“We’re No. 17! We’re No. 17!” Those happy Scandinavians took the top spots (again) in retirement security, with Norway, Iceland, and Sweden all appearing in the top five.
The United States? It fell three spots to the aforementioned 17.
The 2017 Global Retirement Index from Natixis Global Asset Management blames shorter life expectancies, higher income inequality, low interest rates, tax pressure and lower happiness overall for America’s ranking.
It measures overall retirement security scores across four broad categories: Finances, Health, Material Well-being and Quality of Life.
According to Natixis, several factors affected the overall score for the U.S. (72 percent):
Lagging life expectancy in a healthcare-rich nation: The U.S. maintained its No. 7 ranking in Health, its highest among the sub-indices, in part because it spends more per capita on healthcare than any other country in the index, and it has the sixth-highest score for insured expenditure on health, which measures the portion of that expenditure paid for by insurance.
However, the U.S. ranked only 30th in life expectancy, as Americans’ longevity failed to keep pace with top-ranked Japan and other nations, suggesting its health expenditures may not be yielding the same return on investment.
Growing gap in economic opportunity: The U.S. has the fifth-highest income per capita among all nations in the index, but it registered higher levels of income inequality compared to last year, yielding the sixth lowest score for income equality in the Material Wellbeing category.
The results suggest that millions of lower-income Americans are missing out on that economic growth and may struggle to save for a secure retirement as a result.
American retirees are less happy: The U.S. experienced a slight decline in Quality of Life measures since 2016, chiefly attributed to a poorer showing for the happiness indicator, which is based on surveys that evaluate the quality of retirees’ current lives.
However, the U.S. improved on environmental factors in part due to cleaner air.
Strength of financial institutions: The U.S. again ranked in the top 10 for Finances, largely due to improvements in bank non-performing loans and federal debt levels relative to other nations.
However, the U.S. has the seventh-highest public debt as a percentage of GDP of all countries in the index, and an increasing ratio of retirees to employment-age adults (old-age dependency), putting pressure on government resources such as Social Security and Medicare.
At the same time, low interest rates and tax pressures negatively affect savings rates and income in retirement.
Overall the nations ranked as follows (with last year’s ranking attached):
- Norway (1)
- Switzerland (2)
- Iceland (3)
- Sweden (5)
- New Zealand (4)
- Australia (6)
- Germany (7)
- Denmark (12)
- Netherlands (8)
- Luxembourg (13)
- Canada (10)
- Finland (11)
- Austria (9)
- Ireland (16)
- Belgium (15)
- Czech Republic (18)
- United States (14)
- United Kingdom (17)
- France (20)
- Israel (19)
The best performers
On a regional basis, even though Western Europe dominates the top 10 rankings, Western Europe collectively ranks lower than North America (Canada and the U.S.).
This reflects the challenges of other countries in Western Europe—mainly, Italy, Portugal, and Spain—as they continue to struggle with financial setbacks.
The index also illustrates the “Great Divergence,” as some economists call it, between Western Europe and North America, on the one hand, and the rest of the world on the other.
North America’s overall score was 73 percent, and Western Europe’s was 70 percent. The next highest regions were Eastern Europe and Central Asia with a score of 50 percent and Asia Pacific at 34 percent.
Longer lifespans, larger liabilities
The rapid growth of the senior population is forcing many countries to rethink their public pension systems. Pension managers are under pressure as increased lifespans and a long period of historically low interest rates have increased liabilities and created a funding shortfall.
The world’s six largest pension saving systems, which includes the United States, are expected to reach a $224 trillion gap by 2050, a study by the World Economic Forum shows.
The threat of unfunded liabilities has led to a significant change in employer retirement plan offerings, with many organizations freezing traditional pension plans and transitioning to defined contribution plans, a switch that shifts the liabilities for retirement funding from the employer to the employee.
Individuals in the U.S. are well aware of the challenge ahead of them.
In a survey of investors conducted by Natixis earlier this year, 78 percent feel that funding retirement will fall increasingly to them rather than to the government.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
