How Did America Lose to 18 Countries on Retirement Security?

By Markets Fool.com

The U.S. leads the world in many ways. But when it comes to retirement security, America finishes far from the top, with fully a dozen-and-a-half countries posting better results than the U.S. on a key measure of how well retirees around the world are poised financially for the years after their careers end.

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Image sources: Wikimedia Commons.

We're No. 19!
Analysts at Natixis Global Asset Management and CoreData recently came out with their third annual report on their Global Retirement Index. The index is intended for use as a way to compare how well both current and future retirees can expect to fare in their retirement years across the globe, using measures involving healthcare, finances, quality of life, and material well-being. With the index, policymakers can look at the laws and programs that various national governments create with retirement security in mind to see how well they're doing at accomplishing their end goals.

As you can see below, European countries dominated the top 10. Meanwhile, the U.S. barely managed to crack the top 20, finishing 19th for the third year in a row.

Country (Rank)

Overall Index

Health Index

Finances in Retirement Index

Quality of Life Index

Material Wellbeing Index

Switzerland (1)

82%

83%

70%

91%

85%

Norway (2)

81%

84%

63%

88%

95%

Australia (3)

77%

81%

73%

80%

76%

Iceland (4)

77%

81%

63%

86%

81%

Netherlands (5)

77%

84%

62%

83%

81%

Sweden (6)

77%

81%

64%

89%

75%

Denmark (7)

77%

82%

59%

91%

78%

Austria (8)

76%

88%

53%

86%

84%

Germany (9)

76%

87%

59%

82%

79%

New Zealand (10)

75%

78%

70%

84%

70%

U.S. (19)

71%

80%

65%

78%

64%

Source: Natixis.

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This Norwegian oil platform shows the importance of natural resources to the nation's wealth. Image: Wikimedia Commons.

What helped Switzerland and Norway stand out were their strong financial systems and their commitment to universal healthcare for their citizens. Indeed, most of the top countries have a combination of mandatory healthcare coverage and retirement savings programs that citizens are either forced to participate in, or in which participation is highly encouraged. Norway's sovereign wealth fund also gave it the top ranking in the Material Wellbeing component, and the nation's willingness to embrace austerity in order to keep budget deficits low has helped boost an economy that has falling unemployment and better income equality across its population.

In the U.S., meanwhile, shifting trends led to offsetting gains and losses in various components of the overall index score. A soaring economy helped to boost the country's Finances in Retirement component, with better credit quality, low inflation, and improving real interest rates contributing to better scores. Yet the report called out the U.S. for high budget deficits, declining government services, high healthcare costs, and rising income inequality, and those factors held back America's chances to climb in the rankings.

The global retirement economy
What's increasingly clear from the study is that, just as the globalization of industry has led to dramatic changes in the corporate world, an increasingly global marketplace has led to common challenges across the globe that all nations have to overcome, and all retirees have to deal with. For instance, Australia's high ranking comes in part from its mandatory superannuation retirement system, but the government has had to consider aggressive increases to the retirement age in order to help the program sustain itself for the long run. That's part of a larger trend in which people have to take more responsibility for their own retirement finances rather than relying on government programs and employer pensions to handle their savings needs for them.


Ayers Rock in Australia. Source: Wikimedia Commons.

At the same time, the methodology behind the study itself reveals some issues with which people might take issue. Natixis admits that countries with high tax burdens make up most of the top-ranking finishers. Not only do those taxes fund comprehensive healthcare, but other government policies provide positive factors that lead to better scores on other components of the overall index.

Can the U.S. get out of its rut?
Rankings in the Natixis index tend not to move around a lot, but countries like Iceland and Australia have made solid progress in the three years since the company started its annual look at retirement security. Improvements to the security of Iceland's financial system were responsible for much of its gains, going from 23rd in 2013 to fourth this year. Australia has started to balance its economy, and improving fiscal health helped raise its ranking from 11th two years ago to third in 2015, although its exposure to natural resources could be a cause for concern in the long run.

For the U.S. to top its global peers, it will have to improve the efficiency of the American healthcare system, reduce income inequality, rein in its growing national debt, and look at ways to lengthen life expectancies and quality of life. That's a tall order for any country, and given the debate about whether those yardsticks are even the right ones to measure a nation against, retirees shouldn't expect marked progress from outside sources to help them make their own retirement more secure. Instead, looking for ways to take greater advantage of what programs do exist, combined with a greater commitment toward saving for retirement on their own, will be essential to give American retirees the retirement security they want.

The article How Did America Lose to 18 Countries on Retirement Security? originally appeared on Fool.com.

Dan Caplinger has occasionally been pleased about finishing 19th in some of his races, but he's not sure the U.S. should be celebrating about this one. He has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.