Retirement
Presentation of International Retirement Security Survey Results
Speech
July 2005
Related links
International Retirement Security Survey:
Learn more about the AARP Global Aging Program
July 19, 2005
Reinventing Retirement: Balancing Risk
International Conference
Washington, DC
William D. Novelli
Chief Executive Officer, AARP
This is not a question just for us here in the U.S. It is a question for the world. In fact, it is perhaps an even more urgent question for Japan and many European countries than it is for us here in the U.S. They are older and aging faster.
As the largest nongovernmental organization in the U.S. representing the needs and interests of persons age 50 and older—with nearly 36 million members—we are focusing considerable attention on reinventing retirement. Through our Global Aging Program, we have organized a series of events under the title of “Reinventing Retirement” which revolve around the issues of the changing nature of retirement and retirement security in developed countries.
As Ladan said, we began this series last year in London with an international conference on Retirement Strategies for an Aging World. Today, our focus is on risk in retirement systems. We will look at the pillars of retirement security—public and private pensions which include savings, and health and long-term care insurance. We have superb group of experts from the U.S., Europe, Canada, Japan and other developed nations who will address the relative risk borne by government, individuals and employers in their countries for the various pillars of retirement.
As we explore these issues, the first question we have to ask is, why has retirement security become such a critical issue internationally? I think we all know the answer. It’s the coming together of several factors all at the same time. The general population is aging and longevity is rising. The working age population is shrinking or slowly growing, and public pension systems are under stress. Likewise, economic forces such as rising health care costs also have an impact.Increasing life expectancy and people exiting the labor force at relatively early ages are resulting in longer periods of time spent in retirement. For individuals, longer retirements mean stretching savings over more years. For society, they also mean that public pension and health benefits must also be paid for more years. This creates a significant international public policy challenge in ensuring that individuals have sufficient income security to live comfortably throughout their retirement years.
We wanted to improve our understanding of attitudes and behaviors surrounding personal and national retirement issues, and to assess the public’s confidence in having sufficient income to retire comfortably, attend to their health and long-term care needs, and live securely after leaving the workforce.
To explore these issues across various countries, we designed an International Retirement Security Survey. It examines key issues in retirement security across ten developed countries selected for their varying emphasis on the three potential sources of retirement income: public funding, designed to guarantee—through governmental transfers—a minimum income standard during retirement; employer-provided pensions and private savings.
These sources provide the income that, along with health-care benefits and long-term care, foster economic security in old age. With this survey, we examine opinions about retirement security in the United States, Canada, Australia, Japan, Germany, France, Italy, the United Kingdom, Sweden and the Netherlands. Slightly over 4,000 respondents were included in this telephone survey—approximately 400 in each country—which was administered for AARP by Harris Interactive, an international research organization with field offices in each country used in this study.
This morning, I would like to share the key results of that survey with you.
Key Results
Attitudes toward retirement among the majority of adults across all ten countries are characterized by five primary factors:
- Guarded optimism
- Limited thought given to retirement issues
- A feeling of being less than fully informed about retirement
- A lack of confidence in what government can provide in the future, and
- A belief in shared responsibility in providing for retirement.
Guarded Optimism About Retirement
When respondents were asked about their general optimism about retirement, in the aggregate we found guarded optimism to be the predominant outlook, with only 16% very optimistic, two out of five (41%) at least somewhat optimistic, and two in five (39%) somewhat or very pessimistic. The results, however, varied by the following demographic factors:
- Employment status: Those who are already retired express the most optimism (65% somewhat or very optimistic), followed by those who are employed (56%). Less than half of those who are not working express optimism toward their retirement (49%).
- Income: Respondents with higher incomes are, not surprisingly, more optimistic toward retirement than those with lower incomes (67% who earn $40,000 or more per year are optimistic, versus 55% who earn less than $40,000 being optimistic).
- Age: Respondents ages 45 to 65 are more optimistic than respondents ages 30 to 44 (59% versus 53%).
- Marital status: Those who are married show more optimism about their retirement than those who are not married (60% versus 50%).
- Education: Individuals who have obtained at least a college degree are somewhat more optimistic than those who do not have a college degree (61% versus 55%).
- Is saving for retirement an individual responsibility, or is there an essential role for employers and government?
