The retirement security system in the United States is divided into five levels: the first is the basic pension insurance system provided by the government; the second is the supplementary pension insurance system provided by enterprises; the third is the Individual Retirement Account (IRA) system; the fourth is the reverse mortgage system; and the fifth is various other retirement assets.
The first three levels—namely, government pensions, corporate pensions, and individual retirement pensions—are the three core components of the retirement security system in the United States, referred to as the "three-legged stool" of the American pension system. What is the relationship between these three legs? What unique functions do they each serve? Experts from WorldWay Immigration will provide a detailed analysis as follows:
Government and Market Complement Each Other
The first leg is the cornerstone of poverty alleviation; the second and third legs serve as reliable guarantees for improving the quality of life for the elderly. In summary, it can be said that "the government ensures the basics" and "the market ensures quality" complement each other.
The Gini coefficient in the United States is as high as 0.38, and the first leg undertakes the mission of poverty alleviation. For this impoverished group, various social assistance systems based on household surveys are established on the foundation of transfer payments, from minimum living allowances to food stamps, with the government assuming the ultimate responsibility for safety nets.
The second and third legs are voluntary systems based on market foundations, with a very high coverage rate; together, they cover up to 67% of households, supporting "half of the sky" of retirement income, with an average social replacement rate exceeding 50%. Coupled with the first leg's replacement rate of about 40%, the retirement income of Americans is nearly the same as before retirement, and some groups may even see a significant increase.
Clear Boundaries Between Insurance and Fiscal Systems
The first leg operates healthily and has not become a burden on the fiscal system. Since its establishment in 1935, the first leg has always maintained self-balance, with the government never providing subsidies, and the boundaries of the system are very clear. It currently has a large fund reserve of $27.6 trillion, which is sufficient to cover four years even if there is no income of $1 in the future.
Other developed countries find it nearly impossible to reach this level. Especially in Europe, the fiscal burden is often overwhelming, and pension security systems severely strain public finances, even pushing national finances to the brink of bankruptcy.
The Three-Legged Stool Serves as a Bond Among Social Classes
Since the end of World War II, the United States has never experienced any social unrest due to the basic pension security system. The multi-level and market-oriented system can meet the different needs of various groups, with each of the three legs occupying its own place and coexisting peacefully.
From this perspective, the retirement security system in the United States, as a component of the national governance system, exerts positive energy and enhances national competitiveness.
