The article below points to a tremendous gap in the retirement provided for most working class Americans & what they will actually need to pay the bills. As we often suggest the smart investor diversifies their portfolio in an effort to close this gap. A Tangible Asset Portfolio made up of a conservative 10% to an aggressive 20% of your net worth should help.
Among Rich Nations, U.S. Retirement System Needs Work
Published: Monday, 16 Apr 2012 | 12:14 PM ET
By: Dinah Wisenberg Brin,
Special to CNBC.com
Comparing the lot of US retirees to their counterparts in other wealthy nations can be challenging, given differences in public and private benefit programs, the age at which citizens leave the workforce, and various pension reforms of recent years.
Generally, though, many economists view public retirement benefits in theUnited Statesas less generous than those in many other wealthy nations.
The gaps may be narrowing, though, as other countries — many of which have long had younger retirement ages — seek to adjust their systems.
“There’s a much richer support network inEuropethan there is here,” says Jonathan Gruber, a professor at the Massachusetts Institute of Technology.
U.S. Social Security Insurance benefits typically substitute less than half the income Americans earned on the job, while inEurope, similar benefits often account for at least two-thirds of pre-retirement income, says Gruber.
“We always are neck and neck with theU.K., but other than theU.K., I think we are among the stingiest,” adds Alicia Munnell, director of the Center for Retirement Research atBostonCollege.
U.S.support for retirees remains below the average for Organisation for Economic Cooperation and Development, OECD, member countries at every income level, she says Munnell.
U.S.Ranking in OECD Study
In addition,U.S.public pension spending amounted to 6 percent of gross domestic product in 2008, less than the 7 percent average for OECD countries.
National comparisons depend in part, however, on whether public or private pensions are considered, and on which aspects of retirement benefits are measured.
Among the 34 member OECD countries, the net replacement rate — retirement income as a percentage of pre-retirement income — for an average earner is 50 percent from public pensions alone, nearly 68 percent when mandatory private pensions are included, according to a 2011 OECD report.
TheUnited Statesslightly trails the 50-percent average for public pensions only, at 47.3 percent, the report showed.
Austria’s rate was nearly 90 percent, Italy’s 72 percent, Hungary’s 62 percent, Portugal’s 70 percent, Germany’s 56 percent, Spain’s 85 percent, France’s more than 60 percent, the United Kingdom’s more than 37 percent, Denmark’s 33 percent, Luxembourg’s 94 percent and the Netherlands’ 33.1 percent.Japan’s public pension replacement rate is 40 percent,Korea’s 47.5 percent.
TheU.S.has no mandatory private pensions. In some of the countries that do, such plans significantly boost the income replacement rate.
Australia’s replacement rate, for instance, is 59 percent, counting public and mandatory private pensions.Denmark’s is 90 percent,Hungary’s is 106 percent and The Netherlands’ almost 100 percent.
Replacement rates assess benefit levels at retirement. The OECD report also measures gross pension wealth — the value of lifetime flow of retirement income — and found that average-earning men in member countries received 9.6 times annual earnings, while women, because of longer life-expectancy rates, received 11.1 times annual earnings.
TheUnited Stateslagged in both measures, with 5.8 times annual earnings for men and 6.8 for women. Countries with higher than average gross pension wealth includeSpain,Switzerland,Saudi Arabia,Argentina, theNetherlands,Greece,IcelandandLuxembourg.
In another measure, the OECD took weighted averages of various indicators and found the pension level for men across the 34 member countries is 55.3 percent of economy-wide average earnings. TheU.S.figure is 37.5 percent.
A “C” Grade
The 2011 Melbourne Mercer Global Pensions Index, released last fall, compared countries’ retirement income systems while acknowledging the complexities in doing so.
Countries were graded on a scale from A, the best, to E the worst, and no country received an A or an E. TheUnited States, along withFrance,Singapore,Brazil,PolandandGermany, received a C.
A country given a C has “a system that has some good features, but also has major risks and/or shortcomings that should be addressed,” the report states. “Without these improvements, its efficacy and/or long-term sustainability can be questioned.”
TheUnited Statesranked close to average among 16 countries in adequacy of benefits provided and above average in sustainability, the likelihood that the system can maintain the benefits in the future. It fell short, however, on a sub-index focused on the private sector pension system.
TheU.S.could take steps for a better score, the report said, including raising the minimum benefit for low-income retirees, improving benefits vesting, and further limiting access to funds before retirement.
© 2012 CNBC.com