What Americans Can Learn From the Rest of the World About Retirement

 

By Reshma Kapadia

Sept. 7, 2019

The idea of moving into a nursing home is abhorrent to most Americans, but many older Swedes have to lobby to get into one. Aging parents in the U.S. may remind their adult children to visit them, but China requires it by law. Visit playgrounds in Japan and you’ll find elder-friendly fitness equipment instead of monkey bars and slides. We are at the beginning of a global aging boom—and countries all over the world are facing the same challenges. Some are coming up with creative ways to address the looming retirement crisis.

There are more adults over 65 than there are children under 5, globally. And by 2050, one out of every six people—or 1.6 billion—will be over the age of 65, according to the United Nations’ latest estimates. That will be a big problem.

Cultural norms, demographics, and economic and political systems vary, but the challenge is the same: How do graying countries find fiscally sustainable ways to support longer life spans without bankrupting governments, overburdening the young, or abandoning those who need care?

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Japan is at the leading edge of the trend—28% of its population is already 65 or older—forcing it to tackle the challenge head on. China has a bit more time, but not much: Its society is aging faster than any other. Life expectancies lengthened by 30 years within a half-century. That’s roughly half the time in which Western industrialized countries saw that happen, giving China far less time to prepare. Even Sweden, which regularly ranks high on retirement-preparedness lists and as one of the happiest places for older adults, faces budgetary pressures as those over 80 become the fastest-growing part of the population.

"I'd love to tell you that dramatic cultural differences dictate differences in investment and interest, but ageism is a global challenge. If we don't tackle investing in prevention and wellness programs and extending the possibility of work lives, keeping people active and socially engaged, the costs are potentially overwhelming," says Paul Irving, chairman of the Milken Institute Center for the Future of Aging. "Population aging is something we can either ignore at our peril, or we can embrace the reality and change our policies, practices, norms, and culture and capitalize on it."

The magnitude of the demographic change is forcing a reckoning. At this summer’s G-20 meeting, the world’s top policy makers for the first time identified aging as a risk that needs to be addressed. No country has developed the perfect elixir, but a look around the world offers glimpses of what is working—as well as pain points that can inform how the U.S. tackles its own aging boom. Barron’s tapped policy watchers, academics, and experts on the aging industry globally to see which countries offer lessons for the U.S. in tackling various facets of aging, including working longer, retirement savings, long-term care, and caregiving.

Japan: A Guide to Working Longer

Japan has traditionally celebrated residents' 100th birthdays by sending them a sake bowl. Originally made of silver, the bowls are now silver-plated, as the crush of centenarians strains the budget. Japan is ground zero for aging: It has the world's longest life expectancy and a historically low fertility rate, which both contribute to labor shortages and put intense pressure on its pension system.

It also boasts one of the world's highest labor-force participation rates among older adults; 59% of men ages 65 to 69 are still working, compared with just 38% in the U.S. "Necessity often drives innovation," says Catherine Collinson, head of the nonprofit Transamerica Center for Retirement Studies. "There's a tremendous sense of urgency, given the extreme nature of its aging population and labor shortages that have prompted them to rethink working lives versus retirement, and seek out innovative solutions."

Japan has chipped away at the generosity of its national pension system for decades and has been gradually increasing the eligibility age—currently 65, though Prime Minister Shinzo Abe is considering raising it above 70. The retirement age in Corporate Japan is also changing. Mandatory retirement age used to be nearly a decade beyond the average life expectancy; but now, the retirement age is 60, and life expectancy is 84.

Japan has been providing incentives for companies to retain retiree-age employees, and it also requires companies to rehire those who still want to work after 60, though it can be at lower wages and responsibility levels.

But money is not the primary reason many Japanese work well past 65. Social engagement and a sense of ikigai—a view that one’s life is still worth living—rank high among the motivations to remain on the job, says Takaoh Miyagawa, an aging and retirement expert at life insurer Aegon Sony Life in Tokyo.

Consider Kamikatsu, a rural mountain village with a rapidly aging population. The residents revitalized its economy by creating a cottage industry—picking the colorful leaves that grow around town and selling them as garnish for Japanese cuisine and decorations. Kato Manufacturing hires retirees to work on the weekends and holidays to keep factories running continuously. Convenience stores and fast-food chains have proactively hired the elderly, and small businesses that have struggled to find talent amid a national labor shortage also have tapped retirees.

