Across the globe, saving for retirement is a challenge. Longer lives and expensive health care create challenge to our natures (saving for far away needs is not easy for most of us to do – we are like the grasshopper not the ants, we play in the summer instead of saving). This varies across the globe, in Japan and China they save far more than in the USA for example.

The United States of America ranks 19th worldwide in the retirement security of its citizens, according to a new Natixis Global Retirement Index. The findings suggest that Americans will need to pick up a bigger share of their retirement costs – especially as the number of retirees grows and the government’s ability to
support them fades. The gauges how well retired citizens live in 150 nations, based on measures of health, material well-being, finances and other factors.

Top Countries for Retirees

• 1 – Norway
• 2 – Switzerland
• 3 – Luxembourg
• 6 – Finland
• 9 – Germany
• 10 – France
• 11 – Australia
• 13 – Canada
• 15 – Japan
• 19 – USA
• 20 – United Kingdom

Western European nations – backed by robust health care and retiree social programs – dominate the top of the rankings, taking the first 10 spots, including Sweden, Austria, Netherlands and Denmark. The USA finished ahead of the United Kingdom, but trailed the Czech Republic and Slovakia.

Globally, the number of people aged 65 or older is on track to triple by 2050. By that time, the ratio of the working-age population to those over 65 in the USA is expected to drop from 5-to-1 to 2.8-to-1. The USA actually does much better demographically (not aging as quickly) as other rich countries mainly due to immigration. Slowing immigration going forward would make this problem worse (and does now for countries like Japan that have very restrictive immigration policies).

The economic downturn has taken a major toll on retirement savings. According to a recent report by the U.S. Senate Committee on Health, Education, Labor and Pensions, the country is facing a retirement savings deficit of $6.6 trillion, or nearly $57,000 per household. As a result, 53% of American workers 30 and older are on a path that will leave them unprepared for retirement, up significantly from 38% in 2011.

On another blog I recently wrote about another study looking at the Best Countries to Retirement Too: Ecuador, Panama, Malaysia. The study in the case was looking not at the overall state of retirees that worked in the country (as the study discussed in this post did) but instead where expat retirees find good options (which stretch limited retirement savings along with other benefits to retirees).

See the full press release.

Related: Top Stock Market Capitalization by Country from 1990 to 2010 – Easiest Countries in Which to Operate a Businesses: Singapore, Hong Kong, New Zealand, USA – Largest Nuclear Power Generation Countries from 1985-2010 – Leading countries for Economic Freedom: Hong Kong, Singapore, New Zealand, Switzerland – Countries with the Top Manufacturing Production

Those that want to continue the policies of the last few decades of policies that tax our grandkids to pay for us living beyond our means seem to have won the day again. Not a surprise; very sad though.

In my reading stories on the wonderful success of “avoiding the fiscal cliff” seems to amount to passing the George Bush tax cuts again (except this time when in a much much worse budgetary position) and modifying the extent to which the absolute richest benefit from those cuts (so the richest don’t get quite as step cuts as they had been getting but still are getting big cuts from before the Bush tax cuts were made. And the recent trend of treating trust fund babies as the absolute most favored taxpayers was continued (though a few of the absolute richest trust fund babies will have to have some taxes withheld from their windfalls).

I haven’t read anything about them getting rid of the “hedge fund manager” tax favors. Did they? Did they even bother to change the law so retired managers don’t get the super huge tax favors too?

On the spending beyond our means issue they seem to have just decided that having the grandkids continue to fund our spending is wonderful.

If it were up to me I would have continued some of the Bush tax cuts (certainly not for those making more than $200,000 – unless we can cut spending way more than I would guess in which case I would be fine having taxes even for the richest few lowered). I would have continued treatment that reduced taxes owed on dividends and capital gains, though perhaps a bit less than they did. I would cap mortgage deductions (at say $50,000 a year or something).

I certainly would not have supported such massive Bush tax cuts without large spending cuts. If this level of spending is what we intent to do, we need to pay for it and not just bury our kids and grandkids with huge bills. Without spending cuts I would not have voted again for the Bush tax cuts, which seems to be the main extent of their “solution” (taking a bit of the tax cuts for the wealthiest off the plate but pretty much just passing Bush’s tax cut again).

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I am glad we have a “fiscal cliff” to finally get some reduction in the future taxes both parties have been piling on with abandon the last few decades. When you have enormous spending beyond your income, as the USA has had the last few decades, cutting current taxes is just raising taxes on your grandchildren to pay for your spending. Shifting taxes to your grand children is not cutting taxes it is shifting them to future generations.

