The United States slipped to No. 18 out of 44 developed countries for financial security and 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.”
“In a year on track to be one of the worst on record to retire, the market downturn and sharp increase in food, gas, housing, and medications have hit retirees particularly hard,” according to the Natixis Investment Managers 2022 Global Retirement Index (GRI).
New market risks, including inflation, low but rising interest rates, and ongoing volatility, will make it harder for retirees to make up for lost ground and requires new thinking about retirement planning by savers, the company noted.
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:
- 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. This was driven by lower scores on key measures of material wellbeing, namely employment (which has since returned to pre-pandemic levels except among workers over the age of 651) and income equality (for which the U.S. comes in with the seventh lowest score of all GRI countries).
Lower scores on tax pressure, old-age dependency (the number of people age 65+ per 100 people between the working age of 15 to 64), and higher government debt also contributed to a lower overall ranking.
Over the past decade, the U.S. score for government indebtedness has declined by 60 percentage points from 87% in 2012 to 27% in 2022, the sixth lowest score among all GRI countries.
Global rankings
- After four years in the No. 3 spot, Norway reclaimed its No. 1 ranking in the 2022 GRI.
- Iceland, which has held the top spot since 2018, fell to 3rd, while Switzerland held its strong position at No. 2.
- The remainder of the Top Ten countries this year are Ireland (4th), Australia (5th), New Zealand (6th), Luxembourg (7th), Netherlands (8th), Denmark (9th), and the Czech Republic (10th).
- Luxembourg and the Czech Republic entered the list of top ten countries for the first time this year, rising to No. 7 and No. 10, respectively. Germany and Canada, which were among the top ten countries last year, fell to No. 11 and No. 15, respectively, in this year’s GRI.
- Ireland stands out as having the biggest gain in GRI ranking over the past ten years, rising to 4th from 38th in 2012. New Zealand, Iceland, and the Czech Republic also are among the biggest gainers.
Biggest risks to retirement security: Inflation, rates, longevity
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 challenges to retirement security are particularly problematic in countries with a pay-as-you-go retirement system, which is the model for Social Security in the U.S. In 1950, just 15 years after the Social Security system was created, the U.S. had an old age dependency ratio of just 14.2%, meaning that for every 100 working-age people, there were 14 dependent people.
By 2020, it had reached 28.4%, and by 2050, the over-65 population in the U.S. is projected to reach 40.4%. Increased longevity, which contributes to the growth of the aging U.S. population, breaks the underlying formula on which the retirement system is based, and the nation’s growing debt burden serves to limit policy options.