Sobering Look at Retirement Systems in 11 Countries
An aging Japan is struggling to finance the retirement of its baby boom generation. It has a three-part system: Workers receive a flat-rate pension of about 66,000 yen ($657) a month from a fund partially financed by worker contributions. They also receive a second pension based on their earnings, financed entirely by their contributions. And they can contribute to additional plans that are voluntary. They can collect the flat-rate pension after contributing for 25 years; they become eligible for a full benefit after 40 years. The flat-rate and earnings-based pensions combined replace an average of only about 25% of pre-retirement income. Many older Japanese, who had lifetime jobs with good benefits, have accumulated hefty savings. But younger workers, who came of age amid a sluggish economy and corporate cutbacks, are struggling to save.
Germany's retirement system is generous for many, but getting less so. The post-World War II economic boom financed comfortable retirements. The system still provides the bulk of income for retired people -- about 70% as of 2010. Germans can retire with a full pension at 65, though the age is gradually rising. People born after 1964 face a retirement age of 67. The system replaces 58% of average take-home pay. The pensions are funded by a payroll tax with no investment assets backing the government's promises -- a so-called pay-as-you-go system. Pensions are tied to earnings during a person's working years. But the formula now reduces pension levels as the ratio of retirees to workers rises. There's an additional benefit that serves as a safety net for very low-income retirees. Many people who work for major employers also have company-based pensions.
Older French workers who want to retire early have a good deal: The minimum age for a full pension for most of them is just 62 as long as they've contributed to the system for at least 41.5 years. France has a tax-funded pension and mandatory employer programs. A worker who earned France's median wage receives 60.8% of pre-retirement take-home pay. In October, France raised the contribution period to receive a full public pension from 41.5 to 43 years -- but only after 2020. By then, most of France's baby boomers will have retired.
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