What Italy and Germany Show Us About the Future of Social Security

One of the big questions facing retirement planners is how much to count on Social Security in the decades ahead. The number of Americans past age 65 will double by 2050, part of the longevity revolution that threatens to leave Social Security insolvent by 2033.

That doesn’t mean benefits would stop abruptly. Under the current system, enough funding would be in place to continue benefits at 77% of the promised level. Of course, anything is possible if laws change. But cuts probably are coming.

Most Americans get that. Among those that have not yet retired, just 20% believe they will receive full benefits when they retire, according to a Pew Research report. Some 31% expect reduced benefits and 41% expect no benefits at all. Presumably, these findings skew along age lines. Most experts believe benefits adjustments will be phased in. Those currently 55 or older likely will see minimal change to their benefits while those under 30 likely will see big change.

The longevity revolution is a global phenomenon, and government pensions are in trouble around the world. Two of the oldest nations on the planet are Germany and Italy and, demographically speaking, they are now where the U.S. will be in 35 years: a fifth of their population is older than age 65. If you think Americans are glum about prospects for collecting Social Security, these nations offer a glimpse of what’s coming.

In Germany, just 11% think they will receive benefits at current levels, 45% think they will receive benefits at reduced levels and 41% expect to get no benefits at all, Pew found. In Italy, only 7% believe they will get full benefits, 29% expect benefits at reduced levels and 53% think they will get no benefits at all. Interestingly, Germans and Italians are twice as likely as Americans to believe this is primarily a problem for government to solve. In the U.S., there is a strong belief that this is a problem for families and individuals to fix, Pew found.

Just 23% of Italians are putting anything away for retirement, vs. 56% of Americans and, perhaps because austerity is in their DNA, 61% of Germans. The most important statistic, though, may be the percentage of young adults (ages 18-29) that are saving. This is the group most likely to see reduced or no benefits in retirement but which still has 40 years or more to let savings grow. In the U.S., 41% of young adults are saving for retirement. In Germany, the figure is 44%. In Italy, just 13% are saving.

What will fill the gaps? Pew found a strong sense of families as backstops in all three countries. Nearly nine in 10 Italians view financial assistance for an aging parent in need as their responsibility. The figure is 76% in the U.S. and 58% in Germany. This sense runs deepest among young adults, perhaps because their parents are now assisting them through an extended period of dependence known as emerging adulthood.

In all three countries, financial help is more likely to flow down to adult children than up to aging parents: about half or more of adults with grown children have helped them financially in the last 12 months. That many or more have assisted grown children in non-monetary ways as well, helping with errands, housework, home repairs or child care. The vast majority says this assistance is more rewarding than stressful; they value the time together.

So family support looms as a large part of future retirement security for many people in graying nations, and that’s fine for families with the wherewithal. But young adults, especially, don’t have to feel victimized by the decline of government pensions. They have many opportunities for tax-advantaged saving through an IRA or 401(k) plan, and decades to let compound growth solve their problems. Workers past 50 can take advantage of catch-up contributions, and for guaranteed lifetime income use a portion of their savings to buy a fixed annuity. Like it or not, personal savings is the key to retiring comfortably—self security in place of Social Security.