The Retirement Dilemma

I can’t believe how quickly time flies. It has been over 2 years now since I made the move over the Atlantic to join Yahoo! HQ in Sunnyvale, California. But while one is working away and enjoying life in sunny California, there is one thing, one topic I am always putting off. Something that I should really deal with, but I am not really sure how to go about it, and that is taking steps towards financial security when the retirement age comes around. In a system where it is more or less entirely up to the individual how he wants to do it, it is especially difficult for me coming from a country where the options how to save up for retirement somehow sounded a little more…sensible.

The Pension system in Austria

In Austria, it is, more or less, dead simple. Whenever you are employed, that is working as an employee in a company (no matter if part or full time), part of your salary is contributed to a public pension scheme. When you reach a certain age, currently its 65 for men, the individual has legally gained the right to retire, meaning that he is able to drop out of the workforce and receive a certain amount of pension, paid for by his contributions made to the fund over e.g. 40 years in the workforce. The amount that he gets is typically around 70 to 80 percent of the salary he last received while still working. So considering that the cost of living in Austria is, by far, not as high as in the UK or in California, someone can expect to still make a decent living on these 70 or 80 percent.

Of course, the fact that people live longer and that there are fewer and fewer ‘younger’ people in the workforce being able to ‘pay’ for the pensions of the ones retiring, this system is no longer sustainable in the long run and prompted some reforms already which cut down on the amount of pension a retiree can expect. Experts are already advising people to, if financially possible, compensate these cutbacks by contributing to pension schemes offered by private companies, such as national insurance companies like UNIQA. Similar to the state-run public pension schemes, one makes regular contributions and when the age of retirement comes around, gets a certain amount as a pension paid out on a monthly basis.

So far so good.

The American DIY approach

As with many other things, Americans want choices and be responsible themselves about when to retire and what to do about it – and the last institution they would like to trust with the task of taking care for their retirement is the government. Or so it seems.

I remember that after the first year in the US, I started to do a little research as to how Americans save up for retirement, well knowing that I might have to do the same thing if I am considering to stay here longer than just 2 or 3 years. Very naively I was expecting to find a similar system to what I was used to from my home country, but I could not have been more wrong, at least speaking from my current point of view and level of knowledge.

Please correct me if I am wrong but so far I have identified the following options:

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