- Who is responsible for supporting those who are retired?
- The United States and France are least open to increasing the size of the labor force through immigration—less than one-third in these countries find this option acceptable (32% in U.S. and 30% in France). Conversely, more than four in five Swedish respondents (78%) say this option is acceptable.
- Increasing the retirement age required to qualify for public pensions is not acceptable to the majority of respondents in any of the countries surveyed, with fewer than half in any country reporting that this alternative is acceptable. Germans, however, find this to be a more acceptable option (48%) than residents of any other country.
- Italians and the Japanese are the least open to increasing future retirement benefits at a lower rate than currently provided for. Less than a third in each of these two countries find this option acceptable, compared to slightly over one half in the U.S. (55%) and the Netherlands (52%).
- Shifting to private savings accounts was rated as at least somewhat acceptable most often by France (61%) and the U.S. (56%), and least often by Australia (35%) and Italy (38%).
- Large percentages of adults in all countries expect some level of work to be a part of their retirement years, so increased opportunities for the employment of older persons could benefit both older persons and the economies in which they work.
- Respondents also see more taxes from higher income persons to support public pension systems as an acceptable remedy to the fiscal strains these systems face. Of course this may not be an easy policy to implement. And finally, the lack of information noted by many respondents represents an opportunity for public education to help individuals better prepare for their retirement.
Optimism toward retirement also varies quite substantially by country. With the exception of Japan, countries that are higher on the aging curve have lower optimism compared to those lower on the aging curve. In the United States, Canada, the United Kingdom, Australia and Japan, at least six in ten are optimistic about their retirement. Australians and Canadians are the most optimistic, with over three in four (77%) saying they are optimistic when they think about their retirement. By contrast, in Germany, France and Italy, only slightly over one-third say they are optimistic about retirement.
Thinking About Retirement
More than half of individuals across all countries (58%) have given retirement at least some thought, and one in four (25%) have given it a great deal of thought. However, nearly one in five (17%) have given no thought at all to retirement. Significant differences are also evident by employment status—only half of those who are currently not working have given retirement at least some thought.
How much someone has thought about retirement also varies dramatically by country. In the U.S. and Germany, 44% have given retirement a lot of thought—and 73% have given retirement at least some thought in these two countries—But in Italy and Sweden only 12% of respondents have thought a lot about their retirement and less than half have given retirement at least some thought.
It’s important to understand that thinking about retirement does not necessarily correlate with expectations. Interestingly, Americans and Canadians have given their retirement more thought and are also relatively optimistic, whereas Germans have also thought about it a great deal yet report significantly lower levels of optimism about their retirement.
Information About Retirement
On the whole, respondents do not feel very well informed about the things they need for a happy and successful retirement. Only one in four (25%) rate their level of information at an “8” or more on a 10-point scale, where 10 represented “extremely well informed” and 0 “not at all informed.” The average rating for how informed people are about what they need for a happy retirement is a lukewarm 5.7 out of 10.
These results vary by employment status: current retirees more often say they feel informed (mean of 6.2) than do the employed (5.7). Those not working are even less likely to feel informed (5.0). Perceived information levels also vary by country. In the U.S., 40% rate their information level at an “8” or higher on a ten-point scale. Canadians feel nearly as well informed, with 37% rating their information level at an “8” or higher. Residents of Japan, Sweden, France, and Italy report being much less informed, with less than 20% of individuals in these countries providing ratings of “8” or higher. Notably, in Japan, only slightly more than one in ten respondents (11%) provided these high ratings when asked how informed they are about retirement issues.
Expected Sources of Income in Retirement
Despite the current and anticipated financial and demographic pressures on public pension systems in many developed countries—and the prospect that these systems in their current forms may not be financially sustainable— residents of these countries have high expectations regarding the public pensions.
The public pension systems are seen as a critical retirement income source, with 42% of the respondents expecting them to be a major source of their retirement income and another 39% expecting them to be a minor source of income. In sum, over four in five individuals (81%) are counting on a public pension as a source of income when they retire.
After public pensions, employer-provided/occupational pensions (28%), earnings from employment (26%), workplace retirement savings programs (26%) and other personal savings (25%) are most commonly expected to be major retirement income sources.
Notably, our results show that few believe inheritance (7%) and family support (4%) will be a major income source when they retire.
