China has announced a postponement of the retirement age! Is your pension enough? How to calculate and plan for it?

China announced that it will extend the statutory retirement age to 63 starting from January 1, 2025. As retirement funds in various countries are insufficient, the trend of postponing the statutory retirement age is becoming more prevalent. Have you ever thought about how much money is enough for your retirement? How much is the current retirement pension in Taiwan? How much more do you need to make it enough?

China announces extension of statutory retirement age

China announced that starting from January 1, 2025, the statutory retirement age for men will be gradually increased from the original 60 years to 63 years, and the statutory retirement age for women will be delayed from the original 50 years (workers) and 55 years (cadres) to 55 years and 58 years, respectively.

According to Bloomberg, China's pension system is under pressure and may run out of funds within ten years. The temporary suspension of retirement payments by millions of young workers could further exacerbate the crisis.

It is estimated that over 20 million Chinese people will retire annually in the next decade. By 2035, there will be over 400 million people over the age of 60 in China's population of 1.4 billion, which is more than the combined population of the United States and Canada.

But to some extent, the three pillars of China's pension system are underfunded, which is also part of the reason why President Xi Jinping's government has officially raised the retirement age in China for the first time in over 40 years.

The current legal retirement age is 67 in the United States, 66 in the United Kingdom, 64 in Japan, and 65 in Taiwan. The general trend of delaying retirement age is also a global trend.

China's pension system

China's gold withdrawal system is divided into three types:

Government-supported pension covering 1 billion people.

Company Pension: Companies can voluntarily establish pensions for employees.

Individual voluntary allocation: Approximately 60 million people have joined, but only less than 20 million people have made allocations. The current fund amount is about 28 billion RMB.

However, the previous one-child policy implemented in China has led to a continuous decline in the proportion of young population. According to official statistics in China, the pension will peak at 6.99 trillion RMB in 2027 and then rapidly decline, depleting the funds within ten years (2035).

Young people in China refuse to allocate retirement funds

According to Bloomberg's interview, 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 allocate retirement funds. There are also many workers who are unable to make ends meet and cannot afford additional retirement payments.

The young people interviewed in the film said that they have to bear a monthly pension of 1,500 RMB. They would rather use it to travel and buy bags. Now the money they pay is used to support retired elderly people. After they turn 65, the state of China's economy is unknown. They may have to pay more money, and whether they can receive it or not is a question. Why bother paying this money?

And in 2024, the survey data shows that only 28.4% of corporate retirement funds are fully compliant, so it's no wonder that people's expectations for retirement benefits are no longer there.

What is Taiwan's retirement plan?

Taiwan's retirement pension scheme is mainly divided into three categories: National Pension, Labor Insurance, and Labor Retirement Pension.

National Pension Elderly Benefits

The National Pension is designed to provide basic retirement security for nationals who do not participate in other social insurance programs (such as labor insurance, farmer insurance, civil servant insurance, military insurance). Nationals who are 25 years old and under 65 years old, have not received related social insurance elderly benefits, and have not participated in labor insurance, farmer insurance, civil servant insurance, or military insurance, need to participate in the National Pension. When they reach the age of 65, they can apply for elderly pension benefits.

Labor Insurance (including old-age benefits)

This is social insurance for employed workers, including injury, disability, maternity, death and old-age benefits. After reaching retirement age (usually 65 years old), workers can choose to receive monthly pensions or a one-time old-age benefit.

Labor Retirement Pension

It is divided into the old system and the new system. The old system applies to workers who took office before July 1, 94th year of the Republic of China, and the pension is paid by the employer. The new system applies to workers who took office after July 1, 94th year of the Republic of China (or workers who choose to apply the new system afterwards). Employers must contribute at least 6% of the workers' monthly salaries to the workers' individual accounts, and employees can also choose to contribute up to 6% to the account. After the workers reach the age of 60 and have worked for 15 years, they can choose to receive a monthly pension or a lump-sum pension payment.

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 labor insurance fund warning bankruptcy period is estimated to be delayed by a few more years. Due to demographic changes, the declining birthrate and aging have led to a decrease in premium income and an increase in benefit expenditure. The government has taken a number of steps to delay bankruptcy, including replenishment funds and higher investment returns, saying that "the government will be liable for final payments".

The Executive Yuan allocated funds for the labor insurance fund, starting from 20 billion yuan in 2019, 22 billion yuan in 2021, 30 billion yuan in 2022, 45 billion yuan in 2023, 120 billion yuan in 2024, and an additional 120 billion yuan is planned to be allocated in 2025. In addition, 300 billion yuan will be allocated over 3 years from the special post-epidemic budget, bringing the total government allocation to as much as 387 billion yuan. The labor insurance fund has maintained a trillion yuan level for the past half year, and the latest financial actuarial report on labor insurance is expected to be released early next year.

How to plan how much retirement pension you can receive?

If we take most of the workers under the new insurance system as an example, they will have 2 pensions after retirement, namely:

Social Security Old-age Pension Payment

Under the current system, the calculation of old-age pension benefits for labor insurance is based on the 'average monthly insured salary during the maximum 60-month coverage period'. Benefits are paid out based on the following two methods, with the more favorable option being chosen.

Average monthly insured salary × years of service × 0.775% + $3,000

Average monthly insured salary × years of service × 1.55%

To apply for it, you must be at least 65 years old and have 15 years of insurance seniority. The above is the monthly payment method, and the Labor Insurance Bureau also provides online calculation services.

If the highest insured salary for labor insurance is 45,800 yuan, and the insurance is calculated for 40 years, a monthly benefit of 28,396 yuan can be received.

You can also apply for a one-time payment, calculated as: average monthly insured salary × number of payment months.

New Labor Retirement Pension System

The new labor pension is accumulated by employers and individuals in the special account, if they are over 60 years old and have worked for more than 15 years, they can choose to apply for the principal and accumulated income of the individual pension special account at one time, or according to the annuity life table, the monthly pension amount should be paid quarterly based on the average remaining life, interest rate and other factors.

I believe most readers are eligible for the new pension system. In addition to being able to inquire about the amount of retirement pension in their own accounts, if the tax rate is higher and they are not good at financial management, they can also choose to withdraw 6% of their salary to the retirement account each month to achieve tax-saving effects (the withdrawal amount is not included in personal income tax declaration).

Is your retirement pension enough?

Everyone wants to live a different retirement, and of course the pension required is vastly different. In addition to preparing an emergency fund for emergencies, the monthly cost deduction of the pension will be the personal need to make up the funding gap.

Of course, as people get older, they are also more likely to have medical expenses, so it is advisable to supplement basic medical insurance as early as possible when they are young.

The remaining part is to accumulate a retirement fund by yourself, and let it grow through stable and prudent investment, and then slowly withdraw it for use during retirement. According to the most common 4% retirement financial strategy, extract no more than 4% of the funds from retirement savings each year to pay for living expenses. This ensures that the funds will not be depleted throughout the entire retirement period (at least 30 years).

Specifically, assuming you have a savings of 10 million when you retire, according to the 4% rule, you can withdraw 400,000 per year to cover living expenses. This rule is based on historical data and investment returns, and it is considered relatively safe to withdraw at a rate of 4%, which can sustain retirement for over 30 years in most cases.

Do you have a plan to retire at a certain age? First, calculate how much retirement pension you will have after retirement, and how much more money you need to save in order to have enough to afford the retirement life you want. Only then will you have the confidence to face your future retirement.

This article China announced a postponement of the retirement age! Is your retirement pension enough? How to calculate and plan? First appeared in Chain News ABMedia.