An annual global retirement survey dropped the U.S. to 18 among 44 developed countries ranked by financial security and wellbeing of its retirees.
The 10th annual 2022 Global Retirement Index from the Natixis Center for Investor Insight, a Boston-based research initiative, said the U.S. barely held on to a top 20 position partly due to the progress other countries have made in improving retirement benefits and programs.
Still, the U.S. slipped one spot with lower scores for employment, income equality, government debt, tax pressure, and a surge in America’s aging population, the survey said. The U.S. overall score moved from 72% a year ago to 69%.
“In a year on track to be one of the worst on record to retire, the market downturn and sharp increase in food, gas, housing, and medications have hit retirees particularly hard.” — 2022 Global Retirement Index
“Getting retirement security right so that people can live with dignity after their working years is a core sustainability issue for society and one of the most important mandates for governments and the financial industry,” said Liana Magner, executive vice president and head of Retirement and Institutional in the U.S. for Natixis Investment Managers “The GRI provides insight into the levers that can drive or diminish the wellbeing of retirees, and it serves as an important benchmarking tool for policymakers, employers, financial professionals and individuals.”
Norway ranked No. 1 in the index, followed by Switzerland and Iceland. Luxembourg and the Czech Republic moved into the Top 10 for the first time while German and Canada dropped out.
The index report, however, was chock full of warning signs for the U.S. No longer the richest country in the world, the U.S. ranked among the bottom third on the index for material wellbeing. And despite the Center for Disease Controls recently noting that life expectancy has declined in the U.S., one of the biggest retirement planning mistakes Americas make is underestimating how long they will live.
Meanwhile, “solutions to the retirement security crisis will be increasingly difficult for the U.S. and other countries with a pay-as-you-go retirement system, on which Social Security is based.
“In a year on track to be one of the worst on record to retire, the market downturn and sharp increase in food, gas, housing, and medications have hit retirees particularly hard,” the report said. “New market risks, namely inflation, low but rising interest rates, and ongoing volatility, will make it harder for retirees to make up for lost ground and calls for new thinking about retirement planning by savers.”
Essential factors considered
Natixis created the index with Core Data Research to establish a global benchmark that incorporates a variety of factors essential for people to enjoy a healthy and secure retirement including not only important financial factors but also access to and cost of healthcare, climate conditions, the state of governance and general happiness of the population. The rankings are based on an aggregate of mean scores from 0% to 100% for 18 performance measures in each of four sub-indices which are combined to provide an overall picture of the environment for retirees: finances in retirement, material wellbeing, health, and quality of life.
In the four sub-indices, the U.S. ranked:
11th for Finances in Retirement
17th for Health
21st for Quality of Life
30th for Material Wellbeing
According to the survey, U.S. financial advisors listed the biggest retirement planning mistakes investors make and included:
Underestimating how long they will live: 61%
Underestimating the impact of inflation: 57%
Being too conservative in investments: 54%
Overestimating investment income: 52%
Forgetting to factor healthcare costs: 49%
“Retirement security challenges have come home to roost in 2022,” said Dave Goodsell, executive director of the Natixis IM Center for Investor Insight. “Inflation has been the long-sleeping giant of worries for retirees and is now at the apex of retirement security threats. The rate hikes the Federal Reserve and other central banks have implemented to quell inflation further compound the problem, creating short-term pain for retiree portfolios. Investment strategies, financial planning, employee benefits, and policy considerations will all need to factor in a new funding equation that accounts for inflation, interest rates, and increased longevity.”
The problems facing Social Security were highlighted by focusing on the “old age dependency ratio” which in 1950, 15 years after the creation of the government benefit, was at 14.2%. That meant that for every 100 working-age people, there were 14 dependent people. By 2020, the ratio reached 28.4%, and by 2050 it is projected to reach 40.4%.
“Increased longevity, which contributes to the growth of the aging U.S. population, breaks the underlying formula on which the retirement system is based, and the nation’s growing debt burden serves to limit policy options,” the report concluded.
Natixis unveiled the 10th annual index Tuesday at a gathering of large U.S. retirement plan sponsors at the annual Institutional Investor-Defined Contribution Institute in Half Moon Bay, California.
Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at [email protected].