Study Reveals 3 Countries Where You Won’t Outlive Your Retirement Savings & Why

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When it comes to retirement savings and how far it will stretch out, not all countries are equal. Globally, retirees are living longer, yet a startling four in 10 Americans might outlive their retirement savings, according to a new TIAA Institute report.

According to Surya Kolluri, head of TIAA Institute and one of the Future of Retirement Security report’s authors, the data is more concerning than surprising. “Research shows that people are living longer, yet they do not understand how longevity impacts retirement planning,” he said.

He noted that longevity risk — the risk of outliving your money during retirement — is one of four risks threatening retirement security, along with inflation, market and cognitive risks. However, TIAA found that only 32% of adults have a clear understanding of how longevity impacts retirement planning.

“Individuals with longevity literacy tend to have better retirement readiness and experience better retirement outcomes,” he added.

Against this backdrop, TIAA examined several countries that are all considering reforms to their retirement driven by several factors, including the crucial one of longevity. In some of these countries, retirees’ savings tend to go further than in America.

What Makes a Successful Retirement System?

According to Kolluri, all the countries in the study have specific strengths and weaknesses in their retirement systems, but a successful system needs to leverage the best elements of defined benefit and defined contribution plans to achieve adequacy, sustainability and equity.

Per TIAA, adequacy is “the ability of the system to provide enough income for retirees to maintain their standard of living throughout retirement.” Meanwhile, it defines equity as “the ability of the system to provide good (but not necessarily equal) outcomes for participants across different age and income groups.”

The other two attributes TIAA used to describe a successful retirement system are sustainability, or “the long-run ability of the system to maintain sufficient assets (through contributions and returns) to support retirement incomes,” and plan design, “the effectiveness of the system’s design architecture in guiding and incentivizing workers and retirees to achieve good outcomes.”

The U.S.

The report found that while some countries, such as the U.S. and Canada, provide considerable individual choice when it comes to retirement, they also struggle with adequacy and equity. In turn, TIAA Institute has recommendations for policymakers, employers and the retirement industry to develop a framework for a U.S. retirement system that will support the needs of modern retirees.

For instance, it suggests requirements for minimum standards for rollovers from one workplace plan to another. For the retirement industry, TIAA suggests creating an integrated digital dashboard and connectivity between different providers and account types to allow for easy account consolidation. As for employers, it recommends flexible career paths, allowing workers to transition gradually into retirement.

Kolluri explained that average life expectancy has increased 17 years since Social Security debuted nearly 90 years ago. Longer lifespans combined with fewer workers having access to defined benefit plans (which promise workers a source of guaranteed retirement income), and the 57 million workers who do not have a retirement savings plan, all underscore the severity of the retirement crisis.

The Netherlands, Singapore and Sweden

The Netherlands, Singapore and Sweden have a greater role in converting savings into guaranteed lifetime income throughout retirement, said Kolluri. These countries have mandatory employer contribution, whereas in the U.S. and Canada, it’s voluntary. 

In addition, they also place more emphasis “on collective risk sharing and limited individual choice,” according to the TIAA report, which added that “most investment and longevity risk [are] managed collectively.”

In turn, these are the countries in the report where retirees have a far less chance to outlive their savings, Kolluri said. 

The Key To Building Retirement Savings You Won’t Outlive

According to Kolluri, the key to building retirement savings that will sustain retirees through the ups and downs of market fluctuations or other life challenges, is to create a plan that includes diversified sources of income, including a form of guaranteed income.

“Adding a source of guaranteed income, such as a pension or annuity, is one of the best ways to add and create an additional stream of income that individuals cannot outlive,” he said.

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