Some variations in income sources by country are also evident. In four countries—Germany, Italy, Netherlands and Sweden—public pensions are expected to be the primary retirement income source. In the US, UK and Australia, however, workplace retirement savings programs are seen as primary by more people. In no country do more than ten percent of the residents see family support as a major source of income, nor is inheritance expected to play a major role.
In response to a related question, which asked which source will provide the largest share of income in retirement, public pensions were again rated the highest, with 34 percent saying they would. No other option was selected by more than 14 percent of respondents.
Retirement Income Adequacy
People in the developed countries are living longer than ever before. For example, in the eight European and North American countries surveyed—France, Germany, Italy, Canada, The United States, The United Kingdom, Sweden and The Netherlands—the average life expectancy at 65 ranges from 18-21 years for women, and from 14-17 years for men. The fact that these are average life expectancies means that many persons will live well beyond. Moreover, advances in health care and living standards likely will continue to increase these life expectancies in the future.
This means that to assure adequate income for retirement—with many people retiring in their early 60s if not earlier— people should be planning for living 25 or more years after they retire. How confident are people that they can live comfortably for these years?
Our study shows that confidence in the adequacy of retirement income is very limited. More than two in five respondents (43%) are not confident that they will have enough money to live comfortably in retirement for at least 25 years. Conversely, a mere 15% report that they are very confident they will have enough money for a comfortable retirement. These figures match closely those dealing more generally with retirement optimism; as we noted earlier, only 16% report being very optimistic about their retirement.
Confidence about having enough money for retirement varies by country. In Canada, fully 71 percent are somewhat (46%) or very (25%) confident that they will have enough money to live for 25 or more years after retirement, followed by The Netherlands (70% somewhat or very confident), the U.S. (at 68%), and Australia (at 64%). However, in half the countries surveyed—Germany, France, Italy, Sweden and Japan— those who are confident are in the minority. Italians are the least confident, with only one in three stating that they will have enough money to retire comfortably for 25 years or more.
Interestingly, when we asked respondents if they were ahead of schedule or behind schedule in saving for retirement, 55% said they were either ahead or on track compared to 41% who reported being behind schedule. So why aren't people saving? Those who feel they are behind schedule reported the top reason as being they just don't have enough income to save. Surprisingly, educational expenses were the second reason even in countries where the cost of higher education is free or minimal.
Current Health Status
Now, let’s turn to health. One’s overall state of health and access to affordable, quality health care are also important factors contributing to confidence about retirement and quality of life in retirement.
Many respondents feel good about their health status, with 50% rating it either excellent or very good, and another 31% rating it good. As with the economic indicators, these percentages vary by employment status and by country.
Employed individuals show significantly higher self-reported ratings of their current health status than the retired and non-working, with nearly nine in ten (87%) rating their health at least “good”. At most, seven in ten of the retired and non-working say their current health status is at least “good”.
Age and income are also factors when it comes to self-reported health. One-quarter of the residents ages 45 to 65 in the 10 countries consider themselves to be in “fair” or “poor” health, compared to only 13% of the younger cohort. Additionally, those with higher income—($40,000 and over) report that they are in better health than those earning less than $40,000.
Comparisons across countries also show differences in self-reported health status. Australians (83% excellent/very good) provide the highest ratings, followed by Canada (62%), the U.S. (61%), and the UK (56%). The French (39%), Germans (38%), and the Japanese (38%) are significantly less positive about their health. And the Italians (17%) are the least positive.
Health Care Concerns in Retirement: Paying for Long-Term Care
All ten countries in our study have a national health-care insurance system for retirees. And, not surprisingly, all ten share similar concerns about rising health-care costs. This is especially noteworthy in the wake of changing demographics, where people are living longer and thus increasing the probability that they will require healthcare and long-term care in their retirement years.
In this study, respondents generally express some confidence in having access to quality health care in retirement (64%), being able to pay for medical expenses (70%), being able to pay for prescription drugs (71%), and expecting good health throughout their retirement (65%).
In comparison, fewer feel they will be able to pay for long-term care (55%) such as nursing home or home health care should they need it during their retirement.
The lack of confidence about having enough money for long-term care can be found across all of the countries surveyed. In three countries in particular—the UK, Germany and Italy— fewer than half of the respondents express this confidence. In fact, in all ten countries, the level of confidence expressed regarding ability to pay for long-term care is the lowest of the five health-related questions presented in this general category.
