We were vacationing last month in Scotland. At a small country hotel—on a misty Western isle—I mentioned to a group of guests that I conduct research at Vanguard on retirement issues. You guessed it: Suddenly the conversation shifted from the weather (ever-changing in Scotland) to worries about finances and retirement security.
It’s uncanny how similar retirement stories in the U.K. and U.S. are. The British guests talked about a decline in preparation for retirement—falling savings rates, rising debt levels, and a culture of consumption. A Scottish couple in their 80s raised a well-known complaint: Baby boomers were self-indulgent and lacked fiscal discipline.
Two other guests brought to mind another important dynamic. The husband had retired early on a generous final-average-salary scheme—a traditional pension plan—as rare in the U.K. as in the U.S. His spouse was a public servant. As in the U.S., retirement plans for U.K. public employees are of the traditional pension variety. They are also generous. In the British press, there’s talk of “pension apartheid”—risky defined contribution plans for private sector workers versus generous traditional pensions for government workers. (How long, we thought, before the situation leads to social conflict?)
The other gloomy topic was long-term care. One U.K. guest spoke of the challenges of caring for an aged parent who was unable to manage most activities of daily living. Nursing homes were seen as inadequate; the system of home care, patchy and uneven. They paid large out-of-pocket expenses for daily help in a system struggling to support modest levels of home care.
It sounded all too familiar. We recently had to navigate the U.S. labyrinth of long-term care for an older relative. Medicare moves as quickly as possible to shift debilitated patients off its books once they no longer need acute medical care. Then there are the challenges of finding and financing private or Medicaid-funded nursing care. We all agreed: The problem is not going to get smaller in either country.
There are, of course, positive trends on both sides of the Atlantic. Working longer can be a real help, both in improving finances and helping psychologically in the transition to retirement. Maybe, the Scottish couple said, the credit crisis will mean higher savings rates and a permanent end of the consumption culture. We all silently agreed. And it’s true that in both countries, and around the world generally, we are all living substantially healthier and longer lives.
Still, in both countries, the retirement outlook seemed increasingly turbulent—much like the Scottish weather, with patchy clouds, misty rains, and an occasional break of sunshine.