- Growing economy, rising employment and low inflation help protect retiree savings; federal debt, income inequality, healthcare challenge U.S. global position
- Europe leads way, based on strong pension financing and social programs; longevity, increasing demand for social services and other factors could put pressure on financing in the future
- Retiree welfare vulnerable to government policy, economy and market trends; responsibility for financial security falling to individuals
The United States held steady in its ranking among the top 20 countries in the world for retirement security, according to the 2015 Natixis Global Retirement Index, published this week by Natixis Global Asset Management. For the third consecutive year, the U.S. placed 19th among 150 nations, as benefits of the U.S. economic recovery offset growing demand on government finances.
“As our analysis shows, the security of retirees’ savings is influenced by a range of factors largely out of their control,” said John Hailer, president and chief executive officer for Natixis Global Asset Management in the Americas and Asia. “We’re seeing that individuals will have to shoulder more of the financial burden by saving and investing more effectively to ensure financial security in retirement.”
Now in its third year, the Natixis Global Retirement Index is based on an analysis of 20 key trends across four broad categories: health, material well-being, finances and quality of life. Together, these trends provide a measure of the life conditions and well-being expected by retirees and near-retirees.
While the U.S. got strong grades for its finances, largely due to low inflation and interest rates, and enjoyed higher Gross Domestic Product growth, its position in the rankings may be fragile. The U.S. benefits from high per-capita income and spends more per capita on healthcare than any other nation. However, those resources don’t reach all Americans. The U.S. has a relatively large gap in income equality, and Americans have access to fewer doctors and hospital beds than citizens in other developed nations.
Further, the U.S. population is aging and living longer. The proportion of the U.S. population over the age of 65 is expected to rise from 13% in 2010 to 21% in 2050. As a result, there will be fewer workers to pay for programs, such as Medicare and Social Security, that serve older Americans.
Europe leads in quality of retirement
Top-ranked countries in 2015 benefited from well-developed and growing industrialized economies with strong financial systems and regulations, broad access to healthcare, and substantial public investment in infrastructure and technology. Despite relatively heavy tax burdens, these countries rank high in per-capita income levels and low in income inequality.
“These countries currently lead the way, but could face headwinds as the citizens live longer in retirement and the cost of funding various programs continues to increase,” said Hailer.
The index showed:
- Stability at the top: Switzerland retained its No. 1 ranking because of its high per-capita income, strong financial institutions and environment. Switzerland has a mandatory occupational pension system and a well-funded universal health system. Norway held the second spot on the strength of its widely shared wealth.
- Big leaps: Iceland jumped seven slots, to No. 4, because of structural changes in the nation’s financial system after its banking crisis. The Netherlands rose to No. 5 from No. 13 on strengthened finances, while Japan’s fiscal reforms and healthcare improvements helped it vault to No. 17 from No. 27.
- Down under policies working: Australia (No. 3) and New Zealand (No. 10) are two non-European countries in the top 10 due in large part to mandatory retirement savings programs.
“Bold public policies and a commitment to innovation are making the greatest contribution to the security of retirees in the top-ranked countries,” Hailer said. “They offer valuable lessons for countries trying to improve their retirement systems and prepare citizens for financial security in retirement. In the U.S., we need to open access to work-based retirement programs so more Americans can put money away for their future needs.”
Some progress is being made at the federal level, and the states are beginning to take action as well. Illinois, for example, recently introduced an automatic retirement savings program for workers in the state that don’t already have a retirement plan at work, a first for the nation.