Yahoo Finance Social Security Cuts: 10 Countries America Should Learn From
As per the Social Security and Medicare Boards of Trustees, Social Security benefits are expected to be payable in full on a timely basis until 2034 — when the trust fund reserves are projected to become exhausted.
Millions of people paying into potential retirement benefits are worried that the well will run dry by the time they reach retirement age, even with raising the retirement age. With all the costs of healthcare, health insurance programs, disability benefits and just the general cost of living, cuts to Social Security could have devastating repercussions.
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But why are Social Security’s funds running dry? Carla Adams, founder and financial advisor at Ametrine Wealth, explained it like this: “The Social Security system has more money going out to pay benefits than it has money coming into it from those currently working and paying their payroll taxes, so the system is currently paying out from its reserves to deliver on its promised benefits.”
With the U.S. grappling with the ongoing challenges surrounding the Social Security Administration and system, examining successful models from other countries can offer valuable insights and potential solutions. Here are 10 countries the U.S. could learn from.
Australia’s Superannuation System
Australia’s Superannuation System, established in 1992, mandates employers to contribute 3% of employees’ earnings to individual retirement funds. Over time, this guarantee has risen to 10% and will increase to 11.5% on July 1, 2024, and 12% on July 1, 2025. Australia’s mandatory long-term savings system helps employees accumulate funds for their retirement and achieve financial freedom during their golden years.
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Canada’s Pension Plan
The Canada Pension Plan (CPP) is a monthly and taxable benefit that could replace part of your income when you enter retirement. If you’re eligible, you could receive the CPP retirement pension for as long as you’re alive. But to qualify, you must be at least 60 years old and have made at least one valid contribution to the CPP. Valid contributions can be either from work you did in Canada or as the result of receiving credits from a former spouse at the end of the relationship.
According to the government of Canada, the maximum monthly pension amount you could receive if you start your pension at age 65 is $1,364.60 in 2024 — which isn’t a lot, but it is guaranteed income. This could be a better system than Social Security trustees paying into a potentially defunded program in the future.
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Sweden’s Pension System
Sweden’s Pension System is a multi-pillar model comprising three parts: public pensions, occupational pensions and private savings. The national public pension is based on your total income. Each year that you work and pay taxes in Sweden, you earn toward your national public pension. In other words, the longer you work, the higher your monthly pension payment will be once you retire.
Most people in Sweden also receive an occupational pension from their employer and can choose to save privately for their pension through a bank. Sweden’s three-tier system ensures retirees receive a basic income, supplemented by employer contributions and additional private savings for a secure retirement.
Singapore’s Central Provident Fund (CPF)
Singapore’s Central Provident Fund (CPF) is a comprehensive social security system that allows working Singapore citizens and permanent residents to set aside funds for retirement. Employees and employers contribute a percentage of the employee’s income to the CPF. These contributions are then allocated to different accounts, including the Ordinary Account (for housing, insurance and education), Special Account (for retirement and investments) and Medisave Account (for healthcare).
If you’re under 55 years old, you earn up to 5% interest on the first $60,000 of your combined CPF balances. And if you’re 55 and older, you earn up to 6% interest on the first $30,000 of your combined CPF balances and up to 5% on the next $30,000.
Norway’s Government Pension Fund Global (NPFG)
Norway’s Government Pension Fund Global (GPFG) is funded by the country’s oil revenues, managed by Norges Bank Investment Management. This fund was initially established in 1990 after Norway discovered oil in the North Sea and now serves as a long-term savings plan to ensure Norway’s current and future generations can benefit from the country’s oil wealth. As of Jan. 16, 2024, the fund’s market value is around 16,000 billion Norwegian Krone (1.5 trillion USD).
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Germany’s Riester Pension
The Riester Pension is a government-sponsored private pension scheme in Germany that provides tax benefits and subsidies to employees. It aims to supplement state pensions, promoting Germany’s long-term savings for retirement.
Here’s how the Riester Pension works: During your working years, you pay contributions into a private pension contract or bank savings plan. You receive state subsidies and tax breaks as a reward for socking away money for retirement. The subsidy consists of a basic allowance of €175 per person and €300 for each child per year. Once you reach retirement age, you’ll then receive life-long monthly benefits paid in the form of a pension or a disbursement plan.
Netherlands’ Collective Defined Contribution (CDC) Schemes
The Netherlands’ Collective Defined Contribution (CDC) schemes are pension plans where contributions are pooled and invested, and investment risks are shared. In a CDC scheme, both the employer and employee contribute to a collective fund which provides an income in retirement. However, instead of promising a fixed pension amount, the plan aims for a target. If investments do well, great. If not, adjustments are made later.
New Zealand’s KiwiSaver
New Zealand’s KiwiSaver is a voluntary retirement savings program where employees contribute a percentage of their income, and employers match. The program is available to all New Zealand citizens and permanent residents, and you’re automatically enrolled into KiwiSaver if you’re starting work with a new employer and are between the ages of 18 and 65. Besides the minimum employer contribution match of 3% of your before-tax pay, the government may contribute up to $521.43 into your account each year as well.
Japan’s Public Pension System
Japan’s Public Pension System consists of two tiers: a basic, flat-rate scheme and an earnings-related plan. Contributions are mandatory for all employees and self-employed individuals ages 20 to 59 years old who have an address in Japan. As of January 2024, the contribution amount for the National Pension is ¥16,520 per month, and the maximum pension payment in retirement is ¥795,000 per year.
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United Kingdom’s Pension Auto-Enrollment
United Kingdom’s Pension Auto-Enrollment program requires employers to enroll employees into a workplace pension scheme if they’re eligible for it. This system is designed so that eligible employees can start building their nest eggs without having to take any action themselves. Employers must automatically enroll an employee into a pension scheme and deduct their pension contribution from their salary if they meet all of the following requirements:
They’re classed as a worker.
They’re between ages 22 and State Pension age.
They earn at least £10,000 per year.
They ordinarily work in the U.K.
Caitlyn Moorhead contributed to the reporting for this article.
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