Sources of Health Care Financing
As was the case with retirement income, respondents believe that government-sponsored health-care programs will play the primary role in funding their health-care costs during retirement. Almost half of all respondents (47%) feel these programs will pay for all or most of their health care in retirement, with only 17% seeing no role for this funding source.
Nonetheless, about one in three respondents (35%) believe that most or all of their health-care costs during retirement will be paid from their own savings. In line with the previously reported low rating of family as a major income source in retirement, very few believe that their family or a caretaker would pay all (5%) or most (7%) of their health-care costs in retirement.
Again, this varies by country. Italians and Germans are most likely to see government sources paying some or all of their health-care costs during retirement (71% and 58%, respectively), whereas few Americans (29%) believe the government will pay most or all of these expenses.
Surprisingly, nearly one in three Americans (31%) say that government-sponsored health care will pay none of their health-care costs in retirement, despite the presence of Medicare and Medicaid and the role these programs play in covering current health-care costs of older persons in the U.S.
Confidence in Government
Despite the expectation of at least some government support for retirement income and health care, residents of all ten countries are consistent regarding their lack of confidence in the ability of their governments to provide these benefits in the future.
With regard to health care, there is low trust in the government’s current ability to provide even current retirees with health-care benefits. The overall rating of trust in the current system is at an average of 4.5 on a 10 point scale (with 10 representing “total trust” and 0 representing “absolutely no trust”). Trust is even lower when it comes to covering future retirees’ health care benefits. This received an average rating of only 3.8 on the 10 point scale, a drop of 1.2 points.
Trust in government’s current ability to pay the public pensions of current retirees is only slightly higher (an average rating of 5.0), but trust in its ability to pay public pensions in the future declines to an average of only 3.9 (a drop of 1.1 points).
While there are differences across countries, respondents in every country have less trust that their government will be able to pay retiree health benefits or public pension benefits to future retirees. The survey also suggests that people who reside in countries that have undergone substantial reforms may have less trust in their government’s ability to pay retiree benefits than people in countries that have not experienced such changes.
Moreover, public pensions are not regarded as providing a very adequate retirement income. This finding is consistent from a public policy perspective, given that in many instances public pensions are designed to serve as only one of the three major sources of retirement income and security.
Our study found that a large percentage of individuals (42%) expect public pensions to be a major source of their retirement income. Can retirees live comfortably on these pensions? The feeling is a resounding no—only 20% feel the public pensions in their countries enable people to live comfortably in retirement. In contrast, over three in four respondents (77%) say that retires cannot live comfortably on public pensions. 90% of Japanese, 85% of Americans, 83% of Italians and 81% of those in the UK feel their public pension is not a sufficient source of income to live 25 years in retirement. These opinions are held regardless of income, age, marital status, or level of education.
Work and Retirement
So, how do people reconcile this? One way is to continue working. While retirement is typically viewed as a time to stop working completely, less than one out of three respondents (31%) across all countries in this study plan to do that. Italians (53%) are the most likely to say they expect to stop working; in fact, Italy is the only country in which a majority plan to stop work completely.
The U.S. has the lowest percentage of individuals who plan to stop working completely when retired—only 14%. The most frequently mentioned retirement activity for U.S. respondents is working part-time (34%). When looking across all countries, the majority view some amount of work as part of their so-called retirement. The more frequently mentioned options include working part time (19%), alternating between periods of work and leisure (16%), and volunteering (17%).
Why do people wish to continue to work after retirement? Interestingly, money is not the prime motivator, coming in third among four options presented—only four in ten (37%) rate “money” as being “very important” in their post-retirement employment plans.
The primary reasons people expect to work after retiring is that they want to stay involved and connected (45%) and they enjoy work (43%). These reasons for working after retirement are of nearly equal value to employed individuals, those who are not currently working and current retirees.
Policy Solutions to Retirement Challenges: An Emerging Consensus
All of these findings point to a major international political challenge in determining how countries will adapt their current income security and health insurance systems to meet the needs of future retirees.
When we asked about this, we found that an overwhelming percentage overall (94%) believe that government programs have at least some responsibility in supporting retirees: 43% contend government has the primary responsibility, and 51% say that it has some responsibility.
