121. Employees carry the burden of generating tax revenues
Employees are cash-cows for governments worldwide. Outdated education systems ensure that employees are molded as ‘factory workers’ to generate tax revenues for governments.
The joys and privilege of having jobs are to pay personal income taxes on wages and salaries earned. Employees have become a major revenue contributor for governments because company tax rates are constantly reducing to stimulate economic growth and to increase investments.
In the US, Forbes reported that corporate taxes accounted for only 10.8% while individual taxes represented 46.5%. In fact, the tax system is so complex that nearly half of Americans know they’re overpaying their taxes, according to Nasdaq. Workers do their best to estimate their withholding on their income and hope that it’s enough to mostly break even at the end of the year. But ultimately, there’s no way to guarantee that they’ll get that number just right. Given the choice between overpaying taxes and snagging a refund versus underpaying and owing to the Internal Revenue Service, most people would much rather land in the former scenario.
In Australia, Bettertax found that corporate taxes accounted for only 18.9% while individual taxes represented 39.2%.
To stimulate economic growth, governments are reducing corporate tax rates gradually. It’s no surprise then that the average statutory corporate tax rate has declined in every region since 1980, according to the Tax Foundation.
It is without a doubt that employees will be sitting ducks when governments decide to tax them more because of their declining tax revenues and increasing social welfare expenses.
It’s a fact that employees will be first to pay their share of income taxes. Employers are required by law to deduct taxes at the source when payroll is processed. If an employee earns $1,000, then he is taxed on the whole $1,000 first. Whatever is left after tax can then be spent by that employee (net of tax).
In comparison, business owners and investors pay taxes last. They will try to spend everything they possibly can as tax-deductible expenses and then pay their share of taxes on what’s left. If they earn $1,000 and spend $800, then they only pay taxes on the remaining $200 profit made.
122. Unemployed employees become liabilities
After all the personal income taxes paid by employees over their working life, don’t count on governments to financially provide for them in return when they do decide to retire or are retrenched from employment.
The cruel fact remains: no one wants liabilities.
In a period of declining tax revenues, an aging population and increasing welfare expenditure, governments prefer employees to continue working (enabled by outdated education systems and lack of financial literacy education) and pay personal income taxes as long as possible even until they drop. They do this by constantly changing policies and eligibility criteria for social security, age pension, welfare payments, and superannuation or retirement savings.
Pew Research found in the US that the federal government does not provide enough help for older people (65%), poor people (62%) and the middle class (61%). By contrast, nearly two-thirds (64%) say the government provides too much help for wealthy people.
The practical effect of these constant changes will undoubtedly force employees to work longer against their will. Transamerica Institute found that 51% of employees plan to continue working in retirement, either part-time (38%) or full-time (13%).
123. Employees must keep working into their 70s
The probability of each one of us living for another decade or two is remarkably high. JP Morgan found that men age 65 today have a 79% chance of living another 10 years, while women have an 85% chance. The odds of a long life increase dramatically for couples.
In fact, couples age 65 today have an astounding 97% chance that at least one of them lives another 10 years and a 90% chance that one experiences their 80-year birthday.
According to Bloomberg, 23% of Americans with jobs said they planned on being employees and 40% of those planning to work into their 70s feel stuck in their jobs.
In Australia, The Australian reported that close to two-thirds of babies born today are expected to live to 100. As the first generation hit the century mark, more people are likely to be working into their mid-70s (or even 80s) before they retire.
The U.K. government found that a third of 18 to 24-year-olds expect to retire in their seventies.
Sky reported that people making minimum workplace pension contributions from the age of 22 would need to work until 77 to be able to enjoy the sort of “gold standard” pensions enjoyed by many of their parents’ generation.
The bottom line is that we should be planning to live to at least 90 years old or perhaps even longer, depending on our family history. While more people are working beyond the age of 65, that doesn’t mean workers should assume they will be able to do so.
J.P. Morgan found that 67% of employed Americans plan to work beyond age 65. Only 23% of retirees did citing health problems and employer issues.
Improvements in healthcare and technology mean that workers will most likely live longer. But that doesn’t necessarily mean that they will be healthy enough to work. Workers might become disabled or chronically ill before they are ready to retire. Roughly one in four 20-year-olds will become disabled before they have a chance to retire according to the US Social Security Administration.
Around one-quarter of Australians haven’t planned for a longer lifespan despite the average life expectancy at 65 increasing markedly since the 1980s, according to National Seniors Australia. There need to be better options for people to fund longer lives with the motivation to do so.
124. Healthcare cost increasing
Living longer has a hefty price.
Longer life expectancy and anticipated annual increases for medical and prescription expenses are challenges that workers will face as they grow older.
Fidelity found that a couple, both aged 65 and retiring, can expect to spend an estimated $245,000 on healthcare throughout retirement, up from $220,000 the previous year. The figure has increased by 29% since 2005 when it was $190,000 (see chart). Reasons include longer life expectancies and anticipated annual increases for medical and prescription expenses. Any retirement planning must consider this.