If you want to really cut taxes you must cut taxes and not pass on paying for your cuts to your kids. It seems pretty obvious those that advocating cutting current taxes the last few decades were only interested in living beyond their means today and foisting the responsibility to pay to their grandchildren. That is despicable behavior.

The fiscal cliff is an opportunity to return to a budget that has the generation doing the spending paying the taxes (last seen in the Clinton administration). The fiscal cliff outcome is going to be far from perfect. But the result will be a much more honorable outcome than foisting ever increasing taxes on future generations to pay for our current spending.

Obviously, if you reducing how much you are adding to your credit card balance each month and start paying your bills that means you don’t get to live off your future earnings today. So you will suffer today compared to continuing to tax the future to pay for your spending.

I hope the compromise results in spending cuts and an elimination of the Bush generation shifting taxes (cutting taxes on the the current wealthy without spending cuts – so just taxing the future to pay for tax cuts today). It is unlikely the fiscal cliff results in us actually paying for our spending (the best possible result is not an elimination of adding to the taxes future generations must pay but just a reduction in the level of tax increases we are imposing on the future every year).

Lots of little things should be done to save a few billion (maybe it could add up to $50 billion a year if we are very lucky). But the serious spending cuts have to come from reductions in military spending, reducing waste in the health care system and making social security more actuarially sensible (social security is not part of the fiscal cliff discussions though). Reducing tax breaks also has to happen, unless absolutely huge spending cuts can be found which is not at all likely.

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Hong Kong again topped the rankings, followed by Singapore, New Zealand, and Switzerland. Australia and Canada tied for fifth, of the 144 countries and territories in the Fraiser Institute’s 2012 Economic Freedom of the World Report.

“The United States, like many nations, embraced heavy-handed regulation and extensive over-spending in response to the global recession and debt crises. Consequently, its level of economic freedom has dropped,” said Fred McMahon, Fraser Institute vice-president of international policy research.

The annual Economic Freedom of the World report uses 42 distinct variables to create an index ranking countries around the world based on policies that encourage economic freedom. The cornerstones of economic freedom are personal choice, voluntary exchange, freedom to compete, and security of private property. Economic freedom is measured in five different areas: (1) size of government, (2) legal structure and security of property rights, (3) access to sound money, (4) freedom to trade internationally, and (5) regulation of credit, labor, and business.

Hong Kong offers the highest level of economic freedom worldwide, with a score of 8.90 out of 10, followed by Singapore (8.69), New Zealand (8.36), Switzerland (8.24), Australia and Canada (each 7.97), Bahrain (7.94), Mauritius (7.90), Finland (7.88), Chile (7.84).

The rankings and scores of other large economies include: United States (18th), Japan (20th), Germany (31st), South Korea (37th), France (47th), Italy (83rd), Mexico (91st), Russia (95th), Brazil (105th), China (107th), and India (111th).

When looking at the changes over the past decade, some African and formerly Communist nations have shown the largest increases in economic freedom worldwide: Rwanda (44th this year, compared to 106th in 2000), Ghana (53rd, up from 101st), Romania (42nd, up from 110th), Bulgaria (47th, up from 108th), and Albania (32nd, up from 77th). During that same period the USA has dropped from 2nd to 19th.

The rankings are similar to the World Bank Rankings of easiest countries in which to do business. But they are not identical, the USA is still hanging in the top 5 in that ranking. The BRICs (Brazil, Russia, India and China) do just as poorly in both. The ranking due show the real situation of economies that are far from working well in those countries. China and Brazil, especially, have made some great strides when you look at increasing GDP and growing the economy. But there are substantial structural changes needed. India is suffering greatly from serious failures to improve basic economic fundamentals (infrastructure, universal education, eliminating petty corruption [China has serious problems with this also]…).

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Singapore is again ranked first for Ease of Doing Business by the World Bank.

The rankings include ranking of various aspects of running a business. Some rankings for 2011: starting a business (New Zealand 1st, Singapore 4th, USA 13th, Japan 107th), Dealing with Construction Permits (Hong Kong 1st, New Zealand 2nd, Singapore 3rd, USA 17th, China 179th), protecting investors (New Zealand 1st, Singapore 2nd, Hong Kong 3rd, Malaysia 4th, USA 5th), enforcing contracts (Luxemburg 1, Korea 2, Iceland 3, Hong Kong 5, USA 7, Singapore 12, China 16, India 182), paying taxes (Maldives 1, Hong Kong 3, Singapore 4, USA 72, Japan 120, China 122, India 147).

These rankings are not the final word on exactly where each country truly ranks but they do provide a valuable source of information. With this type of data there is plenty of room for judgment and issues with the data.

