Why is Australia’s retirement program better than Our’s?
An idea to fix Social Security – a look at Australia’s retirement savings system considered to be one of the best in the world
Sounds like a new word right? Well it’s quite familiar to Aussie’s because that is the name of their Retirement Savings Program. The Superannuation Guarantee program is so successful, that it’s worth more than Australia’s gross domestic product – $1.52 trillion. In comparison, the US has almost twice that amount in retirement savings – $2.8 trillion, but we have 14x the population!
So why does Superannuation work so well? To sum up:
– More than 90 percent of Australian workers put money into the system
– Beginning in 1992, the law required employers to divert 3 percent of most workers’ salaries into retirement accounts; the level has risen over time as the public has gotten used to the idea
– Withdrawals by people 60 and older are tax-free
Why else is this good for Australia?
According to Susan Thorp, a finance professor at the University of Technology Sydney – “If you have people making regular contributions from their wages, there’s always this steady stream of inflows into the capital markets. It’s money that comes into the market to purchase securities regardless of conditions. That has helped stabilize the Australian economy, which avoided a recession during the global financial crisis.”
Okay, enough about Australia, why don’t Americans have that much money saved for retirement?
– Only 40% of Americans who worked in 2012 participated in an employer’s retirement plan
– Americans have a bad habit of liquidating their accounts when they change jobs instead of rolling them over
Instead of trying to fix our system, why not implement Superannuation? In fact, Superannuation was recently endorsed by Larry Fink, chief executive officer of BlackRock, in a lecture to business school students at New York University recently. “Superannuation has been a huge success in supplementing the government pension scheme and taking the strain off it – an attractive prospect as we think about how to relieve the burden on Social Security in this country,” he said.
Original article “Retirement Saving Done Right” by Nick Summers, June 3, 2013, Bloomberg Businessweek.