125. Employees are not ready for retirement
Thinking about the future keeps a lot of people awake at night. Ramsey Solutions found that 74% of Americans who are very concerned about their future lose sleep. Fifty-six percent lose sleep just thinking about retirement. Anxiety and stress are top emotions for sleep-deprived Americans associated with their golden years.
Baby Boomers are not ready for retirement. According to a survey by the Insured Retirement Institute, 76% of Baby Boomers are not confident that they have enough saved for retirement. Of those lacking confidence, 68% wished they had saved more and 67% would have started saving earlier.
More than half of Baby Boomers said they need social security to make it through their retirement years. Research from the Transamerica Center for Retirement Studies indicated that two-thirds of Baby Boomers plan to work past the retirement age of 65 or not retire at all. The same research showed that 34% will rely on social security as a primary source of income.
This means more welfare payment borrowings for governments as tax revenues decrease. Motley Fool reported that about one-third of Americans retires and claims their Social Security benefits as soon as they become eligible at 62.
Although retirees may dream of learning a new skill or pursuing a hobby during retirement, it will not happen if retirees don’t have the resources to do so. Factoring in entertainment expenses is crucial to a well-planned retirement. Unfortunately, the Economic Policy Institute found that only 53% of workers participate in any kind of retirement planning.
Retirees may want to plan for even more leisurely expenses given the free time retirement allows. However, Merrill Lynch reported that nearly 60% of retirees don’t budget for leisurely pursuits.
126. Employees cannot retire on their terms
Don’t count on being able to work longer to make up for a lack of savings or retirement planning.
More than half of retirees retired earlier than they expected. Merrill Lynch found that the number one reason for their early retirement was a health problem. Health can be the difference between a retirement of opportunity and independence or one of worry and financial challenges.
Working during retirement is a wise choice. However, with larger earning limits, workers may still be at risk of a penalty when they exceed their limits for welfare payments. For those planning to work past full retirement age, they must think carefully.
127. Employees cannot retire due to insufficient savings
Just over six in ten American workers (64%) feel confident in their ability to live comfortably in retirement, according to an EBRI survey. At the same time, six in ten workers (59%) report that they either strongly or somewhat agree with the statement that preparing for retirement makes them feel stressed.
To make ends meet in retirement, 11% of workers say that they plan to depend on their children and other family members for financial assistance, according to a survey from Provision Living. That may sound like a good idea, but retirement can be incredibly expensive. Many families simply can’t afford to help aging parents pay their bills.
128. Retiring early could kill you (particularly men)
Retirement is ranked 10th on the list of life’s 43 most stressful events for a reason. If a worker’s social life was entwined with work, then leaving the security of that employment without his or her regular friends and a steady paycheck and income can be depressing and challenging.
Researchers at Cornell University and the University of Melbourne found a strong correlation between people who begin claiming their Social Security three years early (at 62) and death, particularly men, whose mortality risk jumped about 20%.
Harvard’s ongoing US Health and Retirement Study of 5,422 people has found that retirees are 40% more likely to have had a heart attack or stroke than those who were still working. That increase was more pronounced during the first year after retirement leveling off after that.
The U.K. Institute of Economic Affairs proposed that while retirees may enjoy an initial boost in health thanks to the lowering of their stress, retirement increased the chance of suffering clinical depression by about 40%. The risk of developing at least one diagnosed physical illness increased by 60%.
It is no wonder that 25% of U.K. retirees return to work with half of them clocking back in within five years of their retirement, according to Cambridge.
129. Retiring female employees are disadvantaged
Generally, it’s harder for women to save. According to a report released by the US Senate Joint Economic Committee Democratic Staff, a woman earns only 79% of what a man earns or is paid less than $4 for every $5 paid. This is known as the “gender earnings ratio.”
Yale Insights found that women must save 18% while men need to save 10% to reach the same financial level in retirement.
Interestingly, the gap between men’s and women’s retirement savings could equate to as much as 26% according to GoBankingRate. Women will be 27% more likely than men to have no retirement savings. Nearly two-thirds of women have nothing saved or less than $10,000 in retirement savings (compared to 52% of men).
Some workers, usually women, leave the workforce early to take care of school-aged children or to manage an elderly parent’s care. This will restrict their ability to save for retirement due to lost wages. In addition, they could lose approximately $350,000 in wages and Social Security benefits according to Met Life and Fidelity Investments research.
130. Welfare entitlements constantly change
In 2018, US Social Security increased the full retirement age. Everyone born between 1943 and 1954 must wait until they are 66 to receive 100% of their monthly benefit.
With the average retirement age of 63, this gap will increase over time (currently three years) resulting in longer working years.
The Australian age pension age is currently 65.5 and rising in stages to 67 in July 2023. The Australian government has said that this pension age may reach 70 by 2035. For those born after 1957, Super Guide found that the average retirement age is 67.
According to The Australian, more Australians are living beyond 65 years of age. The unintended consequence is that there will be an unprecedented increase in the number of people becoming eligible for the aged pension (or welfare payments) until they die, according to Montgomery.
This fiscal pressure will inevitably mean that governments will try to reduce their welfare costs by constantly changing the official retirement age and reduce entitlement and eligibility for potential beneficiaries. (Check out the interactive retirement age map here.)