PDA

View Full Version : Australia's answer to the U.S retirement crisis




aGameOfThrones
10-21-2013, 11:35 AM
You know that retirement crisis America’s facing? (More than half of U.S. households risk being unable to maintain their standard of living in retirement.…Social Security is due to run short of money by 2033.…About a third of workers aren’t offered retirement plans. …)

Now imagine living in a country where all employees are covered by an employer-sponsored retirement plan. Where the government equivalent of Social Security is generous. Where people don’t tap their retirement funds early, as many Americans do, running the risk of depleting their savings. Where the savings rate is 10%.

What Australia is doing right

Lately, I’ve been hearing a lot about Australia’s highly rated system (tied with the Netherlands for the second best in the world, behind Denmark, according to the Melbourne Mercer Global Pension Index). So I decided to find out more about it and see what America could learn from our friends Down Under. Turns out that if we take a page or two from Australia’s playbook, we might be able to junk the phrase “retirement crisis” when talking about what we’ll face when we stop working full-time.

There are three pieces in Australia’s retirement system:

The Age Pension: That’s their version of Social Security and it pays up to about $28,000 a year to people roughly 65 and older. (The age is scheduled to rise to 67 in 2023). Australians don’t pay into the system as we do with Social Security; the money comes from the government’s general revenues.

Unlike Social Security, the Age Pension is means-tested; benefits are reduced for Australians with high incomes or substantial assets, using a sliding scale. About 56% of people get the full pension; the rest get a reduced version.

Qualifying for the Age Pension also entitles recipients to valuable government-provided benefits, like discounted prescription drugs and transportation expenses.

A mandatory retirement saving program known as The Super (short for Superannuation Guarantee) This is the linchpin to Australia’s retirement system. With The Super, employers are required to contribute into tax-advantaged retirement plans, like 401(k)s, 9.25% of earnings for virtually all employees age 18 to 70. That percentage will gradually rise to 12% by 2020. Employees choose where to invest the money.

Earnings are taxed 10% as they accrue and there’s a 15% capital gains tax on profits from investments held more than a year. But as with America’s Roth IRAs, retirement withdrawals are tax-free. Australians can begin taking the money at 55, if they’re retired.

Unlike 401(k)s, loans from the Saver aren’t permitted and pre-retirement withdrawals are generally forbidden. (One reason Australia could get away with these tough rules: its public health system prevents residents from getting socked with huge medical bills, as can happen in the U.S.)




http://www.marketwatch.com/story/australias-answer-to-the-us-retirement-crisis-2013-10-21?siteid=yhoof2

Zippyjuan
10-21-2013, 03:47 PM
Australians don’t pay into the system as we do with Social Security; the money comes from the government’s general revenues.

Which of course comes from money people paid into the government- AKA taxes.

emazur
10-21-2013, 07:02 PM
Which of course comes from money people paid into the government- AKA taxes.

Our money comes straight out of the "lock box" and goes directly into the government's general revenues (where it is immediately spent). I'm not sure what the author's point was (unless he believes the myth of the lock box)