The US might do well to follow the example of foreign retirement income systems in its approach to fixing Social Security.
That would require stepping back and looking beyond Congress’s current partisan dysfunction, says Olivia Mitchell, Wharton professor and Pension Research Council executive director Olivia Mitchell.
Advisor One’s Gil Weinreich interviewed Mitchell, a foremost authority on US and international private and social insurance.
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Mitchell says the US should review how much workers are contributing to the Social Security system. Australian workers are in a mandatory phased-in contribution rate that began at 9% and will work its way up to 12% by 2020.
Chile has a mandatory contribution of 10%. By contrast, the US contribution rate is 3% or 4%.
Mitchell says contributions in the US should be 20% because of increasing longevity, lower investment returns, and the resulting increase for retirement funding.
The US system also is designed to primarily benefit low-wage workers who will be destitute in their old age. Those same workers may have limited ability to contribute. The Medicare system—another low-wage benefit—also penalizes workers if they save money by making them pay a higher premium.
The Australian program is means tested so that workers who have too much income or assets do not receive benefits.
New Zealand has a flat-rate program that offers retirees a fixed amount of money, regardless of savings or income.
The amount is not significant so it encourages people to keep working as long as possible.
She says the only choices for the US are to save more, retire later, or consume less.