China announced that it will extend the legal retirement age to 63 years old from January 1, 2025. It is a general trend that countries in the world have insufficient retirement funds and have postponed the legal retirement age. Have you ever thought about how much money you need to have when you retire? How much is the current pension in Taiwan? How much more is enough?
China announces extension of statutory retirement age
China announced that starting from January 1, 2025, the legal retirement age for men will be gradually extended from the original 60 years to 63 years old, and the legal retirement age for women will be gradually extended from the original 50 years old (workers) and 55 years old (cadres) respectively. Delayed to ages 55 and 58.
According to Bloomberg, China’s pension system is under pressure and may run out of funds within a decade. And tens of millions of younger workers are temporarily suspending pension payments, potentially exacerbating the crisis.
More than 20 million Chinese are expected to retire each year over the next decade. By 2035, more than 400 million of China’s 1.4 billion people will be over 60, more than the populations of the United States and Canada combined.
But the three pillars of China’s pension system are somewhat underfunded, which is part of the reason President Xi Jinping’s government is officially raising China’s retirement age for the first time in more than 40 years.
The current statutory retirement age is 67 in the United States, 66 in the United Kingdom, 64 in Japan, and 65 in Taiwan. The general extension of the retirement age is also a worldwide trend.
China’s pension system
There are three types of pension systems in China:
Government-backed pensions covering 1 billion people
Company pension: The company can voluntarily set up a pension for employees
Individual voluntary withdrawals: About 60 million people have joined, but less than 20 million people have made withdrawals. The current amount of funds is about 28 billion yuan
However, the one-child policy implemented in China has caused the proportion of young people in the population to continue to decline. According to Chinese official statistics, pensions will peak at 6.99 trillion yuan in 2027, and then decline rapidly, running out of funds within ten years (2035).
Young Chinese refuse to withdraw pension funds
According to an interview by Bloomberg, many young people in China are pessimistic about China's economic prospects, or are worried that the money they invest now will no longer exist when they are older, so they refuse to withdraw their pensions. There are also many wage earners who are simply unable to make ends meet and cannot afford additional pension payments.
The young man interviewed in the film said that he needs to pay 1,500 yuan for a monthly pension. He would rather use it to travel and buy bags. Moreover, the money he pays now is used to support retired elderly people. After he turns 65, China’s economy will not matter. It's an unknown quantity. Maybe you have to pay more money. Whether you can get it or not is a question. Why pay this money?
Survey data in 2024 shows that only 28.4% of corporate retirement bases are fully compliant. It is no wonder that people no longer have expectations for pensions.
What about Taiwan’s pension scheme?
Taiwan’s pension schemes are mainly divided into three categories: National Pension, Labor Insurance and Labor Pension.
National Pension Old Age Benefit
The National Pension provides basic retirement security for citizens who have not participated in other social insurances (such as labor insurance, rural insurance, public education insurance, and military insurance). Nationals aged 25 and under 65 who do not receive relevant social insurance old-age benefits and who do not participate in labor insurance, rural insurance, public education insurance, or military insurance are required to participate in the national pension. When you reach 65 years old, you can claim old-age pension benefits.
Labor insurance (including old-age benefits)
This is social insurance for working workers, including injury, disability, maternity, death and old-age benefits. After workers reach retirement age (generally 65 years old), they can choose to receive a monthly annuity or a lump sum old-age benefit.
labor pension
Divided into old system and new system. The old system applies to workers who took office before July 1, 1994, and pensions were paid by the employer. The new system is applicable to workers who took up employment after July 1, 1994 (or workers who chose to apply the new system later). Employers contribute at least 6% of workers’ salaries to workers’ personal accounts every month. Employees can also choose to withdraw up to 6% of their wages. % to a special account, after workers reach the age of 60 and have worked for 15 years or more, they can choose to receive pension monthly or in one lump sum.
Will Taiwan Labor Insurance go bankrupt?
Taiwan’s Labor Insurance Fund is expected to go bankrupt in 2028, but Labor Minister Hong Shenhan said on December 25 that based on preliminary data, the original bankruptcy warning period for the Labor Insurance Fund is estimated to be postponed for a few more years. Due to changes in the demographic structure, declining birthrate and aging population, premium income has decreased while benefit expenditures have increased. The government has taken some measures to delay bankruptcy, including allocating funds and increasing investment income, and stated that "the government will definitely bear the final payment responsibility."
The Executive Yuan has allocated NT$20 billion in 2010, NT$22 billion in 2010, NT$30 billion in 2011, NT$45 billion in 2012, NT$120 billion in 2013, and an additional NT$120 billion in 2014. The post-epidemic special budget allocated 30 billion yuan in three years, and the government's subsidy amount reached 387 billion yuan. The labor insurance fund has maintained a trillion-dollar level for more than six months, and the latest labor insurance actuarial report is expected to be released at the beginning of the year.
How to plan how much pension you will receive?
If we take the majority of workers under the labor-retirement system as an example, they will receive two pensions after retirement, namely:
Labor insurance and old age annuity benefits
According to the current system, the labor insurance old-age annuity benefit is calculated based on the "average monthly insured salary for the highest 60 months during the insurance period" and is paid according to the following two methods:
Average monthly insured salary × seniority × 0.775% + 3,000 yuan
Average monthly insured salary × seniority × 1.55%
To apply, you need to be over 65 years old and have insurance coverage for at least 15 years. The above is a monthly payment method. The Bureau of Labor Insurance also provides an online trial calculation service.
If the maximum insured salary of labor insurance is 45,800 yuan, and the insurance has been insured for 40 years, the monthly compensation can be 28,396 yuan.
You can also apply for a lump sum payment, calculated as: average monthly insured salary × number of payment months.
New labor pension
The new system of labor pension is accumulated by employers and individuals in a special account. If you are over 60 years old and have worked for more than 15 years, you can choose to claim the principal and accumulated income of the personal pension special account in one lump sum, or based on the annuity life table. The monthly pension amount due is calculated based on average remaining life, interest rates and other factors and is collected quarterly.
I believe that most readers are suitable for the new labor retirement system. In addition to checking the retirement amount in their own special account, if the income tax rate is high and they are not good at financial management, they can also choose to withdraw 6% of their salary to the retirement account every month. To achieve the effect of tax saving (the amount withdrawn is not included in the personal income tax return).
Is your pension sufficient?
Everyone's retirement life they want is different, and the pension they need is of course also very different. In addition to preparing an emergency fund to deal with emergencies, the required monthly expenses minus the pension that can be received will be the financial gap that individuals need to make up.
Of course, people are prone to have medical expenses when they get older, so you should top up your basic medical insurance as early as possible when you are young.
All that's left is to accumulate a retirement fund on your own, let it grow with compound interest through steady investment, and then slowly draw out the money when you retire. The most popular 4% retirement financial strategy is to withdraw no more than 4% of your retirement savings each year to cover living expenses. This will ensure that the funds will not run out throughout retirement (at least 30 years).
Specifically, assuming you have $10 million in savings when you retire, according to the 4% rule, you can withdraw $400,000 per year to cover living expenses. This rule, based on historical data and investment returns, considers a 4% withdrawal rate to be relatively safe and capable of sustaining retirement for more than 30 years in most cases.
At what age do you plan to retire? First, calculate how much pension you will have after retirement, and how much more money you need to save to meet the retirement life you want? Only then can you have enough confidence to face your future retirement life.
This article China announces extension of retirement age! Is your pension sufficient? How to calculate and plan? First appeared in Chain News ABMedia.