Hamartia Antidote
ELITE MEMBER
- Nov 17, 2013
- 35,593
- 30
- Country
- Location
https://www.forbes.com/sites/andrewbiggs/2019/03/15/u-s-retirement-system-rocks-europe/
Critics of the U.S. retirement system say it needs an overhaul. They look back wistfully on days when Social Security was more generous and traditional pensions more common. But that world exists today: it’s called Europe, and retirees there aren’t doing nearly as well as in the U.S.
Retirement savings can be complex, but the goal is simple: for retirees to maintain the same standard of living they had prior to retirement. The question is how best to do it.
While Europe faces the same challenges of aging populations that the U.S. does, nearly all European countries provide more generous Social Security-type benefits than the U.S. In Germany, government pension benefits are about 10% more generous than Social Security, according to the OECD. In France, benefits are nearly twice as high. European countries also have been slower to shift from traditional pensions to 401(k)-type plans, a transition that in the U.S. private sector is today more-or-less complete.
So this should produce richer, happier, more satisfied retirees in Europe than in America’s stingy, Hobbesian retirement world where savers must scrape together whatever they can? That’s what you’d think, but a new multi-country survey from the financial services ING tells a very different story.
ING surveyed workers and retirees in 15 countries, including Austria, Belgium, France, Germany, Italy, Luxembourg, Netherlands, Poland, Romania, Spain, Turkey, the United Kingdom, the Czech Republic, the United States and Australia. (Australia, some may be aware, is not located in Europe, but it’s in the data so I include it.)
ING asked retirees to respond to the statement: “In retirement, my income and financial position let me enjoy the same standard of living that I had when working.” Possible responses included: strongly agree; agree; neither agree nor disagree; disagree; strongly disagree.
In terms of maintaining retirees previous standard of living, the U.S. is much more successful than European retirement systems. In the U.S., 47% of retirees either “agreed” or “strongly agreed” that they could maintain their pre-retirement standard of living. Only Luxembourg was more successful, at 53%. But overall only 28% of European retirees agreed they could maintain their pre-retirement standard of living, including only 14% in France and 26% in Germany.
It’s the same story when we look at retirees who strongly disagree with the statement “In retirement, my income and financial position let me enjoy the same standard of living that had when working.” These are the folks I’d consider to be facing a true “retirement crisis.” (Surveys of U.S. retirees that used the phrase “retirement crisis,” such as from Vanguard, found similar percentages to the “strongly disagree” respondents in ING’s survey.) In the U.S., only 9% of retirees characterize their incomes as severely inadequate, second only to Luxembourg. In Europe as a whole it’s two-and-a-half times higher at 23%. In France and Germany, nearly one-third of retirees say their incomes fall far short of what they need, three-and-a-half times the U.S. rate. It’s hard to avoid the conclusion that Americans are far better prepared for retirement than Europeans.
One reason is that we save more and depend on government programs less. According to OECD data, U.S. retirement plan assets are far larger relative to our GDP than in the typical developed country. In the U.S., assets held in government or employer-sponsored retirement plans are equal to 150% of GDP. The OECD figures don’t even count the $10 trillion held by households in Individual Retirement Accounts, which would boost the total by another 45% of GDP. In the median OECD country retirement plan assets equal just 19% of GDP. Their Social Security plans may be more generous, but their retirement savings don’t match ours.
I can hear it already: “Yes, but all these savings go to the rich. Real, typical Americans would be better off in a European-style retirement system that U.S. advocates are pressing for.” In fact, no. The median U.S. retiree has a disposable income on par with typical retirees in Austria, Canada and Switzerland. The typical U.S. retiree has a disposable income 13% higher than in France and 19% higher than in Germany. “Sure, but in those countries retirees get free health care and so forth.” The OECD figures for disposable income start with gross income, net out taxes, but then add back government transfers like health coverage. I know it’s hard for the retirement crisis crowd to swallow, but we’re actually doing pretty well.
It’s very tempting to talk ourselves down, especially when we’re trying to make big policy changes. It’s hard to make those big changes unless Americans feel that a crisis is breathing down their necks. But when it comes to retirement, it simply isn’t: only a tiny fraction of U.S. retirees have truly inadequate incomes and we can address their retirement crises through targeted, low-cost policy changes. But overall, U.S. retirees are doing fine, whether measured relative to their own ability to maintain their pre-retirement lifestyle or against incomes enjoyed by retirees in other developed countries. And the U.S., in good part because it has shifted away from defined benefit pensions, is a world leader in retirement savings. We should keep it up: after all, the real crisis in U.S. retirement savings is the defined benefit plans that have promised benefits without funding them.
Can we do better? Sure, and I’m now saying we shouldn’t try. We can fix Social Security, including a better safety net for the poor. We can encourage longer work lives, perhaps by lowering the payroll tax on older workers. We can expand access to private sector retirement plans, such as via multiple employer plans. By recognizing our retirement successes we can build on them rather than tearing them down.
