The United States rose two spots to No. 16 among developed nations in the 2020 Global Retirement Index (GRI), released today by Natixis Investment Managers, but still lags far behind the top three of Iceland, Switzerland and Norway.
The eighth annual index, a snapshot of the relative wellbeing and financial security of retirees in 44 countries, shows that the chances for a financially secure retirement depend on a fragile balance of social, economic and public health pressures, and the global coronavirus pandemic has just tipped the scales further against retirees.
Natixis’s analysis of multi-year index trends suggests that the pandemic and policy actions taken to moderate its economic impact will have lasting implications for retirees. Retirement security in the U.S. and developed nations around the world now faces elevated threats of lower-for-longer interest rates, record levels of public debt, recession, income inequality and climate quality.
“Balancing the needs of current and future retirees with other public policy demands has long been one of the most intractable issues for nations around the world, and the global pandemic and its economic fallout have only compounded the challenge,” said Jean Raby, CEO of Natixis Investment Managers. “Individuals, employers, institutions, policymakers and asset managers all have an important role to play in addressing these issues, and we believe the 2020 Global Retirement Index can help advance the dialog by providing a clear and consistent picture of where each economy stands on a range of key indicators.”
The Natixis GRI examines 18 factors which influence retiree welfare across four categories including Finances in Retirement; Material Wellbeing; Health; and Quality of Life. The Index calculates the relative performance for each nation on each of these criteria, resulting in a composite score that provides a comparative tool for evaluating retirement security globally.
The data used in the calculation of the 2020 GRI include the most recent statistics available, typically from 2019. As a result, more recent developments such as higher unemployment, rate cuts and impacts on health statistics in 2020 resulting from the coronavirus pandemic are not reflected in this year’s GRI rankings.
Ireland, The Netherlands, Germany Climb Rankings
- The top three nations worldwide in this year’s GRI are unchanged from 2019, with Iceland in first place, Switzerland in second and Norway third. In fact, stability at the top is the norm: Nine of this year’s top 10 countries have been in the top 10 for each of the past two years.
- Ireland (No. 4) improved its performance steadily in each of the past several years, from seventh in 2018 to fifth in 2019 to fourth this year. In particular, it has performed strongly on the insured health expenditure indicator, moving from 14th in 2019 to fifth in 2020. Ireland’s life expectancy indicator has also improved (from 18th in 2019 to 11th this year).
- The Netherlands had the largest climb in the overall rankings (moving from 10th to 5th), mainly because of improvements in the Quality of Life sub-index, including stronger scores in environmental factors and water and sanitation.
- The other countries in the 2020 top 10 include New Zealand (No. 6); Australia (No. 7); Canada (No. 8); Denmark (No. 9); and Germany (No. 10). Germany climbed from 13th place last year to tenth this year due to higher scores in the Quality of Life, Health, and Finances sub-indices.
The only nation to depart from last year’s top 10 is Sweden, which dropped from fourth place to 11th. Sweden’s steep decline resulted in part from poor performance within the Finances category (to 30th from 22nd. Specifically, its decreasing five-year average for real interest rates—a concern for retirees on fixed income—moved into negative territory.
Factors Affecting the U.S.’s GRI Ranking
The improvement of the U.S., which rose back up to the 16th spot it also occupied in 2018, resulted from better scores in the Material Wellbeing (26th) and Quality of Life (21st) sub-indices. Within Material Wellbeing, the U.S. improved its ranking in the unemployment indicator (to 11th from 15th). Its ability to reduce income inequality improved slightly, although it still ranks seventh from the bottom globally, despite ranking in the top 10 (6th) for income per capita.
The U.S. also stepped up in Quality of Life, with an improvement in the happiness of its retirees, and held steady on environmental factors, though it still holds the ninth-lowest rank in this indicator.
In the Finances in Retirement (11th) category, an improvement in the interest rates indicator offset declines in the tax pressure and old-age dependency (the ratio of retirees to working adults) indicator rankings. A lower life expectancy ranking contributed to the U.S. dropping out of the top 10 in the Health category to 16th, though it continues to have the highest score for health expenditure per capita (average amount spent on health per person) among all developed countries in the GRI.
Low Interest Rates: The New Normal?
Interest rates in the major economies in North America, Europe and Asia have trended downwards over the last four decades, and, according to GRI analysis, negative interest rates have become an ongoing trend in the last few years.
In 2016, when the GRI methodology was adjusted to use a weighted five-year average of real interest rates as part of the Finances in Retirement category, only one country (the United Kingdom) was working with negative rates. That number has increased steadily, and in 2020, 16 countries in the GRI have had their five-year average for real interest rates move into negative territory. This means that almost 40% of the developed countries ranked in the GRI are facing this retirement challenge today.
“When the economy and markets are in crisis, interest rates are the go-to tool for central bankers looking to stimulate spending and get markets moving, but the cuts raise the stakes on retirement security,” said Edward Farrington, Head of Retirement Strategies at Natixis Investment Managers. “From an individual perspective, low rates are generally good because it costs less to borrow money, but, for retirees, negative rates magnify the problem they face in generating income from investments. The implications of negative interest rates likely will continue to affect retirees for many years ahead.”
To download a copy of the 2020 Global Retirement Index, visit im.natixis.com/us/research/2020-global-retirement-index.
SEE ALSO:
- Advisors Calm, Cool, Collected in COVID-Driven Volatility
- 2019 Study: U.S. Drops Further in Retirement Security Index
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
