Amidst recent strikes in France regarding changes to the retirement system, the question arises: Is retirement better in America? President Emmanuel Macron’s controversial plan to raise the retirement age from 62 to 64 has sparked nationwide protests. However, comparing retirement systems between France and the United States is complex due to differences in income, cost of living, cultural expectations, and the role of the state in supporting retirees.
Retirement Systems: Contrasting Approaches
The United States offers retirement income through various sources such as Social Security benefits, company-sponsored programs like 401(k) and individual retirement accounts (IRA), and private pension plans. Social Security benefits are determined by earnings history, the age at which benefits start, and are adjusted for inflation. Participation in programs like 401(k) and IRA is voluntary, and contributions may be matched by employers. The average monthly Social Security retirement benefit in 2023 is estimated at $1,827.
France’s retirement system consists of three main components: a state pension, a mandatory supplementary pension for private sector workers, and voluntary private pension plans. The state pension’s value is calculated based on factors like average earnings and contribution period. Both employees and employers contribute to the compulsory supplementary plan. Voluntary private pensions play a smaller role in the French retirement market. The average monthly state pension payment in France is approximately $1,327, excluding supplementary and private plans. French workers earn an average of $43,000 per year, compared to $60,000 in the United States.
Retirement Age and Access to Benefits
In the United States, access to Social Security retirement benefits starts at 66 years, gradually rising to 67 for those born in 1960 or later. Early retirement at a reduced benefit is possible at age 62. In France, the retirement age for state pension eligibility is 62 for those born in or after 1955. From September, it will increase to 64 for those born in or after 1968. Early retirement at age 58 is available under certain conditions.
Average Retirement Age and Net Pension Replacement Rate
The average retirement age for individuals in OECD countries is 63 for women and 64 for men, based on entering the labor market at age 22. The net pension replacement rate, which indicates the percentage of average post-tax income received during one’s working life, is crucial for maintaining a standard of living in retirement. The OECD average net pension replacement rate is 62%. In the United States, it is 50%, while in France, it is 74%. South Africa has the lowest rate at 16%, while Brazil has one of the highest at 97%. Experts suggest a net replacement rate of 70-80% to sustain a comfortable retirement, with Social Security benefits typically covering 40% of this amount in the United States.
Income Poverty in Retirement
Income poverty in retirement is defined as having less than 50% of a median household’s disposable income. In the United States, 18% of Americans aged 65 or older live in retirement poverty, with a higher percentage among women (26%) than men (20%). In France, the figure is 8% for individuals aged 65 or older. France spends approximately 14% of its GDP on public pensions, while the United States allocates 7%. Experts acknowledge the more generous nature of the French retirement system compared to the United States, citing factors such as the insufficient retirement savings of many Americans.
In conclusion, comparing retirement between France and the United States reveals distinct differences in systems, benefits, and outcomes. The French retirement system offers a higher net pension replacement rate and a lower incidence of income poverty. However, it is important to consider factors such as income, cost of living, and cultural expectations when evaluating the overall retirement experience in each country.