But Corporate Japan isn’t fully on board. Nearly 70% of older people want to work beyond the age of 65, but only 20% are actually employed, according to the AARP, the U.S. organization that focuses on issues facing retirees. The Japanese government is trying to change that, making expanding employment opportunities for older adults a key component of its national strategy to revitalize the economy. Its Silver Human Resource Centers offer short-term job opportunities in the community. They tend to be low-wage positions, but the program still represents the kind of strategy that the U.S. could emulate to help experienced workers remain productive and engaged, says Ramsey Alwin, director of AARP’s financial resilience thought leadership. Another way for Japan—and the U.S.—to employ older individuals is by offering more flexibility, opportunities to refresh skills, and lifelong learning, which would also help companies woo coveted younger talent, Alwin adds

Takeaway: It's an old, but true, bit of advice: When people work longer, they can continue to save, and their savings don't have to stretch as far. But what's possibly more important is the notion of ikigai : When older adults stay active and engaged longer, it lowers health-care costs. The U.S. could incentivize companies to hire the elderly, as well as devise a system to pair them with work and volunteering opportunities.

Australia: A Guide to Funding Retirement

Getting people to work longer is one way that countries can improve the living standards of the old without increasing the burden on the young. The other is to help employees save more during their working years. No country has perfectly balanced the two, but Australia's approach is one of the best, says Richard Jackson, founder of the Global Aging Institute. Indeed, Australia is among the highest-ranked developed economies, judged by the fiscal sustainability and income adequacy of its retirement system, based on the institute's research.

The U.S. has a problem on the fiscal sustainability front. Social Security is a major source of retirement income for a large swath of Americans, but the trust for those payments will be depleted by 2035 unless changes are made. Australia once faced a similar situation. In the mid-1980s, it warned its citizens of the tremendous economic risk ahead if its government-funded pension didn't morph into one largely funded by private savings.

In the midst of Australia’s last recession—28 years ago—the nation pushed through radical reforms and introduced a mandatory, fully funded employer pension system, known as the superannuation guarantee, or the “Super.” The pay-as-you-go account, launched in 1992, required a mandatory contribution from employers; it’s currently 9.5% but will rise to 12% of employees’ income in 2025.

Australia also instituted a means-tested, flat-rate Age Pension to ensure that everyone has enough income to sustain a basic living standard. This tops off any Super accounts that fall below a certain level. About three-quarters of retirees still get some benefit from the government. But by 2030, as Super accounts mature, only a single-digit share of the population will need the state benefit, reducing the burden on the country's finances, estimates Pablo Antolin-Nicolas, a pension expert and principal economist at the Organization for Economic Cooperation and Development.

For average wage earners in Australia, the system will replace an estimated 43% of their income in retirement. That is slightly lower than in the U.S. But the system also creates a safety net that doesn't exist in America, by giving everyone, even those who have taken time out for caregiving, a basic retirement income. Not having access to a work-based retirement plan is a major reason that some Americans don't have enough saved for retirement.

Australia also gradually has been raising the age at which people can tap the Super. For those born before July 1960, it's 55. For those born after June 1964, it's 60. Australia is increasing the eligibility age for the Age Pension, too, from 65 to 67 by 2023. In addition, it is more difficult for Australians to take loans against their Supers than it is for Americans to borrow from their 401(k) accounts.

Australia still has things to work out. Like the U.S., it is trying to find the best way to convert savings into income in retirement. While the Land Down Under has offered tax incentives for retirees to shift their Super accounts into a lifetime stream of income, many still opt for a lump sum. But Antolin says the government is working with the private sector on a solution, focusing on a hybrid strategy that includes an annuity that starts generating income at 80 or 85 years of age, plus a withdrawal strategy to give individuals financial flexibility earlier in retirement.

Takeaway: Australia's bold moves to put its retirement system on a more fiscally sound footing offer some ideas for the U.S. Among them: the value of gradually boosting the eligibility age for a pension and for tapping the Super; ways to keep people from raiding their savings; and, most importantly, a blueprint for creating a means-tested retirement safety net, alongside a pay-as-you go system with a substantial contribution rate and incentives for people to save even more.

Sweden: No-Guilt Long-Term Care

Long-term care can drain a lifetime's worth of savings in the U.S., not to mention the energy of family members who often provide the bulk of that care. But in Sweden, the government itself offers universal long-term care. The nordic nation, which puts a high value on individual independence, doesn't have the cultural expectation that children will provide caregiving for their parents and other relatives, as is the norm in countries such as China.

In fact, only 5% of Sweden’s elderly live in multigenerational households, compared with 20% in other developed countries, including the U.S. and Australia, and more than 60% in countries such as Mexico, China, and India. Sweden also has the second-highest female labor-participation rate—just behind Iceland—which means that women, who bear the brunt of the caregiving duties throughout the world, aren’t readily available to do so. “Everyone puts their parents in a nursing home, and it is also what the parents want,” says Marta Szebehely, professor of social work at Stockholm University, referring to older adults who need substantial assistance. Indeed, a 2015 survey showed that the majority of Swedes favored moving to a residential care facility if they needed aid more than twice a day.

