Retirement in the United States has been transitioning for some time from a defined benefit system to one that is largely supported by defined contribution plans. Other countries are in similar transitions, with some farther along than others, Vanguard noted in a report released in January.
At one end of the spectrum is Australia, where the compulsory superannuation system is mostly DC-oriented, Vanguard wrote in the report. On the other end is the U.K., which has recently started gravitating toward a DC-supported private system, though most pre-retirees and recent retirees will get the majority of their benefits through a DB plan, according to the report. The other countries included in the report, Canada and the U.S., are at different points in the middle of the spectrum.
Vanguard surveyed people between 55 and 75 years old who either had retired in the prior 10 years, or were planning to retire in the next 10 years. Respondents had a minimum $50,000 (in their respective currencies) of investable assets. The survey was conducted in October and November 2015 among more than 5,660 households.
The report found retirees tend to be more satisfied with their financial situation and more confident than pre-retirees, particularly in the U.K. Vanguard believes this is at least partly due to “the resolution of the psychological uncertainty that comes with navigating the transition to retirement.” Furthermore, pre-retirees were more likely to call their financial situation complex.
Retirees were more likely than pre-retirees to feel good about their budgeting and cash flow, with U.K. retirees again reporting the most comfortable situation. More than 40% of U.K. retirees said they could spend freely, compared with approximately a quarter in other countries.
About half of pre-retirees in the U.K., Australia and Canada, and nearly 60% of American retirees, said they believe their country is in a national retirement crisis. However, between 6% and 12% of pre-retirees said their own situation was looking so dire.
That me-versus-them gap is consistent across all four countries, which Vanguard believes reflects the “relative affluence” of the survey sample.
Sources of Income
In the U.S., U.K. and Canada, government pensions are the most common source of retirement income, with between 89% and 95% of pre-retirees saying some of their income will come from government benefits. Retirees’ responses were similar, with between 77% and 84% saying they received income from the government. Employer-sponsored pensions were less common, especially (and unsurprisingly) among pre-retirees.