Related: Easiest Countries from Which to Operate Businesses 2008 – Stock Market Capitalization by Country from 1990 to 2010 – Looking at GDP Growth Per Capita for Selected Countries from 1970 to 2010 – Top Manufacturing Countries (2000 to 2010) – Country Rank for Scientific Publications – International Health Care System Performance – Best Research University Rankings (2008)

Us treasury yield hit a incredibly low level years ago and they have continued to fall further. Granted this is mainly due to the bailout of the economy necessitated by the politicians favors to the too-big-too-fail financial institutions that have given those politicians so much cash over the years. Other factors are at play but the extent of the excessive punishment of savers is mainly due to political bailouts of bankers and bailouts of the economy caused by the bankers actions.

This extremely low rate environment is crippling to many retirees. The small percentage that actually did what they were told to have been blindsided by years of artificially low rates (and it is likely to continue for years). This has pushed some that would have been comfortable in retirement into an uncomfortable one an has pushed some from a challenging balancing act to essentially having to eliminate every possible expense (and even that may not be enough).

I can’t believe long term bonds are a sensible investment now. Of course I haven’t thought they were for 10 years, but they are even worse now. Bonds of “strong” governments (USA, Germany, Japan) are paying less than inflation (sometimes even less than 0 nominally – I think this has just been for short term issues so far).

I cannot see putting more than token amounts into long term bonds at these rates. Corporate bonds are not much better. The economic damaged caused by out of control too-big-too-fail institution is huge and continuing. And the politicians that have been paid lots of cash by those too-big-too-fail institutions continue to treat the too-big-too-fail players are favored friends. The yields are corporate bonds are not good for companies that are strong.

The alternatives are not great. But real assets, strong dividend stocks, strong company stocks, and short term bonds seem like better options to me in many cases. And hope we elect people that will put the economic interest of the country ahead of a few well paid friends at too-big-too-fail institution. They also need to eliminate the captured “regulators” that have facilitated the continued wrecking of the global economy. I don’t hold out much hope for this though. We keep re-electing those given lots of cash by the too-big-too-fail crowd and they continue giving them favors. We are getting what we deserve given this poor performance on our part but it is pretty annoying having to watch us vote ourselves into economic calamity.

Related: Buffett Cautions Against Buying Long Term USD Bonds – Is Adding More Banker and Politician Bailouts the Answer? – Bill Gross Warns Bond Investors – Congress Eases Bank Laws (1999)

I do think there is merit to reducing yearly hours worked in the USA. The problem is this is all within a larger system. The USA’s broken health care system makes it extremely expensive to hire workers. One way to deal with the health care system failure is maximizing hours worked to spread out the massively expensive USA health care costs.

Also the USA standard of living is partially based on long hours (it is but one factor). We also have to work quite a few hours (about 5% of the total hours) to just bring us equal with other rich countries, in order to pay for our broken health care system.

Still reducing our purchases by cutting out some fancy coffee, a few pairs or shoes, a few cable channels (or all of them), text messages from overcharging phone companies… in order to have a couple more weeks of vacation would be a great tradeoff in my opinion. And one I have made with my career.

I have changed to part time in 2 of my full time jobs (to make my own sensible yearly hour model even if the bigger system can’t. Another time I bargained for more vacation time over more $. It isn’t easy to do though, most organizations are not willing to think and accommodate employees (hard to believe they respect people in this case, right?). The system is not setup to allow people to adjust total hours to maximize their well being.

Another option in the USA is to live within your means and then make your own sabbaticals during your career. Take a year off and travel the world, or hike the Appalachian Trail, or read trashy novels, or whatever you want.

Related: Medieval Peasants had More Vacation Time Than We Do – Dream More, Work Less – Vacation: Systems Thinking

Welcome to the Curious Cat Investing, Economics and Personal Finance Carnival. This carnival is different than many blog carnivals: I select posts on those topics from what I read (instead of posting those that submit to the carnival as many carnivals do). If you would like to host the carnival add a comment below.

Mushroom, Rocky Gap State Park, Maryland, USA by John Hunter

• The U.S. Content of “Made in China” by Galina Hale and Bart Hobijn (SF Federal Reserve) – “Goods and services from China accounted for only 2.7% of U.S. personal consumption expenditures in 2010, of which less than half reflected the actual costs of Chinese imports. The rest went to U.S. businesses and workers transporting, selling, and marketing goods carrying the “Made in China” label.”
• 7 equations to build a secure retirement by Robert Powell – the equations are not complex but might scare those that don’t like math. Even without really understanding the equations the text is useful.
• Stock Market Capitalization by Country from 1990 to 2010 by John Hunter – The USA was 32.5% of the total stock market capitalization of the global stock markets in 1990. The USA grew to 46.9% as the tech, finance and housing bubbles were all underway (also Japan was stagnating and the Chinese stock market hadn’t started booming to a significant extent) in 2000. By 2010 the USA was back down to 31.4%.
• 5 stages of retirement crisis–and what to do about yours by Jim Jubak – “Certainly you weren’t planning for three-month Treasury bills to be paying you 0.08% or 10-year Treasuries 1.61%. And you’re worried by projections that say the real return on stocks going forward is going to be more like 5% (if we’re lucky) than the 7.5% real return that has been the assumption of choice recently. (That assumption replaces the 10% assumption that was the common wisdom in the years before the 2000 bear market.)