Social Security Around the World

Most developed nations have a program to keep the elderly from becoming impoverished. Some plans are more successful than others.

But long-term care facilities in Sweden look different than nursing homes in the U.S. Whereas the model in the U.S. has typically been a hospital, in Sweden it's the family home, Szebehely says. Facilities tend to be smaller, with nine to 12 apartments along a corridor that share a common area where people can take meals. But apartments also have their own kitchens, even for dementia patients, so that family members can come and cook for them. The smaller units also makes it easier for care givers to know the residents and provide the flexibility to personalize care. All care, whether home-based or in a residential facility, is regulated, unlike in the U.S., where regulation outside nursing homes is spotty.

Sweden isn't exempt from challenges. Spending has not kept pace with the aging population, straining the system and reducing the number of available spots in residential facilities. Cutbacks mean that some older adults can end up waiting beyond the point when they feel they can live safely on their own, Szebehely observes.

Takeaway: The U.S. might benefit from developing long-term elder-care facilities modeled on the home, to allow personalization and flexibility. And finding ways to help Americans finance that long-term care is crucial.

China: A Guide to Caregiving

Whereas family bonds are voluntary, not obligatory, in Sweden, China has a very different approach. Filial piety is a central tenet of Confucianism and is entrenched in the culture; China passed a law in 2013 requiring children to visit aging parents.

While every society struggles with caring for the elderly, China gives new meaning to the words “caregiving crisis.” First, there are the sheer numbers: By 2030, 360 million Chinese—more than currently live in the U.S.—will be older than 60.

Already, no other country has to cope with so many families supported by so few children—a byproduct of the country’s former One Child Policy. The policy, in effect from 1979 through 2015, also has contributed to a gender imbalance, with researchers estimating there will be 30 million more men of marriageable age than women by 2020. Chinese women also now have higher levels of education and thus better career opportunities than prior generations did, making it harder for them to take on caregiving duties.

"There's a deeply entrenched system that to be a good person is equivalent to being a good son or daughter. This young generation desperately wants to look after their parents, but there's a deep inability to do so," says Zak Dychtwald, founder of research and consulting firm Young China Group. "It's an economic question, a political question, and a spiritual question."

Forty years ago, before China shifted to a market economy from a communist system, about 80% of the population lived in the countryside. Older adults lived with their families. Mass migration to the city has changed the family dynamic very quickly, says Wang Feng, a sociology professor at the University of California, Irvine, and a former director of the Brookings-Tsinghua Center for Public Policy. Now, more than half of older Chinese adults—100 million—don't live with their children.

With fewer family members tending to the elderly, China is just starting to build a long-term care industry. The government has prioritized improving health care for older adults, including long-term and rehab services. It has also called for the creation of at least one professional nursing home in every prefectural-level city. China has introduced policies to integrate community facilities like day-care centers for seniors, nursing homes, and home-based care at the neighborhood level to fill caregiving gaps.

In addition, Beijing is encouraging elder-care facilities to adopt technology, including tele-medicine, sensors and other monitoring devices to keep seniors safe, and beds that can turn into wheelchairs to alleviate the need for assistance getting up and about, says Timothy Ma Kam-Wah, the founding executive director of Senior Citizen Home Safety Association in Hong Kong.

These options have yet to gain traction.

China has been piloting programs that offer caregiver leave for only children, but take-up is low, as is the use of day-care centers. And while robots pop up in senior-care facilities, they are primarily offering entertainment.

Much of the development so far has been focused on cities and is not affordable to the masses, says Vivian Lou, an associate professor at the University of Hong Kong, where she focuses on caregiving. Adult children whose parents live in cities use technology to order their parents rides or groceries, and employ devices to help monitor them, but Lou worries about rural areas, as well as what happens when parents need help with feeding, bathing, or toileting.

Hiring live-in domestic help is expensive, as much as $1,000 a month in cities—that's roughly what a recent Chinese university graduate working in financial services for a multinational corporation earns. "Very few can afford domestic help," Lou says. "The caregiving burden will emerge as a social issue in five years and reach a peak within a decade."

That could push China to take more-aggressive actions, potentially offering the U.S. some ideas as it faces the same challenges, especially in tackling the urban-rural divide for elder care. "The risk of aging breaking both the U.S. and China and upending world economies is huge for both countries," says the Milken Institute's Irving. "If there's an argument for a collaborative relationship between the U.S. and China, aging might be it."

Takeaway: Coordinating home-based, residential, and community-based care can help reduce care costs. And while robots probably won't replace human care givers soon, age-related technology can make their jobs easier.

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