8 Countries Ranked by Retirement Happiness: Who Wins?

Great news: research has uncovered the key to retiring happy. Even better news: the formula is simple and Americans are succeeding in droves.

What role, if any, do define contribution plans (and specifically 401ks) play?

State Street Global Advisors interviewed nearly 10,000 employees and retirees in eight countries and discovered that retirement happiness is dependent upon:

trust in one’s retirement system;
controlling one’s own retirement outcome;
and feeling financially prepared.

That last one seems like a no-brainer, for sure. But somewhat surprisingly, data show it’s not the end-all, be-all.

Money Can’t Buy Happiness

“Accumulated assets play an important role in determining retirement readiness. But as we can see from the survey results, people in the best-funded systems are not necessarily the happiest,” State Street noted in its 2018 Global Retirement Reality Report.

For instance, on paper, the Netherlands is one of the best places to retire. Its retirement system ranks way up there when considering who is covered (virtually everyone) and total savings reserves (more than any other country when comparing total pension assets to gross domestic product).

Yet, it came in dead last in terms of retirement satisfaction.

Only 8 percent of employees from the Netherlands have an optimistic view about the fate of their post-work finances, and just 12 percent think they’ll be able to afford the lifestyle they want. Among those who have already retired, under 30 percent say they are happy.

Meanwhile in the US, over half of retirees (53 percent) are feeling good about their Golden Years. And employees who have yet to call it quits envision a bright future.

Nearly three in 10 workers (27 percent) have positive expectations about what their financial situation will be once they retire. About the same amount (28 percent) are confident they’ll achieve their desired lifestyle, as well.

All of that, despite comparatively low levels of coverage. Data show only 41 percent of US workers have access to a 401k or similar plan compared to 88 percent of employees in the Netherlands. So, what gives?

Being Content Also Contingent Upon Trust, Control

“As is the case with happiness more generally, there is not one driver, but several elements that combine to enable a happy and secure retirement,” Nigel Aston, global head of strategy and proposition at State Street Global Advisors, said in a statement.

The winning formula, according to the report, is trust, ownership and preparedness.

State Street’s report expands on each element:

Trust: Stability and credibility of a country’s retirement system engenders trust whereas recent change or the expectation of change at the policy level, such as alteration of retirement age, erodes trust. The happiest workers and retirees are confident the system in their country will deliver what’s been promised.
Ownership: Individuals who embrace ownership of, and feel that they have control over, their retirement outcomes are happier. Those who acknowledge their responsibility to save for the future and understand the choices that they can make feel more secure than those who do not.
Preparedness: With the first two anchors in place, confidence that one has saved enough to last the duration of their retirement is the third factor at play. However, the study concluded that individuals often have an inaccurate perception of the degree to which they are financially prepared and few people know how their lump sum savings will convert into a steady income.

Key Takeaways for Advisors

Based on the happiness formula, State Street recommends 401k advisors and plan sponsors:

Foster trust by keeping retirement plans as simple and stable as possible: Avoid making changes, or when changes have to be made, communicate them well in advance and provide clear and comprehensible illustrations of the probable impact.
Build workers’ confidence in owning their retirement destiny and reward good behavior: Illustrating the impact of actions that participants can take, such as changing their savings rate, retirement age or investment allocation can build confidence and increase ownership. Providing easy access to trustworthy sources of guidance—whether online, in person or by phone—is also important.
Enable workers to assess the sufficiency of their retirement assets: To help put retirement into perspective, provide participants with clear income projections so that they can understand whether they are on track for a secure retirement. Educate them on how much they would need to save to achieve certain goals, as well.

Click through to see each country’s retirement happiness score:

United States

4.1/5: Within the United States, all survey respondents had access to a savings plan. This fortunate population (realistically, less than half of working Americans have plan access) “considers the system reasonably stable, has a strong sense of ownership and high aggregate assets,” concluded State Street.

Australia

3.9/5: “Australia has a comprehensive, well-established system with a strong degree of individual ownership,” the global retirement experts explained.

Sweden

3.9/5: According to the report, “Sweden has an established and well-understood system which is sustainable, providing a combination of state and private funding.”

Germany

2.8/5: “Germany is on the brink of reform,” State Street wrote. “If implemented well, these reforms are expected to increase both a deeper sense of trust and ownership could help boost happiness further.”

Ireland

2.6/5: “Ireland has lower assets but embraces individual responsibility, making it philosophically closer to the US and Australia,” the report noted.

United Kingdom

2.4/5: “The United Kingdom has an increased sense of ownership per the ‘Freedom and Choice’ reforms that introduced more options in accessing retirement savings. However, the UK still struggles with a lack of trust toward the pension system,” according to the report.

Italy

2.2/5: State Street explained that Italy “has introduced painful reforms to make its pension system sustainable. In the meantime, the country has an adequacy problem due to low assets and low trust in the system. Italy needs to build trust and sense of ownership.”

The Netherlands

2.1/5: “The Netherlands has strong assets and a well-developed pension system, but is experiencing a savings model transition that’s created a low sense of ownership and a somber outlook. We expect that once reforms are implemented, the Netherlands will more closely resemble Sweden,” State Street noted in its report.