A tax cut and stronger returns from the bond market provided some relief for older Americans in 2018, but the U.S. still ranks in the middle of the pack when it comes to retiree conditions around the world.
So concludes the latest edition of the Natixis Global Retirement Index, an analysis of 43 developed and developing countries based on a range of factors that affect retirement security. The United States moved up one spot, from No. 17 to No. 16, on the 2018 index.
Figure 1. The United States moved up one spot in this year's ranking, from No. 17 to No. 16.
Source: 2018 Natixis Global Retirement Index
That modest step up was largely the result of improvements in “material well-being” – including slightly better scores on income equality and employment – as well as progress in financial indicators. Without mentioning the Tax Cuts and Jobs Act by name, the authors noted that a lower tax burden helped improve the U.S. ranking.
Higher interest rates compared to last year also contributed to the U.S. edging forward one spot. Since last September, the Federal Reserve has increased the target for its influential funds rate from 1.25% to 2%. The authors suggested that this tightening of monetary policy helps boost savings rates and provides retirees, who are more inclined to invest in bonds and fixed annuities, with more income in their later years.
Income Inequality Still an Issue
Produced by Natixis Investment Managers, the six-year-old index takes a broad look at the factors that impact retiree well-being in each country. The researchers analyzed 18 indicators of retirement security, which are broken down into four major groups: the material well-being of older residents, retiree finances, quality of life, and health.
The index and accompanying 83-page report analyzed data from International Monetary Fund advanced economies, countries belonging to the OECD (Organisation for Economic Co-operation and Development) and the “BRIC” countries of Brazil, Russia, India, and China.
The United States ranked in the top 10 in two of the four sub-indices: finance and health. It derived a high ranking for the latter, in part, because it spends more per person on healthcare than any other developed country in the world.
But the U.S. score was weighed down by poor marks in the quality-of-life segment and in the material well-being metric. Despite having the fifth-highest per-capita income in the world, the authors point out, it’s still in the bottom 10 for income inequality.
Figure 2. While the U.S. ranked high in the finance and health categories, it was seventh from the bottom when it comes to material well-being.
Source: 2018 Natixis Global Retirement Index
Switzerland, Nordic Countries Lead the Way
Topping the list this year is Switzerland, which moved up from the No. 2 position on last year’s index. The central European country fared well across all major categories but did particularly well in health and quality-of-life measures.
Also notable on the list is the strong presence of Nordic countries, including Iceland (No. 2), Norway (No. 3), Sweden (No. 4) and Denmark (No. 8). In fact, Finland (No.12) is the only member of the region not to crack the top 10.
The report cites several factors that make Northern Europe a model for retirees, including a strong social security system and healthy economic conditions throughout the region. “The Nordic countries typically finish near the top for most indicators and therefore provide a best practice template for retirement wellbeing,” the authors write.
The report suggests that a host of challenges threaten retiree security even in top-ranking countries, however. An aging population around the world, for example, is increasing the burden on younger workers to support the retirement system. And interest rates, still at historically low levels, make it hard for older individuals to maintain their standard of living as they leave the workforce.
Meanwhile, it suggests that ballooning government debt – the by-product of efforts to pull countries out of the financial crisis – threatens to constrain public pensions and social programs for the aged.
“We hope this report will serve as a framework for much-needed dialogue among policymakers, pension managers, workers and the financial industry about how to meet the needs of today’s retirees while preserving retirement security for future generations,” CEO Jean Raby of Natixis Investment Managers said in a statement.
The Bottom Line
A tax cut and slightly higher bond yields are putting a few extra dollars in the pockets of older Americans. But if the U.S. hopes to significantly improve its position on the Global Retirement Index, it has to tackle its issues with income inequality and retiree well-being.