The U.S. could learn a few things about retirement security from Iceland, Switzerland and Norway, which for the past three years have been ranked highest in the world in that category by Natixis.
On Tuesday, the firm published its annual Global Retirement Index report, which placed the U.S. 17th, just ahead of the United Kingdom and one spot below Slovenia.
In assessing the state of retirement in countries around the world, Natixis considers four general categories: health, finances in retirement, quality of life and material well-being. Subcategories range from government debt to air quality.
The U.S. ranked higher in the category of finances in retirement, 11th, than it did overall. The country’s ranking in the health category has fallen significantly over the past two years, from 10th in 2019 to 17th this year, in part as a result of the number of deaths caused by Covid and the resulting decrease in life expectancy. The U.S. didn’t even make the top 25 countries in material well-being, with income inequality being a factor. In quality of life, the country was ranked 21st.
Despite those seemingly low positions, the ranking is relative, and the distinctions between many of the leading countries are small, said the author, Dave Goodsell, executive director of the Natixis Center for Investor Insight.
Some of the things that caused the U.S. to lag compared to its peers, though, are low interest rates, high health care costs, income inequality and lower life expectancy.
“You want to have interest rates [high enough] that will help people generate income,” Goodsell said. “We have the highest health insurance spending per capita. We don’t score as well in life expectancy … What you see among the higher-ranked countries is balance across these categories.”
ARE YOU HAPPY?
Another big determinant of retirement security is happiness. There’s a strong correlation between the best-rated countries for retirement and those with the highest overall levels of happiness, according to the United Nation’s World Happiness Report, data from which were also used in Natixis’s index.
According to the UN paper, the happiest countries in the world in 2020 were Finland, Iceland, Denmark, Switzerland and the Netherlands. The U.S. was 14th, ahead of Canada and behind Ireland. Much of the UN report focused on countries’ responses to the pandemic and the level of social responsibility that residents felt for helping to slow the spread of Covid.
FINANCES IN RETIREMENT
The financial category for retirement security in the Natixis report examined old-age dependence, bank nonperforming loans, inflation, interest rates, tax pressure, government indebtedness and governance.
The leader for finances in retirement was Singapore, due in part to its performance on inflation, tax pressure, dependency and interest rates, according to the report. The country lagged in government indebtedness, ranking 40th in the world.
Other leaders in that category were Switzerland, New Zealand, Australia and South Korea.
The report didn’t compare the different pension models used by countries. However, some of the top performers have taken steps to help improve workers’ retirement savings in recent years. New Zealand, for example, in 2007 implemented its KiwiSavers superannuation program, a subsidized system for private-sector workers. Australia has long had a superannuation system.
Helping to improve retirement security in the U.S. is largely a matter of expanding access to savings, Goodsell said. In recent years, numerous states have developed systems for private-sector workers, including automatic IRAs — something that Congress is currently considering at the federal level.
Policymakers must be part of that effort, but so too must employers and the financial services industry, Goodsell said. It would benefit retirement security overall if retirement plan coverage were expanded and employers provided matching contributions for their workers. But the industry should also provide the best products and services that help people save, understand how much they need and how they can spend those savings during retirement.
A survey Natixis conducted as part of the report showed that people across the world have worries about retirement. Even though the survey base was composed of people with at least $100,000 in investible assets, with the median at $450,000, “many will tell you that a secure retirement is no sure thing,” the report noted. The average retirement savings rate for the sample group was nearly 17% of income.
About 42% said that “it would take a miracle” for them to be financially secure in retirement.
“Retirement security is an important issue for virtually every individual,” Goodsell said.
Nearly three-quarters of people acknowledged that they needed help with saving for retirement, and more than 80% said employers should be part of that. Sixty percent said they needed help selecting investments in their employer-sponsored plans.
“Saving for retirement is complicated. It’s a long-term goal,” Goodsell said. “There’s a lot of uncertainty in ‘How much do I need? How long will it last?’”
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Andrew is half-human, half-gamer. He’s also a science fiction author writing for BleeBot.