In what seems like two steps forward, one step back, the U.S. rose two spots to No. 16 among developed nations for retiree wellbeing in the 2020 Global Retirement Index (GRI).
Now in its eighth year, the GRI, which is compiled by Natixis Investment Managers, shows that the U.S. moved up two spots because of better scores in the material wellbeing (26th )and quality of life (21st) sub-indices.
The GRI provides a snapshot of the relative wellbeing and financial security of retirees in 44 countries, based on 18 factors which influence retiree welfare across four categories, including finances in retirement, material wellbeing, health and quality of life.
Within material wellbeing, the U.S. improved its ranking in the unemployment indicator from 15th to 11th. Its ability to reduce income inequality improved slightly, although it still ranks seventh from the bottom globally, despite ranking in the top 10 (6th) for income per capita.
The U.S. also stepped up in quality of life, with an improvement in the happiness of its retirees, and held steady on environmental factors, though it still holds the ninth-lowest rank in this indicator.
In the finances-in-retirement category (11th), an improvement in the interest rates indicator offset declines in the tax pressure and old-age dependency (the ratio of retirees to working adults) indicator rankings. A lower life expectancy ranking contributed to the U.S. dropping out of the top 10 in the health category to 16th, though it continues to have the highest score for health expenditure per capita (average amount spent on health per person) among all developed countries in the GRI.
One caveat the firm notes is that the data used in the calculation of the 2020 GRI include the most recent statistics available, typically from 2019. As a result, more recent developments resulting from the Coronavirus pandemic are not necessarily reflected in this year’s rankings.
Still, Natixis notes, its analysis of multi-year index trends suggests that the pandemic and policy actions taken to moderate its economic impact will have lasting implications for retirees. Retirement security in the U.S. and developed nations around the world now faces elevated threats of lower-for-longer interest rates, record levels of public debt, recession, income inequality and climate quality, the report notes.
5 Threats to Retirement Security
In a supplemental report to the 2020 GRI, What Could Possibly Go Wrong?, Natixis identifies five specific issues that the firm believes present the greatest threats for retirement security in the future.
The long-term impacts of the recession on savings: The speed and severity of the global economic slowdown stemming from the COVID-19 outbreak are greater than those in recent recessions. Resulting measures taken to cover income shortfalls may dampen the savings needed for future retirement security. For instance, workers may make hardship-based early retirement withdrawals that are never replaced, and employers may reduce or suspend matching contributions to DC plans, steps that may become permanent.
Falling interest rates disadvantage retirees: Rates in the U.S. and other nations have been at historic lows for a dozen years, but central bankers lowered them further as part of stimulus efforts. Lower rates may require individuals and institutions alike to be more creative about how they prepare to meet longer-term needs and commitments.
Fiscal stimulus raising public debt: The $12 trillion of fiscal and monetary stimulus provided globally has kept economies afloat during the COVID-19 pandemic, but will magnify already high levels of public debt. While low interest rates keep debt servicing costs manageable today, those same low rates may tempt policymakers to boost spending, further increasing public debt. In order to control spending in the future, governments could be forced to raise taxes, including on retirees, and reduce funding for retiree healthcare programs and public pensions.
Climate-related disasters threatening retirees: As seen in recent wildfires, typhoons and hurricanes, climate-related natural disasters are becoming more frequent and more severe. Air pollution is also worsening, posing greater safety and health risks for vulnerable retirees, including chronic cardiac and pulmonary illnesses. Such disasters also have financial implications, including higher insurance costs, increased food expenditures and greater housing expenses as storm severity grows.
Inequality worsens economic outcomes: The issues of inequality—of race, gender and other factors—have come to the fore in the U.S. and other nations. Natixis notes that research globally illustrates race and gender gaps in both worker pay and access to workplace retirement plans, with implications for inequality in retirement income. Lower lifetime earnings and contributions to savings can result in imbalances that last past the working years into retirement, with lifelong gaps in savings and income that, in the case of women, are exacerbated by longer lifespans.
The Top 10
The top three nations worldwide in this year’s GRI are unchanged from 2019, with Iceland in first place, Switzerland in second and Norway third. According to Natixis, stability at the top is the norm, as nine of this year’s top 10 countries have been in the top 10 for each of the past two years. The other countries include Ireland (No. 4) the Netherlands (No. 5), New Zealand (No. 6); Australia (No. 7); Canada (No. 8); Denmark (No. 9); and Germany (No. 10). The only nation to depart from last year’s top 10 is Sweden.
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