For the first time in 10 years, nearly all developed countries, including the United States, received a higher overall score for retirement security over the previous year, but most Americans apparently aren’t feeling it, as other factors pushed the U.S. down in the rankings.
This is according to Natixis Investment Managers’ 2023 Global Retirement Index (GRI), which shows that the U.S. dropped two spots to 20th place from 18th in the firm’s annual ranking of retirement security among the 44 countries in the Index.
The rankings are based on an aggregate of mean scores for 18 performance measures in each of four sub-indices—finances in retirement, material well-being, 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 2023 GRI compared to the year prior:
- 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
The U.S. received an overall score of 71% in 2023, up from 69% in 2022. The higher overall score is primarily the result of an increase in the material wellbeing sub-index driven by employment and wage gains. In contrast, the U.S. also saw a sharp decline in the health sub-index, as life expectancy took a hit from the pandemic and an increase in drug-related and accidental deaths. And while the annual index shows improved economic conditions, the research also reveals that optimism at the macro level is not being felt in the everyday lives of retirees and working Americans.
Meanwhile, the firm’s survey of individual investors with at least $100,000 in investable assets found that nearly half (46%) of working respondents in the U.S. feel inflation is killing their dreams for retirement. At the same time, many Americans are contemplating the potential threat of reduced Social Security benefits, which, the study notes, ranks as their top fear about retirement.
While 52% of working Americans envision having the financial freedom to do what they want in retirement, nearly half (48%) also expect to make tough choices and trade-offs, including:
- 42% expect to have no other option but to live frugally
- 31% anticipate being stuck having to work in retirement
- 31% expect to be forced to move somewhere less expensive
- 28% think they will have to rely on family and friends to make ends meet
- 26% expect to have to sell their home
Five Risks to Retirement Security
As a result, based on the GRI and additional research by the firm, Natixis IM has identified five key risks to retirement security, including:
1. Inflation: Inflation ranks as the No. 1 investment concern for 65% of respondents overall but especially among retirees (72%). Higher everyday expenses is also the biggest financial fear for workers (66%) and retirees (81%), many of whom live on fixed incomes.
2. Public debt: The same inflation spike that hurt consumers helped alleviate public debt concerns in the short term. Still, 77% of Americans 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.
3. Rising interest rates: Higher interest rates should be good news for retirees, creating more favorable conditions to generate steady income from their retirement savings and enhancing the ability of bonds to provide a risk ballast in portfolio construction. Yet, 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.
4. Demographics: Natixis IM further observes that the math at the heart of the U.S. retirement system no longer adds up, with the elderly becoming the fastest-growing segment of the U.S. population and the fertility rate dropping by nearly half since the end of the post-war baby boom. To that end, 8 in 10 respondents, including 85% of retirees, agree that government programs don’t take into account the fact that people are living longer now. Moreover, 64% agree that women are at a greater disadvantage because of their longer lifespan.
5. Big expectations and bad assumptions: 53% of working Americans say they accept that they are going to have to keep working for longer than anticipated. However, 38% are worried they won’t be able to stay employed as long as they’d like. In fact, surveyed retirees said they had planned to quit working at age 65 but actually retired four years earlier, at age 61, on average.
“Saving for retirement was already a challenge. Now, as people think about the impact of higher prices, longer lives, and the potential for reduced retirement benefits, many are doubting whether they will be able to put all the pieces together,” said Dave Goodsell, Executive Director of the Natixis Center for Investor Insight. “They may think they need a miracle, but the best course of action is to face the challenges head-on through planning and education.”
The Global Rankings
As to those global rankings, for the second consecutive year, Norway held on to first place on the GRI, followed by Switzerland, Iceland and Ireland, all of which held the same rankings as in 2022.
Luxembourg and the Netherlands both climbed two places in the rankings to 5th and 6th, respectively. In doing so, they outpaced Australia, which dropped out of the top five to 7th, and New Zealand came in at 8th. Germany moved into the top 10 at No. 9, replacing Denmark, which dropped from the 9th to 10th spot.
Meanwhile, the U.K. moved ahead of the U.S. for the first time in five years to 16th from 19th in the Index. The common drivers of performance among the top 25 countries on the GRI are higher interest rates as well as improvements in employment levels and progress on environmental policies.
A copy of the 2023 Natixis IM’s Global Retirement Index can be found at: https://im.natixis.com/us/research/2023-global-retirement-index
