When Can You Finally Retire?

Posted on: June 28th, 2010 by

Financial Planning - Retirement - Rockville, MDTrying to reform retirement benefits has always led to volatile politics in Washington, but Europe proves to be no different.  Today, many debt burdened European countries, as well as the United States, are considering raising the age at which retirees can collect partial and full pension benefits.  Not surprisingly, the you know what is already hitting the fan.

Retirement ages vary between countries.  While many have set 65 as the official age that you can collect full benefits, some places favor an earlier break from the rat race.  Some groups of workers in Greece are now able to claim benefits in their 50s, while the retirement age for everyone else is 60 for women and 65 for men.  A planned overhaul of the system would change all that.  Greece, as part of its broader austerity plan, has committed to bringing the minimum early retirement age up to 60 for everyone.  This means that pension benefits for many will be reduced if they’re claimed between 60 and 65.

In France, 60 is the kick-off point for most people to collect full pensions IF they’ve worked 40 years.  Those who started work in their teens can collect benefits as early as 56.  But there is a proposal to raise the age to 62.  French unions last week expressed their disdain in a nationwide strike.  So chances are they won’t like hearing this: 62 may not be enough for the long run.

In Europe and the United States, life expectancy and time spent in retirement have been increasing, while fertility rates and the number of workers paying into the social security systems have been falling.  This, obviously, does not add up or bode well for younger generations.  In the late 1960s, men in Spain spent less than 10 years in retirement; now they spend more than 20.  In France, the time in retirement has risen from 10 years to almost 25.  The jump in the United States is also large, but not as drastic, from just under 10 years to roughly 18.

Of course, increasing the retirement age is only one piece of the pension reform puzzle that spurs controversy.  Changes to the taxes that support pension benefits and adjustments to the formulas that determine them are also on the table.  Many social security systems, like the one in the United States, are largely pay-as-you-go.  Workers and their employers pay into the system and that revenue is used to support present-day retirees.  Since public pushback can limit how much policymakers can do at any one time, and because unforeseen circumstances such as an economic crisis can create new concerns, pension reform is rarely a one-and-done deal.

Some countries that have embarked on reform in recent years, such as Sweden and Germany, created fail-safe mechanisms that automatically adjust benefits as needed to keep their systems solvent.  Whether those kinds of changes will be accepted in the United States isn’t at all clear. But what is clear is that when U.S. policymakers choose to take up Social Security reform, which they haven’t done since 1983, chances are that every proposed change will make for a tough fight with the American public.



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