Why the U.S. gets no medals for retirement
American exceptionalism -- the concept that we're qualitatively different from other nations -- certainly doesn't hold up in the area of retirement, according to two recent studies that compare the U.S. retirement system to those of other countries.
The Melbourne Mercer Global 2013 Pension Index ranks the U.S. 11th out of 20 countries, while the Natixis 2014 Global Retirement Index ranks the U.S. 19th among 150 nations. In both studies, America ranked behind most Western European nations, Australia and Canada. Prior surveys have produced a similar result.
The Melbourne Mercer Global Pension Index uses three sub-indices to measure a country's retirement system: adequacy, sustainability and integrity.
The adequacy sub-index measures how well a system can meet the population's retirement living needs. The sustainability sub-index measures the various indicators that will influence the likelihood that the current system will be able to continue providing the current level of benefits into the future. The integrity sub-index measures items that influence the overall governance and operations of the system, which in turn affect the level of confidence that citizens have in their system.
According to Melbourne Mercer, these are the top 10 countries:
- Denmark
- Netherlands
- Australia
- Switzerland
- Sweden
- Canada
- Singapore
- Chile
- U.K.
- Germany
The U.S. retirement system landed a C grade overall, defined as a "system that has some good features but also has major risks and/or shortcomings that should be addressed. Without these improvements, its efficacy and/or long-term sustainability can be questioned."
The U.S. ranked below average in all three sub-indices. The report notes that America could increase its ranking by improving its Social Security benefits for low-income retirees, increasing mandatory contributions for median-wage earners, reducing preretirement leakage due to loans and early distributions, and requiring that part of its citizens' work-related retirement benefits be taken as an income stream instead of a lump sum.
The Natixis Global Retirement Index examines 20 key trends across four broad categories: health and health care quality, personal income and finances, quality of life and socio-economic factors. Together these factors provide a measure of the life conditions and well-being expected by retirees and near-retirees.
According to Natixis, these are the top 10 countries:
- Switzerland
- Norway
- Austria
- Sweden
- Australia
- Denmark
- Germany
- Finland
- New Zealand
- Luxembourg
Factors that kept the U.S. out of this group included the high cost of health care, life expectancy that's lower than that of other developed nations, a high degree of income inequality, the level of government debt and the fact that only about half of all U.S. workers are covered by any retirement plan at work.
These two studies reinforce themes that I often write about: If you want to live a long, healthy, prosperous life, you won't get much help from our society or from your employer. In fact, you'll need to overcome some distinct negative influences, such as a complex and expensive medical system, a complicated financial system that, at times, preys on ordinary citizens, and the barrage of advertising that tells you to spend all your money on consumer goods, go into debt and eat unhealthy foods.
If you want to enjoy your retirement years, you'll need to figure out how to take care of your own health and finances, navigate the health care and financial systems and build your own community of supportive, like-minded friends and family. A good place to start is my online retirement planning guide, which organizes some of my posts into a week-by-week program of learning and action steps.