Critics of the U.S. retirement system say it needs an overhaul. They look back wistfully on days when Social Security was more generous and traditional pensions more common. But that world exists today: it’s called Europe, and retirees there aren’t doing nearly as well as in the U.S.
Retirement savings can be complex, but the goal is simple: for retirees to maintain the same standard of living they had prior to retirement. The question is how best to do it.
While Europe faces the same challenges of aging populations that the U.S. does, nearly all European countries provide more generous Social Security-type benefits than the U.S. In Germany, government pension benefits are about 10% more generous than Social Security, according to the OECD. In France, benefits are nearly twice as high. European countries also have been slower to shift from traditional pensions to 401(k)-type plans, a transition that in the U.S. private sector is today more-or-less complete.
So this should produce richer, happier, more satisfied retirees in Europe than in America’s stingy, Hobbesian retirement world where savers must scrape together whatever they can? That’s what you’d think, but a new multi-country survey from the financial services ING tells a very different story.
ING surveyed workers and retirees in 15 countries, including Austria, Belgium, France, Germany, Italy, Luxembourg, Netherlands, Poland, Romania, Spain, Turkey, the United Kingdom, the Czech Republic, the United States and Australia. (Australia, some may be aware, is not located in Europe, but it’s in the data so I include it.)
ING asked retirees to respond to the statement: “In retirement, my income and financial position let me enjoy the same standard of living that I had when working.” Possible responses included: strongly agree; agree; neither agree nor disagree; disagree; strongly disagree.
In terms of maintaining retirees previous standard of living, the U.S. is much more successful than European retirement systems. In the U.S., 47% of retirees either “agreed” or “strongly agreed” that they could maintain their pre-retirement standard of living. Only Luxembourg was more successful, at 53%. But overall only 28% of European retirees agreed they could maintain their pre-retirement standard of living, including only 14% in France and 26% in Germany.
It’s the same story when we look at retirees who strongly disagree with the statement “In retirement, my income and financial position let me enjoy the same standard of living that had when working.” These are the folks I’d consider to be facing a true “retirement crisis.” (Surveys of U.S. retirees that used the phrase “retirement crisis,” such as from Vanguard, found similar percentages to the “strongly disagree” respondents in ING’s survey.) In the U.S., only 9% of retirees characterize their incomes as severely inadequate, second only to Luxembourg. In Europe as a whole it’s two-and-a-half times higher at 23%. In France and Germany, nearly one-third of retirees say their incomes fall far short of what they need, three-and-a-half times the U.S. rate. It’s hard to avoid the conclusion that Americans are far better prepared for retirement than Europeans.
One reason is that we save more and depend on government programs less. According to OECD data, U.S. retirement plan assets are far larger relative to our GDP than in the typical developed country. In the U.S., assets held in government or employer-sponsored retirement plans are equal to 150% of GDP. The OECD figures don’t even count the $10 trillion held by households in Individual Retirement Accounts, which would boost the total by another 45% of GDP. In the median OECD country retirement plan assets equal just 19% of GDP. Their Social Security plans may be more generous, but their retirement savings don’t match ours.
I can hear it already: “Yes, but all these savings go to the rich. Real, typical Americans would be better off in a European-style retirement system that U.S. advocates are pressing for.” In fact, no. The median U.S. retiree has a disposable income on par with typical retirees in Austria, Canada and Switzerland. The typical U.S. retiree has a disposable income 13% higher than in France and 19% higher than in Germany. “Sure, but in those countries retirees get free health care and so forth.” The OECD figures for disposable income start with gross income, net out taxes, but then add back government transfers like health coverage. I know it’s hard for the retirement crisis crowd to swallow, but we’re actually doing pretty well.
It’s very tempting to talk ourselves down, especially when we’re trying to make big policy changes. It’s hard to make those big changes unless Americans feel that a crisis is breathing down their necks. But when it comes to retirement, it simply isn’t: only a tiny fraction of U.S. retirees have truly inadequate incomes and we can address their retirement crises through targeted, low-cost policy changes. But overall, U.S. retirees are doing fine, whether measured relative to their own ability to maintain their pre-retirement lifestyle or against incomes enjoyed by retirees in other developed countries. And the U.S., in good part because it has shifted away from defined benefit pensions, is a world leader in retirement savings. We should keep it up: after all, the real crisis in U.S. retirement savings is the defined benefit plans that have promised benefits without funding them.
Can we do better? Sure, and I’m now saying we shouldn’t try. We can fix Social Security, including a better safety net for the poor. We can encourage longer work lives, perhaps by lowering the payroll tax on older workers. We can expand access to private sector retirement plans, such as via multiple employer plans. By recognizing our retirement successes we can build on them rather than tearing them down.
Last edited:
