The U.S. ranked as the 16th best country to retire in for 2020, right in the middle of the pack when it comes to retiree conditions around the world. The following year, the U.S. dropped on the list, ranking as the 17th best country to retire in for 2021.
In 2020 and 2021, the world was confronted by the coronavirus pandemic and the subsequent economic policies of governments that would affect retirement and the global retirement index. Even before the coronavirus hit, the retirement landscape didn't look promising: low-interest rates had been limiting income options for retirees for twelve straight years. Record levels of public debt were forcing public policymakers to make tough funding decisions. Plus, the growing impacts of climate change were causing disasters, risks to health, and decreases in environmental quality that would impact retirees.
At least, so concludes the latest edition of the Natixis Global Retirement Index (GRI), an analysis of 44 developed and developing countries based on a range of factors that affect retirement security. The United States moved up two spots from No. 18 in 2019 to No. 16 on the 2020 index, but fell to 17 in 2021.
Understanding the Global Retirement Index
Produced by Natixis Investment Managers, the nine-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 78-page report analyzed data from International Monetary Fund's advanced economies, countries belonging to the Organisation for Economic Co-operation and Development (OECD), and the “BRIC” countries of Brazil, Russia, India, and China.
Analysis of the U.S.' Ranking in the GRI
The U.S.' modest ranking is due to its measures on "quality of life" and “material well-being," which are still not strong, relative to other nations. Notably, the United States has the sixth-highest income-per-capita rate in the world, but places in the bottom 10 for income inequality.
The report noted that the United States' score was really dragged down by the Health sub-index; previously ranking in the top 10 for health, the U.S. dropped down to No. 17 in 2021 due to its average life expectancy of 78.54 years. Still, the U.S. spends more per person on healthcare than any other developed country in the world and ranked third for insured health expenditure.
In the United States, older individuals have also made up a large proportion of hospitalizations related to coronavirus.
Despite having the sixth-highest per-capita income in the world, the authors point out, it’s still in the bottom 10 for income inequality. U.S. Census data shows that on average, American women only make $0.82 for every $1 made by men. That's not to mention that women of color are at a further disadvantage: Black women make only 62% of what White men do. Still, within the Material Wellbeing category, the U.S. improved its ranking based on the unemployment indicator (going to 11th from 15th).
Finances In Retirement
During the COVID-19 pandemic, the U.S. passed the CARES Act, which allowed individuals to take penalty-free hardship withdrawals from their contribution plans. It scores poorly on government indebtedness. More than 3,000 individuals took out more than the maximum of $100,000 from their account. In the Finances in Retirement sub-index, the U.S. ranked 11th due to an improvement in the interest rates but offset by declines in the tax pressure and old-age dependency (the ratio of retirees to working adults) indicator rankings.
Quality of Life
The U.S. has risen in the happiness of its retirees and held steady on environmental factors. However, it has a lot of room to improve, holding the ninth-lowest rank (21st place) in this indicator.
Switzerland, Nordic Countries Lead the Way
Iceland, Switzerland, and Norway all remained in the list of top three with the same rankings as last year. Generally, the strong presence of Nordic countries is notable, with Denmark coming in 9th place, Sweden in 13th, and Finland in 15th place. Sweden's drop from No. 4 in 2019 was largely due to its decreasing average for real interest rates which directly impact retirees living on a fixed income.
Overall, these Nordic countries perform generally well in all sub-indices except within the finances category. Meanwhile, Norway also shows off second-pace scores for health and material wellbeing.
The report has previously cited 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.
Threats to Retirement Security Globally
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. Five specific issues that the firm believes pose the greatest threats to retirement security include:
- The long-term impact of the COVID-19 recession on savings: Because of the pandemic, individuals could reduce their future retirement savings to make up for current needs, and employers may be incentivized to stem or suspend matching contributions to retirement plans.
- Falling interest rates on retiree's fixed incomes: Interest rates have been at historic lows for over a decade, but were further lowered in 2020 as part of stimulus efforts.
- Fiscal stimulus raising public debt: Even prior to COVID-19 and the $12 trillion of fiscal stimulus attached to the pandemic, ballooning government debt—the by-product of efforts to pull countries out of the financial crisis—threatened to constrain public pensions and social programs for the aged.
- Climate-related disasters threatening health and expenditures: From wildfires in California to typhoons around the world, climate change is causing increased natural disasters and worsening air quality, pollution, and impacting health expenditures and insurance costs.
- Issues of inequality worsening economic outcomes: Income inequality directly impacts worker pay and access to retirement plans, resulting in imbalances in retirement income.
“The COVID-19 pandemic, economic crises, and other issues that have come to light this year have intensified longer-term threats. It will be important for individuals, employers, institutional investors, asset managers, and policymakers to plan for how they will take on the challenge of retirement security in the years and decades to come,” said Edward Farrington, Head of Retirement Strategies at Natixis Investment Managers, in a statement.
The Bottom Line
The U.S. is one of the wealthiest countries in the world, with high income per capita. 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 wellbeing.