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Compared to other countries, the U.S. retirement system doesn’t get high marks.
In fact, the U.S. received a C+ rating in 2024, ranking 29th out of 48 pension systems in the world, according to Mercer CFA Institute’s annual Global Pension Report indexreleased Tuesday. It analyzes public and private sources of retirement funds, such as Social Security and 401(k) plans.
akin index The United States ranked 22nd out of 44 countries this year, according to a report compiled by Natixis Investment Management. Its ranking is down from a decade ago, when it ranked 18th.
“I think (the C+ grade) describes a rating that has a lot of room for improvement,” said Christine Mahoney, global head of retirement at consulting firm Mercer.
The Netherlands ranked first, followed by Iceland, Denmark and Israel, which all received an “A” grade, according to consultancy Mercer. Singapore, Australia, Finland and Norway received B+.
14 countries including Chile, Sweden, the United Kingdom, Switzerland, Uruguay, New Zealand, Belgium, Mexico, Canada, Ireland, France, Germany, Croatia and Portugal received B.
Of course, retirement systems differ because they involve a country’s unique economic, social and cultural norms, politics and history, according to Mercer’s report. However, the report found that certain characteristics often determine the financial well-being of older adults.
The U.S. system, often referred to as the three-legged stool, consists of Social Security, workplace retirement plans, and personal savings.
Mahoney said the U.S.’s lackluster standing in the world is largely due to huge disparities in the share of people eligible for workplace retirement plans and massive opportunities for “churn” from pre-retirement savings accounts.
Employers are not required to offer workers retirement plans such as pensions or 401(k) plans. About 72% of workers work in the private sector Have access to About half (53%) were engaged in this activity by March 2024, according to the U.S. Bureau of Labor Statistics.
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“For those who have (a plan), it’s probably pretty good on average, but there are a lot of people who have nothing,” Mahoney said.
By contrast, some of the highest-ranking countries, such as the Netherlands, “basically cover all workers in the country,” said Graham Pearce, Mercer’s global head of defined benefits.
Additionally, Pierce explained that the highest-rated countries generally have greater limits on the amount of cash their citizens can withdraw before retirement than the United States.
For example, American workers can withdraw their 401(k) savings when they change jobs.
About 40% of workers quit cash According to the Employee Benefit Research Institute, it’s “too early” every year. an independent academic institution study Beginning in 2022, more than 160,000 U.S. employees who left their jobs between 2014 and 2016 were surveyed. Discover About 41% cashed out at least some of their 401(k) funds, and 85% completely drained their balances.
The law also allows employers to cash small 401(k) balances and send checks to workers.
While the U.S. may offer greater flexibility to people who need to access funds in emergencies, this so-called cash drain could also reduce the amount they have saved in old age, experts say.
“If you’re someone who moves jobs a lot, has a low savings rate and has leakage, it’s going to be hard to build your own,” said David Blanchett, director of retirement research at PGIM, the investment management arm of Prudential. Retirement savings.
Social Security is considered the primary source of income for most older Americans, providing the majority of retirement income for a large portion of the population over the age of 65.
By then, approximately nine out of 10 people aged 65 and older Receiving Social Security benefits as of June 30, according to the Social Security Administration.
Blanchett said Social Security benefits are typically tied to a worker’s salary and work experience. For example, the amount is hooked Highest wage for workers in 35 years.
While benefits are progressive, meaning lower earners typically replace a greater proportion of their pre-retirement wages than higher earners, Social Security’s minimum benefit is lower than in other countries, such as Scandinavia, Blanchette said. peninsula’s public retirement plan country.
“This is not a safety net,” he said.
“It’s important to note that as a public pension benefit, increasing the minimum benefit for all retirees will enhance retirement resiliency for all Americans,” Blanchette said.
That said, policymakers are working to address some of these issues.
For example, 17 states Created So-called automated IRA plans are designed to close the coverage gap, according to Georgetown University’s Center on Retirement Planning.
These plans typically require employers that do not offer workplace retirement plans to automatically enroll workers in state plans and facilitate payroll deductions.
A recent federal law called “Secure 2.0” also expands aspects of the retirement system. For example, it makes more part-time workers eligible for 401(k) plans and raises the threshold for employers to cash out balances for departing workers.
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