How Retirement Programs Vary Worldwide

By Greg McFarlane | November 28, 2011 AAA

In 1988, British alternative rock outfit, The Godfathers, came up with one of the best and bleakest album titles in history: "Birth, School, Work, Death." It's only in the last few generations that humankind has thought to add an intermediate step between those last two.

Originally, retirement meant having enough money to exist on during your few remaining years, without having to hit your children up. Today, as we enjoy far longer lives than our forebears did, on a far more rich planet with a lot of distractions, retirement is a goal unto itself. In fact, it's hard for us to conceive of it as anything else.

TUTORIAL: Retirement Planning

Retirement means freedom. It means getting discounts from merchants, which is ironic, seeing as retirees have spent more years building wealth than the rest of us have. Primarily, retirement means the ecstasy of not having a regimented schedule to follow, that latitude ideally supplemented by a fixed income stream. Legislators around the world decided that they'd be better at saving for people's golden years, than those people themselves would, and so old-age pensions have become almost universal.

Is retirement, or more to the point, government-sponsored old age insurance, in North America relatively indulgent, or parsimonious? How does it compare to similar programs elsewhere? With the recent independence of South Sudan, there are 196 sovereign nations on Earth. We're not going to examine retirement programs in every last one of them, especially since you can rule most of those countries out on first glance, as places to retire; Burundi has only one golf course, and you can't dock a yacht in landlocked Turkmenistan.

Japan
The Japanese are famous for being prudent, hardworking and austere. True to that positive national stereotype, Japan requires beneficiaries to have paid into the system for at least 25 years. The minimum retirement age for pension insurance is currently 60, but will rise to 65 within a few years; a function of increased life expectancy, among other factors.

Malaysia
A little farther south, in Malaysia, retirees start collecting benefits at 55; a number that sounds downright profligate to most North American sensibilities. Purchasing power parity is such that the Malaysian ringgit goes considerably further than the 32 cents that it's worth on the currency exchange market. Is that retirement age of 55 feasible? Well, it's a lot easier when the government takes 11% of your earnings to bankroll the retirees. (For related reading, see The Big Mac Index: Food For Thought.)

Climatically, at any rate, Malaysia is a retirement paradise. Kuala Lumpur has the most consistent temperatures on the planet. Its average monthly highs, in Celsius, from February to January are: 33, 33, 33, 33, 33, 32, 32, 32, 32, 32, 32, 32.

Greece
Contrast that with another warm country, Greece, whose government promised its citizens benefits that defy math. Greek retirement age can be as early as 50, depending on your profession and gender. This early retirement is for a special category for "arduous and unhealthy work," which includes the grueling physical demands placed on … wait for it … trombone players and pastry chefs.

However, even the Greeks who spent decades working at something legitimately demanding, are weighing down a system that was never really designed to accommodate them. The Greek government pays each retiree 80% of his or her most recent salary. Add that to a social "safety net" that includes monthly payments to mothers for having children, and unemployment benefits for "persons aged 20 to 29 who have never worked" and it's not hard to see why Greece's primary source of cash flow is largesse from its fellow, and increasingly angry, European Union members. (For related reading on retirement, see Which Retirement Plan Is Best?)

That's Greece, the nation with the worst credit rating in the Milky Way. To see how the other half lives, let's look at the first-world country that's no more than a couple of places away from the top, on every list of positive national indicators (per capita gross domestic product, literacy), and near the bottom on every negative one (crime, external debt.)

Liechtenstein
Liechtenstein boasts a dizzyingly high standard of living. By virtue of not being a member of the European Union, it's not subsidizing its free-spending Greek and Portuguese counterparts, and its old-age insurance system is relatively prudent. Residents pay 3.8% of gross earnings into the system. Nor is there an earnings cap on that, as there is in the United States. Eligibility starts at 64, and you can defer your pension to age 70.

There are four critical words to consider, here: "voluntary coverage is possible." Again unlike Americans, Liechtensteiners don't have to be at the mercy of a government infamous for making questionable financial decisions. What's more, in Liechtenstein you can receive benefits as a lump sum rather than an annuity. Maybe such a system works best in a country whose entire population could fit into Fenway Park. (For related reading, see What's The Difference Between Retiring In Canada And America?)

The Bottom Line
Retirement means something else today, than it did for our forefathers. It is a goal that most of us will work towards, for nearly our entire lives. When you've reached that peak achievement and how well off you'll be, depends a lot on where you are. Your options are seemingly endless, however, and there are a lot of great places you could be.

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