The U.S. isn’t alone in facing a retirement readiness challenge. European countries are staring at many of the same problems: an aging population marked by a tidal wave of Baby Boomers in or approaching retirement, and fewer workers coming along behind them to support old-age entitlement programs like Social Security and Medicare in the US.
The citizenry in those countries are aware of the problem. According to the latest AEGON Retirement Readiness Survey, 71 percent of workers in the U.S. and Europe believe future generations of retirees will be worse off than those currently in retirement. Nearly as many—69 percent—recognize that they have a high level of responsibility to prepare for retirement, including 84 percent in the U.S. But awareness so far isn’t translating into action. Only 15 percent say they are on course to meet their retirement planning goals.
The AEGON survey polled 8,100 workers and 900 retirees in the U.S., France, Germany, Hungary, The Netherlands, Poland, Spain, Sweden and the United Kingdom. While it painted a discouraging picture of the retirement outlook throughout much of the Western world, it also found that workers in the U.S. and abroad are, at least in principal, willing to consider reforms to make current old-age benefit programs more sustainable.
A surprising 88 percent of the survey respondents said they favor some form of government pension reform, Catherine Collinson, president of the non-profit Transamerica Center for Retirement Studies, told participants at the SVIA’s 2012 Fall Forum. The center collaborated with AEGON in producing the study. The highest favorable response came from Hungary, where 95 percent of survey respondents backed the idea, while the lowest came from the Netherlands, where 70 percent endorsed it. In the U.S., 92 percent said they were in favor of reform.
Understanding how workers feel about reform, and what form it should take, should be useful to policymakers trying to decide not only what reforms are necessary, but which would be palatable to voters. Just 19 percent of survey respondents favored a balanced approach that would include raising retirement ages and also increasing taxes. Another 27 percent supported raising taxes only, while 42 percent favored a reduction in the value of benefits paid out. In the U.S., Collinson said, 31 percent were in favor of raising taxes to help shore up Social Security, while 17 percent favored a reduction in benefits.
Although global life expectancies have generally been increasing, 47 percent of survey respondents contended that the retirement age in their country should not be raised. U.S. respondents were more open to the idea, with only 32 percent saying they were against it. Among survey respondents already retired, 54 percent said they stopped working completely after taking formal retirement. By contrast, only 30 percent of current workers think they’ll be able to afford to do that. The numbers are even more dramatic in the U.S., where 63 percent of retirees stopped working completely at retirement age but only 18 percent of current workers think they’ll be able to do so.
“For many, the plan is simply to work longer and retire at an older age,” Collinson observed. “That’s a wonderful way to bridge the retirement savings gap, but not without a backup plan. The older we get, the more susceptible we become to life’s unforeseen circumstances that could preclude the ability to work, and that could force us into retirement sooner.”
Collinson noted that no country in the survey scored high in AEGON’s Retirement Readiness Index, which takes into account factors such as how aware people are of their responsibility for retirement, what they’re doing about it, and how much of their working income they’re on track to replace in retirement. Germany scored highest, followed, in order, by the U.S., The Netherlands and the U.K. Next came Sweden, France, Spain, Portugal, and, in last place, Hungary.
AEGON’s recommendations to improve retirement readiness, Collinson said, include encouraging individuals to save regularly for retirement by offering tax incentives and effective and secure workplace pension programs. Policymakers, employers and the retirement industry also should engage the public on the issue, driving home the point that without an increase in the formal retirement age, government and private pensions will become prohibitively expensive and perhaps unsustainable. Policymakers and employers also should provide options for phased retirement, she said, arguing that if all parties act now, improvements in retirement readiness are possible.
“Although it’s not covered in the survey,” she concluded, “other research we’ve done has found that the number one motivator to help people plan and save is to make it easier to understand.” On that score, she conceded, “we still have a long way to go.”
