Do Americans Have the Best Retirement?
Everyone longs for a comfortable retirement. In some countries, this is more easily accomplished than in others. The Natixis Global Retirement Index (GRI) measures four key areas that contribute to a comfortable retirement. It then compares the policies of 43 countries and ranks them according to how well they are doing.
The United States ranks 14th in the 2016 GRI, which means we have plenty we can learn from the 13 countries where a comfortable retirement is more easily achieved. The top 10 countries were Norway, Switzerland, Iceland, New Zealand, Sweden, Australia, Germany, Netherlands, Austria, and Canada.
Let’s dig into this study and look at the four key areas that were measured: finances in retirement, material well-being, health, and quality of life.
Finances in Retirement
In the finances arena, America ranked number 10. Not bad, but it could be better.
This component of the index looked at access to quality financial services and the ability to preserve savings. The research included factors such as inflation and real interest rates. Additional factors included government indebtedness, the number of non-performing bank loans, tax pressures, governance, and the old age dependency ratio.
The top five countries in this category were Chile, Singapore, New Zealand, Switzerland, and Australia. The top-performing countries have a large number of people who participate in workplace savings plans and have developed policies that focus on increasing participation in these types of plans.
For example, Chile made major changes to their pension system in 1981, and then again in 2008, and now require minimum contributions to retirement savings of 10% of earnings. Switzerland and Australia also have mandatory workplace savings programs, with Switzerland’s plan, which launched in 1985, considered by many to be one of the best retirement systems in the world. In the United States, one-third of workers do not have access to a workplace retirement plan.
When it comes to the importance of professional advice, the GRI report concludes that:
Where practical, providing access to a one-on-one meeting with a financial professional can help participants to set goals, obtain a better education on investing and risk, and maximize participation. Our own U.S. research shows that those individuals who have financial advisors have saved significantly more in their plan than those who don’t.
If you are working, provide the GRI report to your human resources department and encourage them to see what steps they can take to increase participation in the company plan and provide access to quality advice. Consider sending it to your representative in Congress also.
In this category, America ranked 25th. The top five were Norway, Iceland, Germany, Switzerland, and Korea.
This category considers income per person, unemployment, and income equality. The United States came in 37th in the income equality category. Overall, countries with high income per person and low-income inequality made it to the top 10. The U.S. has much work to do in this area. It should not be a surprise that this factor had a big role in the last election.
The United States ranked seventh in the health category. The top five were Luxembourg, Netherlands, Norway, France, and Japan.
The health component of the Global Retirement Index considers access to quality health care services and looks at data about health expenditures per person, health costs for the uninsured, and life expectancy.
When you peek under the hood at the underlying data, the U.S. spent the most per person on health care out of any country but came in 30th in life expectancy. That means all that spending may not be as productive as it could be. As spending increases, you should see a measurable result in terms of prolonged life expectancy. In addition, America has a high level of spending for those who are not insured.
America’s ranking is good in this category, but there is room for a lot of improvement in the quality of care that is received per dollar spent.
Quality of Life
Measuring happiness is a challenge, so this component of the Global Retirement Index includes self-reported levels of happiness from citizens. It also looks at quantifiable factors such as air quality, water, sanitation, climate change, energy, biodiversity, and habitat.
America ranked 16th in the quality of life category. Improvements in the climate category can help our ranking here.
The top five countries were Denmark, Switzerland, Norway, Finland, and Sweden. Denmark had a perfect score in the happiness category! Perhaps a vacation to Denmark can help you plan for a happy retirement of your own.
What Can We Learn From the Retirement Index
The countries that are in the top 10 in the GRI provide excellent examples of what types of changes can increase retirement security for an entire country. Government policy can make a positive difference. These changes include such things as:
- Making sure workers have access to retirement plans. As traditional pension plans go away, it is critical to make sure workers have alternatives — and participate in them.
- Providing incentives to save. If a large portion of citizens has no money in retirement, this becomes a burden on the country's entitlement budget. Providing long-term incentives to save is important.
The GRI report concludes, “Retirement security extends well beyond the savings vehicles themselves and includes consideration for a growing population that will be living on a fixed income for many years to come. Monetary, fiscal, and healthcare policies all play a critical role in ensuring that retirees are self-sufficient.”
Maximizing Your Retirement Success
Although the United States has some work to do to make it to the top 10, don’t wait for the government to ensure you have a comfortable retirement. One of the key components of retirement success is saving enough. In the U.S., many of those who do have access to a retirement plan such as a 401(k) plan are simply not maximizing their contributions. Most American are contributing less than 5% of their income toward retirement. Work to get this to at least 10%.