To learn how to have a great retirement, we may want to check out what Northern Europe is up to.
Once again, countries such as Iceland, Switzerland, Norway, Sweden, and Denmark dominate the annual Global Retirement Index, sponsored by Paris-based investment bank Natixis Investment Managers. The index considers 18 factors that influence retiree welfare across the four sub-indices, including:
Material Well-Being. Will retirees be able to generate the income they need throughout their retirement years? This index includes income levels, income equality, and employment.
Finances in Retirement. Can retirees be confident the financial systems supporting their retirement funding will be resilient through short-term disruptions? This index includes factors such as the ratio of retirees to workers, inflation, interest rates, government debt, and health of the banking sector.
Health. Do retirees have access to the health care they need? This index incorporates factors such as life expectancy, health care costs, and how many are insured against health care expenses.
Quality of Life. What is the life quality of retirees? This index includes measures of happiness and environmental factors.
How did the United States fare? Not particularly well, according to this study, ranking 18th, just ahead of Slovenia and Malta. The good news is that the U.S. made the top 10 in the financial category, but the U.S. performance in this area is increasing threatened by Social Security and Medicare deficits and government debt. The U.S. has relatively high income, but also has the eighth-worst score for income equality. The U.S. ranks 10th for health, due largely to its high spending and investment in health care, though it should be noted that the U.S. ranks 31st globally in life expectancy (just ahead of Cuba, the Czech Republic, and Qatar).
Places like Iceland (which averages only five hours of sunlight in the winter) may not sound like an ideal place for retirement, but there are certain lessons that might be learned from Scandinavian nations about how to have a happy, healthy, and financially secure retirement. “Demographic and economic developments have made the old model unsustainable,” says John Hailer, CEO of Natixis Asset Management. “The countries that are leading our index have succeeded in finding innovative ways to adapt to the new reality and are thereby laying a foundation for the rest of the world.”
For example, Scandanavian nations have been highly responsible in funding their retirement systems. Norway and Switzerland are the only two countries in Europe which have reduced government debt (as a share of GDP) after the financial crisis last decade. Norway also benefits from its enormous national pension nest egg commonly called the “Oil Fund”.
The Netherlands has the best pension system in the world, according to the latest Melbourne Mercer Global Pension Index (MMGPI). It includes a flat-rate public pension and an earnings-related occupational pension linked to industrial agreements. In addition, most pre-retirees are included in defined benefit plans. Denmark has a basic public pension, a means tested pension, a fully funded defined contribution scheme, as well as a range of other mandatory schemes. Sweden has an earnings-related system, as well as an income-tested top up pension to provide pensioners with a guaranteed level of basic income. Switzerland has an earnings related public pension. Workers also have to save into compulsory company pensions.
Scandinavian nations also make it easier for older people to continue to remain productive and work on their own terms. In 2011, Norway reformed its private-sector pension system to encourage older Norwegians to stay employed. Among major OECD economies, Sweden ranks #1 in labor force participation rates among populations age 55+. While pension and tax policies penalize older workers in many countries, Sweden allows for continued work while receiving full government pension payments. A decade ago, Sweden created an in-work tax credit that was particularly generous for older workers, abolished payroll taxes and pension contributions for older employees, and modified laws to increase older work employability through the 2007 Employment Protection Act. In 2009, new laws were introduced to combat age discrimination. In the private sector, cooperation between companies and labor organizations has empowered older workers to find new ways to work. For example, job security councils have been formed nationwide to support the unemployed, and to help older workers re-train and update skills for new career paths.
These nations are also innovating health care to create better and less expensive ways for seniors to receive care. For example, enabling home health care is a high priority. Almost all Swedish municipalities offer the elderly home-delivered meals, municipally funded home-help services, daytime activities for stimulation and rehabilitation, and transportation services in taxis or specially adapted vehicles.
If moving to the icy climates of Northern Europe doesn’t appeal, there are still steps you can take to achieve the quality of retirement life Scandinavians enjoy. The U.S. pension systems may not be as generous and secure, but bolstering your savings and investments and putting into place lifetime income strategies can give you financial peace of mind throughout your retirement years. The U.S. is also taking some steps to make it easier to work in retirement, but planning in advance for potential part-time work in retirement, and working with an advisor to understand and plan for the financial implications and benefits of continued work, can help you have a more productive and financially secure retirement. Planning ahead for potential long-term care needs can help you receive the kind of care you want without depleting your savings or becoming a burden on family.
So with a little preparation, you can have a Scandanavian-style retirement in a warmer climate of your choosing.
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This publication is designed to provide general information and is for discussion purposes only. The effectiveness of any strategy is dependent upon each individual’s facts and circumstances. This article does not provide legal, tax or account advice. Because of the possibility of human or mechanical error, the accuracy, adequacy, completeness or availability of any information is not guaranteed.