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In Finland Saunas are Hot, Retirement is Cool

In the US Social Security’s ‘just a floor’


This article first appeared in the magazine Retirement Income Journal

Helsinki—Mikko Kautto, impeccable in a blue suit and open-collared shirt, was sitting at a table in the cafeteria of the modern Centre for Pensions building on the outskirts of Finland’s capital city, answering questions about the operation of his Nordic country’s retirement system.

How, he was asked, does Finland—with its own graying bulge of Baby Boomers, low immigration rate and low birth rate—plan to deal with its version of the impending global retirement crisis?

Kautto, the director of research at the Centre for Pensions, looked surprised and a bit bemused. “We don’t see it as a crisis,” he said. “We see it as having a lot of older citizens that we need to make sure have a comfortable retirement, and we have been planning for that for years. It’s certainly a challenge, but it’s not a crisis.”

Finland's retirees get benefits designed to allow them to maintain their standard of living in retirementFinland's retirees get benefits designed to allow them to maintain their standard of living in retirement


If Finland finds itself more confident than the U.S. in the face of the Boomer retirement wave, it’s not because their demographics are more favorable. More than a quarter of the country’s 5.4 million people are already over age 60 and almost five percent are over age 80, compared to 19.1% over age 60 and 3.8% over age 80 in the U.S. Life expectancy at birth in Finland is about 80 years. In the U.S., it’s about 79 years.

The difference may simply involve better planning and less-politicized public discourse. The U.S. has historically dealt with its Social Security system on a crisis-by-crisis basis. The crisis du jour stems from the projected exhaustion of the system’s so-called Trust Fund. If that fund—which contains special-purpose Treasuries purchased with surplus FICA taxes—zeros out in the mid-2030s (and nothing changes U.S. demographics, such as an influx of hard-working young immigrants), the pay-as-you-go system’s ongoing tax revenues are expected to cover only about 75% of future retirees’ promised benefits. 

In contrast, Finland’s government and its rival political parties, together with workers, employers and retirees, have long collaborated to create a sustainably solvent public retirement system whose payments are intended to replace close to 60% of pre-retirement income (higher for those who are poor or were unemployed for long periods).

“In the early 1990s, Finland began preparing in earnest for the large aging population we saw coming,” Kautto told RIJ. National studies showed that most retirees would need about 60% of their final pre-retirement income to maintain their standard of living in retirement, he explained. “Consumption smoothing” became the goal of the program. (Sixty percent replacement is ample in Finland because certain costs are low. Health care, including long-term care, is essentially free, and children who go to college pay no tuition and in fact receive a €450 ($600) monthly stipend for living costs.)

story | by Dr. Radut