About one in three (34%) say that individuals themselves should bear the primary responsibility for supporting themselves when retired, followed by one in five (19%) who feel that employer-based programs should bear this responsibility. Interestingly, there is no difference in these opinions by retirement status—nearly identical percentages of the retired and employed believe that government programs should bear the primary responsibility for supporting retirees.
We also find consensus across all countries that government programs, employer-based programs and individuals have a shared responsibility—all should bear at least some responsibility for supporting the retired. In Italy, Sweden, Japan, France and Germany the prevailing opinion is that government should be primarily responsible. In the remaining countries, respondents are more likely to believe that government should bear some of the responsibility. Nonetheless, government programs still receive the highest ratings across all countries.
Policy Solutions
This really leads us to the question of balance and risk. Countries need to re-examine policy options and have a national discussion about what people want from their government and how much they are willing to pay.
In our survey, we wanted to examine public opinion about various options that would ease the stress on public pension systems. So, we presented a list of options and asked respondents to choose which ones they found acceptable, and to what degree they would be acceptable.
By a substantial margin, raising the taxes of higher paid workers is generally seen as the most acceptable choice for the government to make in order to maintain public pension funds—two out of three respondents (68%) rate this alternative at least “somewhat acceptable”. Perhaps not a surprise.
In the aggregate, increasing the size of the labor force by allowing more immigrants into the country to work (49%) and shifting to private savings accounts (49%) are also moderately acceptable. The least acceptable choice is raising the retirement age required to qualify for public pensions. Only one in three (33%) said this alternative is at least somewhat acceptable.
These findings vary significantly by country:
Education level is also a factor in explaining the acceptability of different policy options. Respondents who have college degrees are far more likely to accept allowing more immigrants into the country to work (62% of those without college degrees). And, they are also more likely to accept raising the retirement age required to receive benefits (40% versus 30%), shifting to private accounts (55% versus 47%), and raising taxes for everyone in the workforce (43% versus 35%)
The Public Challenge to Policy Makers
Our results show a disturbing lack of confidence across countries government’s ability to pay public pensions. While a large percentage of our respondents expect to rely on public pensions as a major source of income during their retirement, the overall level of trust that they have in their government’s ability to pay public pensions to current and future retirees is greatly lacking. Overall, only 17% of the total respondents rated their trust in the government’s ability to pay benefits to current retirees as an “8” or higher on a ten-point scale. Only seven percent of total respondents rated their trust in their government's ability to pay future pensions as “8” or higher.
This lack of confidence has been found not only among the general public, but also among opinion leaders. A recent AARP study of opinion leaders in G7 countries found that over half (56%) of the leaders surveyed do not feel their nations’ public pensions/retirement benefits will enable the average retiree to live comfortably in retirement. Opinion leaders in Italy, Canada, and the UK were the least confident that retiree’s pension benefits would be sufficient for an older person to live comfortably.
Conclusion
In conclusion, global increases in longevity and rising health-care costs mean that government spending for retirement and health programs will put increasing pressure on government budgets. The findings of this survey show that people in ten developed countries view their retirement with guarded optimism. A surprising number, however, have given their retirement little or no thought, and a large proportion do not feel very well informed about the things they need for a happy and successful retirement.
Many persons polled in the study also expect that public pensions and health-care benefits will play a primary role for their retirement security. Yet, they lack confidence that their governments will be able to provide these benefits in the future. Therefore, many are not confident that they will have enough money to live comfortably through retirement.
While attitudes toward retirement differ considerably from country to country, there are some areas of consensus regarding the challenges, which are substantial.
However, the findings also suggest potential remedies.
The overall challenge for all governments will be to make a genuine effort to promote greater understanding of retirement security issues, open a real debate, engage their citizens in finding and agreeing to solutions, and to close the gaps between the current situation, the future outlook, and the preferences and expectations of their populations.
While the citizens in these countries do not view government as the sole source of support for the elderly, they still expect government to be a significant source of support in their old age. Combining the views of the public found in this International Retirement Security Survey with those of Opinion leaders in the 2004 G7 survey, governments in developed countries need to take appropriate actions and build confidence that they will meet their future commitments by preparing now for their rapidly growing aging populations.