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New column: Yes, I am obsessed with Dutch people's pensions

My latest column is in the issue of Time with Mike and Arnie on the cover and online here. It begins:

In early June, the Organization For Economic Cooperation and Development (OECD)--the club of the world's wealthy and almost wealthy nations--released a 208-page document perversely titled Pensions at a Glance. Inside is a rundown of how generous OECD members are to their burgeoning ranks of retirees.

The U.S. is near the bottom, with the average wage earner able to count on a government-mandated pension for just 52.4% of what he got (after taxes) in his working days--and higher-income workers even less. But the picture at the other end of the scale (dominated by Continental Europe) is misleading. Most of these governments haven't put aside money for pensions. As the ranks of retirees grow and workforces do not, countries will have to either renege on commitments or tax the hides off future workers.

What the OECD data seem to suggest is that you can run a retirement plan that's fiscally sound but stingy, or you can make big promises that will eventually go sour. The U.S. fits mostly in the former category--for all the gnashing of teeth about Social Security, its funding problems are modest by global standards.

But is that really the choice? Actually, no. At least one country appears to have found a better way. In the Netherlands--"the globe's No. 1 pensions country," says influential retirement-plan consultant Keith Ambachtsheer--the average retiree can count on a pension equal to 96.8% of his working income. Ample money is set aside to fund pensions, and it is invested prudently but not timidly. Companies contribute to employees' accounts but aren't stuck with profit-killing obligations if their business shrinks or the stock market tanks. Read more.

The Dutch retirement system, which I've already briefly discussed in this blog, is made up of the same three "pillars" as the U.S. version is supposed to be: a pay-as-you-go government pension, prefunded corporate pensions and personal savings. The big difference is that Dutch politicians took the second pillar seriously and made sure that (a) the entire workforce is covered (except for the self-employed, and they're trying to fix that) and (b) your pension moves with you if you switch jobs. I'm not sure how the U.S. can get there from where we are now, but I'll be posting more on the subject in the coming days. Whether you want to read about it or not.

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  • 1

    This article is a waste. Why do people spend so much time talking about pensions and retirment? I think ending Social Security for the most part would be better. Let people invest their own money and finance their own retirement. The government doesn't need to be worried about individuals' retirements. If people were not so lazy and uninformed, retirement planning would not be a problem. I could make more by investing my own money than waiting for a government check. You have to opt-in Social Security, or at least have a way to opt out of it.

  • 2

    The government ends up getting involved in retirement because (a) lots of otherwise hard-working and well-informed citizens struggle with saving adequately and investing wisely for retirement and (b) it's wildly inefficient for every individual to have to deal separately with the risk of living longer than expected.

  • 3

    "lots of otherwise hard-working and well-informed citizens struggle with saving adequately and investing wisely for retirement"

    So what? This should be their own problem. The government doesn't promise jobs to everyone. Why should they guarantee retirement money?
    ____

    "it's wildly inefficient for every individual to have to deal separately with the risk of living longer than expected"

    Everyone is not meant to retire. The concept of Retirement itself is a self-indulgent and absurdist idea. Working until ill health or death take over are the best thing for most people. If people are living longer, they should work longer. Social Security is a waste.

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