The U.S. fell two notches from 18th place in 2022 to 20th place in the latest Natixis Investment Managers’ Global Retirement Index (GRI), released today.
The findings come as investors continue to feel the weight of the past year’s high inflation figures. According to the GRI, 46% of affluent, individual investors with at least $100,000 in investable assets believe the increase in costs is slashing their retirement goals. “High inflation, steep public debt, and a sharp decline in U.S. health scores offset improvements in employment and income inequality, pulling the U.S. down on a relative basis compared to other countries in the index,” the research reported.
Specifically, 84% of those surveyed, including 87% of retirees, say that “recent history has shown just how big a threat inflation is to their retirement security,” like devaluing their income and savings. Included in their worries is the potential threat of reduced Social Security benefits, which ranked as the top fear with retirement, the GRI found.
Fifty-two percent of respondents to the study believe they’ll have financial freedom in retirement, but others aren’t so sure: 48% expect to make tough choices and trade-offs throughout their golden years, while 42% expect to have no other option but to live frugally in retirement. Others believe they’ll have to work in retirement (31%), move to a less expensive area (315), rely on family and friends for financial support (28%), and even sell their home (26%).
Still, Natixis reports that improvements in economic growth, wage gains, and interest rates have helped nearly all developed countries, including the U.S., see a higher overall score for retirement security in 2023.
“As economies have rebounded from the global pandemic, employment and wages have increased but so has inflation, forcing central banks to boost interest rates. It’s a good news-bad news scenario for retirement security, and further underscores the complexity of the retirement funding challenge,” said Liana Magner, executive vice president and head of Retirement and Institutional in the U.S. for Natixis Investment Managers, in a statement.
The U.S. received an overall score of 71% in 2023, up from 69% the previous year—driven primarily by employment and wage gains. The nation also received higher year-over- year scores on interest rates and tax pressure, but declined on inflation and government indebtedness, the latter of which the U.S. received the second worst score among the top 25 countries in the Index.
Among other rankings for the U.S. included:
• 13th for finances in retirement, down from 11th
• 21st for material well-being, up from 30th
• 21st for quality of life, no change
• 25th for health, down from 17th
Europe scores top rankings
For the second time in a row, Norway held its first place ranking on the GRI, followed by Switzerland, Iceland, and Ireland, all of whom had the same rankings in 2022.
Luxembourg and the Netherlands came in at fifth and sixth place, respectively, knocking Australia out from top five to seventh place, while New Zealand ranked eighth place, Germany ninth, and Demark 10th.
Despite seeing the lowest unemployment rate in the European Union, the Czech Republic saw the steepest drop from 10th place in 2022 to 18th in 2023.
Nearly all of the developed countries in the index received a higher overall score for 2023. Among developed countries, only Portugal, Spain and Japan had decreases. The list of countries in the top 25 has remained the same for four consecutive years, with notable shifts among them. Over the past year, Austria and Canada both ascended three places to 11th and 12th, respectively, while Finland and Sweden each slid one spot to 13th and 14th. Slovenia powered up six places to 15th. The UK moved ahead of the U.S. for the first time in five years to 16th from 19th in the index.
Key risks to retirement security
As a result of its research, Natixis identified the top five hazards that are impacting retirement security.
Inflation. The study found that 62% of working Americans say that inflation has significantly hurt their ability to save for retirement and ranked as the highest investment concern for 65% of overall respondents and 72% of retirees. Higher everyday expenses were also the biggest financial fear for workers (66%) and retirees (81%), many of whom live on fixed incomes.
Public Debt. In 2022, the U.S. public debt declined from 159.9% of GDP to 144% as the combination of higher prices, higher wages, and economic growth boosted projections for the tax revenues needed to make good on debt obligations. Yet, 77% of Americans surveyed by Natixis worry that high levels of public debt will result in reduced retirement benefits down the road. When asked about their greatest fears about retirement, the top answer was a cut in government benefits (49%), which 51% agree would make it difficult to make ends meet financially.
Rising Interest Rates. As interest rates have risen, only 22% of retirees and 45% of workers plan to add bonds to their portfolios this year, in part because only 3% of U.S. investors understand how rates affect bond prices and yields, Natixis reported.
Demographics. Natixis points out that rising old-age dependency on younger working populations is exerting undue pressure on traditional notions of retirement, particularly as more people live longer. Eight in 10 (80%) surveyed, including 85% of retirees, agree that government programs don’t consider the fact that people are living longer now. Moreover, 64% agree that women are at a greater disadvantage because of their longer lifespan and role as caregivers.
Big expectations and bad assumptions. While 53% of working Americans say they accept that they are going to have to keep working for longer than anticipated, 38% are worried they won’t be able to stay employed as long as they’d like. Surveyed retirees said they had planned to quit working at age 65 but actually retired four years earlier, at age 61, on average. More than one-third of retirees (35%) say their finances are tighter than they had expected.
SEE ALSO:
Amanda Umpierrez is the Managing Editor of 401(k) Specialist magazine. She is a financial services reporter with over six years of experience and a passion for telling stories and reporting news. Amanda received her degree in journalism and government and politics at St. John’s University. She is originally from Queens, New York, but now resides in Denver, Colorado with her partner. In her free time, Amanda enjoys running, cooking, and watching the latest drama show.