stability in Volatile Times: Assets like real estate or gold are often viewed as safe havens. They tend to be less volatile than stocks and can act as a safeguard against inflation or economic downturns, ensuring that your retirement fund isn’t wiped out during market crashes.
2. Potential for High Returns: Some tangible assets, especially art or rare collectibles (such as memorabilia), can significantly appreciate over time. Their value often grows due to increasing rarity, historical significance, or growing demand, offering investors substantial returns.
3. A market on the upswing: The attractiveness of collecting as an alternative form of investment and the digital sale of assets are positively influencing the growth of the collectible market. The Knight Frank Luxury Investment Index (KFLII) shows: Luxury assets recorded a stable increase of +7% last year, despite turbulent times in the financial markets.
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Takeaways

While the pension gap remains a significant concern, individuals are not powerless in the face of it. Proactive planning, diversification, and a strategic move into tangible assets can provide the safety net needed to ensure a comfortable retirement. Staying informed about the various investment avenues can help individuals  develop strategies best suited to their retirement goals.

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