Retirement security worldwide looks promising. That is the good news. The bad news centers around the relative position of the United States when measuring retirement security worldwide. Things are significantly different for American workers these days compared to the past. The U.S. is ranked 18th in retirement security worldwide according to Natixis Investment Managers’ 10th Annual Global Retirement Index (GRI) The annual index shows how America stacks up against other developed nations in terms of the financial wellbeing and security of its retirees.
The Natixis data reflects:
- The U.S. fell in this year’s ranking largely because of government debt, taxes and the huge number of aging baby boomers now in, or entering retirement;
- The U.S. is no longer the richest country in the world, and ranks among the bottom third on the Index for material wellbeing;
- The U.S. life expectancy has declined as reported by the CDC. (One of the biggest retirement planning mistakes Americans make is underestimating how long they will live);
- A pay-as-you-go retirement system – such as Social Security – as is used in the U.S. – is becoming increasingly difficult for any country to manage into the future.
American retirees are facing unprecedented risks. Steep market losses, inflation, and interest rate hikes have made 2022 one of the worst years on record to retire. The market downturn and sharp increase in food, energy, housing, and medications have hit retirees particularly hard. 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, according to Natixis’ 10th Annual Global Retirement Index.
Natixis Investment Managers created the Global Retirement Index in collaboration with Core Data Research. The Index was established as a global benchmark that incorporates a variety of factors essential for people to enjoy retirement. The Index measures retirement security worldwide – including important financial factors but also access to and cost of healthcare, climate conditions, the state of governance, and general happiness of the population. The GRI rankings are based on an aggregate of mean scores from 0% to 100% for 18 performance measures in each of four sub-indices — Finances in retirement, material wellbeing, health, and quality of life — which are combined to provide an overall picture of the environment for retirees.
For the four sub-indices, the U.S. ranks as follows in the 2022 GRI:
- 11th for Finances in Retirement
- 17th for Health
- 21st for Quality of Life
- 30th for Material Wellbeing
The U.S. dropped to No. 18 this year from No. 17 in the 2021 GRI, in part because of relative improvements in other countries that pulled them ahead in the index. The overall U.S. score declined to 69% from 72% a year ago.
The responsibility for retirement security falls most heavily on individuals and their personal savings. Longevity is the all-important part of the equation that drives all other inputs including how much money is needed, investment return expectations, and spending rates. According to Natixis IM’s 2022 survey of U.S. financial advisors, the biggest retirement planning mistakes investors make are:
- 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 in healthcare costs: 49%
The survey findings emphasize the importance of improvements in retirement education, financial wellness, and where possible, access to personalized advice for retirement plan participants. Most people need help understanding how the actions they take today will impact their ability to achieve retirement security tomorrow, and it can be helpful to put it in concrete terms for them, in a real-world context. Encouraging participants to take advantage of financial wellness programs, and partner with a financial advisor, where possible, may help them to avoid some of these common mistakes and improve retirement security worldwide.
