3 Reasons the US Retirement System Fell in World Rankings
Written by
Chris Adam
Edited by
Amber Barkley
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The United States may have some work to do when it comes to the country’s retirement system. A recent ranking from the Mercer CFA Institute Global Pension Index shows plenty of room for improvement.
The U.S. retirement system received a C+ grade this year. That’s a consistent grade, but the score dropped for a second year in a row: from 63 last year to 60.4 out of 100 in this latest report. The U.S. was far from the world’s leader. It came in at No. 29 out of 48 countries.
The U.S. retirement system is funded mostly by individual retirement accounts, 401(k)s and Social Security. In this latest report, scores for the U.S. dropped in every subcategory. Those subcategories include adequacy, sustainability and integrity.
Drop in Adequacy
The largest drop was from adequacy. This looks at the benefits provided by pensions systems and design features that may help improve the likelihood that adequate retirement benefits are available.
It’s helpful to put this in some perspective. The U.S. adequacy score dropped to 63.9 from 66.7 last year. That’s below the 64.9 average of all countries examined.
Per data from the Organisation for Economic Co-operation and Development, the U.S. provides a benefit of 15.6% of the average worker’s earnings for the lowest-income ones at retirement. Comparatively, better systems are about 25% or higher of the average wage.
Drop in Sustainability
There is an important question for countries to answer when it comes to sustainability and retirement systems: Can the existing systems continue to deliver, notwithstanding demographic and financial challenges?
When it comes to this part of the report, some factors include pension coverage, total assets, public expenditure, government debt and economic growth. The drop in the U.S.’s score in this area comes amid some concerns, being particularly vocalized this election season, about the future of the Social Security system in America.
Drop in Integrity
The third subcategory, integrity, looks at regulations for private pension plans.
Some of the factors in this subcategory include regulation, governance and operating costs. According to the report, a ranking such as the U.S. received for its overall retirement system is “a system that has some good features but also has major risks and/or shortcomings that should be addressed; without these improvements, its efficacy and/or long-term sustainability can be questioned.”
What You Can Do
If this report has you even more concerned about your own retirement and financial picture, there are some steps to take. According to the Department of Labor, the top pieces of advice to prepare for retirement are to start saving, keep saving and stick to your goals.
Further, it’s helpful to predict your retirement needs so you can budget and plan. You can also look at options offered through your employer and investment opportunities in which you may be able to put your money to work ahead of your later years.
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