In what is shaping up to be a difficult year to retire, the United States fell behind one spot in a newly released global retirement index that provides a measure of how supportive the climate is for retirement across nations in the developed world.
The United States slipped to No. 18 out of 44 developed countries in the Natixis Investment Managers' 2022 Global Retirement Index (GRI). The annual index, which marks its 10th anniversary this year, shows erosion in key factors affecting the financial security and material wellbeing of U.S. retirees, with lower scores for employment, income equality, government debt, tax pressure and a surge in America’s aging population.
In addition, new market risks—namely inflation, rising interest rates and ongoing volatility—will make it harder for retirees to make up for lost ground and calls for new thinking about retirement planning by savers, the report notes. In fact, the market downturn and sharp increase in prices for food, gas, housing and medications have hit retirees particularly hard, the report suggests.
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 in the 2022 GRI:
- 11th for finances in retirement;
- 17th for health;
- 21st for quality of life; and
- 30th for material wellbeing.
According to the report, the U.S. dropped to No. 18 this year from No. 17 in 2021, in part because of relative improvements in other countries. 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 65—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 contribute to a lower overall ranking.
Global Rankings
Meanwhile, 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 third, while Switzerland held its position at No. 2. The remainder of the top 10 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 10 countries for the first time this year. Germany and Canada—which were among the top 10 countries last year—fell to No. 11 and No. 15, respectively.
Biggest Risks
Longevity is an important part of the equation that drives all other inputs including how much money is needed, investment return expectations and spending rates, the report explains. Yet, 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%); and
- forgetting to factor in healthcare costs (49%).
“Retirement security challenges have come home to roost in 2022,” observes Dave Goodsell, Executive Director of the Natixis IM Center for Investor Insight. “Inflation has been the long-sleeping giant of worries for retirees and is now at the apex of retirement security threats.”
“Investment strategies, financial planning, employee benefits, and policy considerations will all need to factor in a new funding equation that accounts for inflation, interest rates, and increased longevity,” he suggests.
Moreover, 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., the report further suggests. For instance, in 1950 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 more than 28%, and by 2050, the over-65 population in the U.S. is projected to reach more than 40%, presenting limited choices for policy makers, particularly as retirement benefits compete with a growing public debt burden.
The index includes International Monetary Fund (IMF) advanced economies; members of the Organization for Economic Cooperation and Development (OECD) and the so-called “BRIC” countries (Brazil, Russia, India and China). The researchers calculated a mean score in each category and combined the category scores for a final overall ranking of the 44 nations studied.
