The Best Retirement Plan: Retire Like a European Socialist in the U.S.
Believe it or not, some European countries have the most secure retirements. However, Americans can emulate their type of financial security using their own resources here.
According to the 2019 Natixis CoreData Global Retirement Index, seven of the top 10 best countries for retirement are located in Europe, out of all the nations analyzed in Natixis’ study.
The index ranks countries based on four themes covering key aspects for welfare in retirement:
- Having good health and access to quality healthcare
- Having enough material means to live comfortably
- Having access to quality financial services
- Living in a clean and safe environment
Top nations for retirees in 2019 include Luxembourg, Australia, Canada, Denmark, Sweden, New Zealand, Ireland, Norway, Switzerland, and Iceland.
Key factors contributing to European countries’ high rankings include high per capita wealth, sound financial systems, universal healthcare systems, and government policy geared toward ensuring high standards in terms of the environment and overall well-being of citizens.
The United States, meanwhile, is benefiting from increasing economic stability but is negatively impacted by government indebtedness, rising inflation rates, income inequality, and a healthcare system that doesn’t live up to its highest-in-the-world expenditures.
The Three Legs of a Retirement Stool
Employers, governments, and individuals comprise the three legs of the global retirement savings stool, and each has a role to play in improving the state of savings around the world.
In most countries, a secure retirement depends on an individual receiving benefits from the three legs of that stool. In the United States, that means Social Security and Medicare from the government, and pensions or savings plans through your employer (as well as personal savings).
However, savings rates are lower than they need to be in the United States and traditional pensions are becoming a thing of the past. With retirees increasingly needing to take control of their financial future, here are a few steps to take for a safe, financially secure retirement in the U.S.
1. Have a Financial Plan
Responsibility for financial security in retirement is falling even more heavily on individuals than ever before, according to the Global Retirement Index—a trend that’s likely to continue as government resources in countries around the world become scarcer and budgets continue to be strained.
Leading up to retirement, meeting with a financial advisor, and carefully planning a retirement path could be the most important steps someone could take to achieve financial security later in life.
“It is becoming increasingly apparent that to ensure financial security in retirement, individuals need to take personal ownership of their destiny and view planning and saving for retirement as a serious, conscious and strategic pursuit,” the Natixis report says, adding that the role of the financial advisory community has “never [been] more critical.”
2. Optimize Social Security Benefits
Social Security benefits are an important part of many Americans’ retirement income.
That’s why optimizing Social Security benefits can be crucial to achieving a secure retirement. The average Social Security retirement benefit in June 2019 was about $1,470 a month, or about $17,640 a year.
“While many structural factors determine retirement security, individual savers and investors should focus on the factors that remain in their control – namely saving for their futures; obtaining and following professional financial advice; and acting to minimize external risks to the extent possible,” says Natixis in the report.
3. Save, Participate in Employee Plans and Create an Income Stream for Yourself
Many of these European countries have pension plans that enable their citizens to retire with a guaranteed income stream.
Pensions in the United States are now difficult to come by. It is therefore important that you save robustly for retirement on your own and know how to turn those savings into an income stream. A lifetime annuity is one way to guarantee your retirement income stream.
4. Plan for Healthcare Costs and Be Proactive About Your Healthcare
Even if the U.S. government does spend a lot of money on healthcare, many retirees are surprised by the high out of pocket costs of healthcare, even with Medicare. And much has been written lately about the shortages of doctors serving Medicare patients.
One way to protect yourself is to explore Medicare Supplemental insurance, which can minimize your out of pocket expenditures and may help you get appointments with the doctors you choose.
5. Utilize All Your Assets—Including Home Equity
A large portion of lower- and middle-income households’ net worth is tied up in their homes.
For people whose homes are their biggest assets, it may make sense to explore ways to tap into that value. One way to do so is with a Home Equity Conversion Mortgage (HECM), a federally-insured loan program that allows homeowners age 62 and older to borrow against the equity they’ve accrued in the form of a non-recourse loan.
Proceeds from a HECM, also called a reverse mortgage, can be received in a few different ways, including as a lump sum, monthly payments, or a line of credit. The loan can help older homeowners improve their monthly cash-flow situation, pay off an existing “forward” mortgage, or afford in-home care or home repairs.
A 69-year-old with a house worth around $250,000 with no existing mortgage could qualify for monthly payments of approximately $700 with a reverse mortgage, according to New Retirement’s reverse mortgage calculator.