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When critics say that Europe is running out of time to deal with the financial crisis I wonder if they are not years too late. Both in Europe responding and those saying it is too late.

It feels to me similar to a situation where I have maxed out 8 credit cards and have a little bit left on my 9th. You can say that failing to approve my 10th credit card will lead to immediate pain. Not just to me, but all those I owe money to. That is true.

But wasn’t the time to intervene likely when I maxed out my 2nd credit card and get me to change my behavior of living beyond my means then? If you only look at how to avoid the crisis this month or year, yeah another credit card to buy more time is a decent “solution.”

But I am not at all sure that bailing out more bankers and politicians for bad financial decisions is a great long term strategy. It has been the primary strategy in the USA and Europe since the large financial institution caused great recession started. And, actually, for long before that the let-the-grandkids-pay-for-our-high-living-today has been the predominate economic “strategy” of the last 30 years in the USA and Europe.

That has not been the strategy in Japan, Korea, China, Singapore, Brazil, Malaysia… The Japanese government has adopted that strategy (with more borrowing than even the USA and European government) but for the economy overall in Japan has not been so focused on living beyond what the economy produces (there has been huge personal savings in Japan). Today the risks of excessive government borrowing in Japan and borrowing in China are potentially very serious problems.

I can understand the very serious economic problems people are worried about if bankers and governments are not bailed out. I am very unclear on how those wanting more bailout now see the long term problem being fixed. Unless you have some system in place to change the long term situation I don’t see the huge benefit in delaying the huge problems by getting a few more credit cards to maintain the fiction that this is sustainable.

We have seen what bankers and politicians have done with the trillions of dollars they have been given (by governments and central banks). It hardly makes me think giving them more is a wonderful strategy. I would certainly consider it, if tied to some sensible long term strategy. But if not, just slapping on a few more credit cards to let the bankers and politicians continue their actions hardly seems a great idea.

Related: Is the Euro Going to Survive in the Long Run? (2010) – Which Currency is the Least Bad? – Let the Good Times Roll (using Credit) – The USA Economy Needs to Reduce Personal and Government Debt (2009 – in the last year this has actually been improved, quite surprisingly, given how huge the federal deficit is) – What Should You Do With Your Government “Stimulus” Check? – Americans are Drowning in Debt – Failure to Regulate Financial Markets Leads to Predictable Consequences

Welcome to the Curious Cat Investing, Economics and Personal Finance Carnival. The carnival is published twice each month with links to new, related, interesting content online.

• For Capitalism to Survive, Crime Must Not Pay by Bruce Judson – “Justice must be blind so that both parties — whether weak or powerful — can assume that an agreement between them will be equally enforced by the courts.

  There is a second, perhaps even more fundamental, reason that equal justice is essential for capitalism to work. When unequal justice prevails, the party that does not need to follow the law has a distinct competitive advantage. A corporation that knowingly breaks the law will find ways to profit through illegal means that are not available to competitors. As a consequence, the competitive playing field is biased toward the company that does not need to follow the rules.” (the crony capitalism that has grown in the last few decades in the USA is poisoning the country with a failure to justly prosecute those that break laws if they are rich and connected to the other powerful cronies. This is a serious problem. – John).

• Don’t Expect to Spend Over 4% of Your Retirement Investment Assets Annually by John Hunter – “This is likely one of the top 5 most important things to know about saving for retirement (and just 10% of the population got the answer right). You need to know that you can safely spend 5%, or likely less, of your investment assets safely in retirement (without dramatically eating into your principle.”
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Flip-flops for sale in Singapore by John Hunter

• What America Pays In Taxes – In 2011 the USA government collected $1,100 billion in personal income taxes, $741 billion in payroll taxes (social security and medicare) [this should be a hint that look only at income taxes paid it might be very misleading - John], $200 billion in corporate taxes, $10 billion in estate and gifts taxes and $268 billion in other taxes (customs duties, excise taxes on products such as gasoline…).
• Value Investing is Not Necessarily Buy and Hold Investing by Shailesh Kumar – “Value investors choose to buy a stock when it is cheaper than the intrinsic value of the stock and sell it when it becomes more expensive.”

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