What are the best countries for a comfortable retirement? What countries have the best retirement-income systems? It seems the answers to these questions are rather positive for Australian retirees.
The recently-published 2017 Best Countries survey from US News & World Report, BAV Consulting and the Wharton School at the University of Pennsylvania ranks Australia as the world's second-best country for a comfortable retirement – behind New Zealand and ahead of Switzerland, Canada and Portugal in the top five.
Survey respondents aged 45 years and up ranked the best countries for retirement on seven attributes: affordability, favourable tax environment, friendliness, “a place I would live”, pleasant climate, respect for property rights and a well-developed public health system.
The questions were asked in the context of where a person would consider moving to upon retirement if cost were no object. It is worth noting that the Best Countries survey did not seek views about the adequacy of a country's retirement-income systems.
Up to approximately 21,000 survey participants from around the world were asked to grade countries under such headings as best countries overall (Australia came eighth with Switzerland taking first place), best countries for women (Australia sixth), quality of life (Australia fourth), best countries to invest in (Australia 22nd) and best countries for a comfortable retirement.
The latest Melbourne Mercer Global Pension Index, as discussed by Smart Investing late last year, once again ranked Australia's retirement-income system third out of 27 countries assessed (accounting for 60 per cent of the world's population) in terms adequacy, sustainability and integrity. While Australia was given a B-plus, the front-runners – Denmark followed by the Netherlands – received A grades.
Australia's high rating in the pension survey was largely due to our “robust” superannuation system and Government-funded age pension, but “there was work to be done” to achieve an A grade.
Irrespective of each country's social, political, historical and economic influences, the pension report stresses that many of their challenges in dealing with an ageing population are similar. These include encouraging people to work longer, the level of retirement funding and reducing the” leakage” of retirement savings before retirement.
Although the suggestions of the Global Pension Index are directed mainly at government and the pension/retirement sectors, individuals may pick up useful personal pointers from most of its suggestions to, perhaps, discuss with a financial planner. In other words, consider taking a personal perspective on this global retirement-incomes challenge.
These personal pointers may include:
- Think about whether to work until an older age than initially intended. The longer a person remains in the workforce, the greater the opportunity to save for what will be a shorter and therefore less-costly retirement. (An individual's ability to work longer will much depend, of course, on personal circumstances including health and employment opportunities.)
- Try to save more in super within the annual contribution caps. And if self-employed, consider making voluntary super contributions. Unlike employees, the self-employed in Australia are not required to save in super.
- Think carefully before accumulating pre-retirement debt with the purpose of repaying it with super savings – it could reduce your standard of living in retirement. This is part of the pre-retirement “leakage” referred to by the Global Pension Index.
- Take your superannuation pension rather than a lump sum upon retirement if possible. This will keep your savings in the concessionally-tax or tax-free super system for longer and, most importantly, make your retirement lifestyle as comfortable as possible for as long as possible. The report for the Global Pension Index suggests that one possible way to improve Australia's retirement-income system might be to compel super members to take part of their super as a pension.
It's comforting that thousands of people around the world regard Australia as one of the very best places for a comfortable retirement if they could afford to shift to another country after leaving the workforce and cost was not a barrier. And it must provide a degree of comfort that Australia's retirement-income system is “relatively well placed” in the worlds of the Global Pension Index.
Unfortunately, other research has long shown that a large proportion of Australians have inadequate – often grossly inadequate – retirement savings.
As global retirement-income systems grapple with the demographic shift of an ageing population with declining birth rates and seemingly ever-greater longevity, individuals should be doing as much as they can to maximise their own retirement savings.
Head of Market Strategy and Communications at Vanguard.
19 March 2017