Workers all over the world seem to look forward to reaching a certain age and retiring. There is some kind of income or Social Security system in most countries to help people reach this goal, but not all of them are the same. The 2024 Global Pension Index from Mercer CFA is out, and the US is not at the top of the list.
The report said that the U.S.’s retirement system had “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.” It ranked 29th out of 48 countries and got an overall C+ grade. It actually went down from a score of 63 in last year’s report to a score of 60.4, which was based on three indexes:
- Adequacy: is a measure of how well the system provides for retirees, ensuring they have enough income in their later years.
- Sustainability: looks at whether the system can keep functioning as the population ages, considering factors like the old-age dependency ratio (the number of working-age people compared to retirees), public pension spending, government debt, and inflation.
- Integrity: focuses on the system’s regulation and governance, ensuring members are protected from risks and have access to clear information about their plans, especially in the case of private pensions.
After the report came out, many experts had something to say about it. Einat Steklov, co-founder and CEO of Kashable, was one of the most well-known to say, “The American retirement system’s C+ rating is an accurate depiction of the ongoing challenges in ensuring long-term financial security for retirees, and there is a substantial amount of work to be done […]”Planning for retirement is now very hard for most people, especially when they have to balance the need for immediate financial stability with the importance of saving for the long run.
It was because of “significant gaps in accessibility, adequacy, and education in the U.S. system” that she talked about the changes that have “fundamentally transformed the retirement landscape.”
For example, she said that the switch from defined benefits to defined contributions has made “individual employees responsible for decisions and assessments that, for decades, were handled by corporations and investment professionals.”
Comparing the US social Security system to others
The U.S. pension system doesn’t look good for the future, especially when compared to the Netherlands, Iceland, Denmark, and Israel, which got an A rating on the report because they have a “first-class and robust retirement income system that delivers good benefits, is sustainable, and has a high level of integrity.”
Brandy Burch, CEO of Benefitbay, also added to the conversation: “One thing that stands out is that many top-ranking countries combine strong public pensions with incentives for people to save on their own.”
We have Social Security in the U.S., which is a basic safety net, but it wasn’t meant to be your only source of income in retirement. Millions of people could feel safer in their retirement if this program was made bigger or its perks were improved.
Burch doesn’t think everything is bad. She says, “The rise of 401(k) plans and IRAs has given people more options for saving for retirement, and features like automatic enrollment and employer match contributions have made more people join.”
There’s a lot of potential if we keep encouraging companies to offer these plans and even think about giving people who don’t have access to a workplace retirement plan the same chances to save.
No plan is perfect, after all. Even the Netherlands, which got an A on the report, is changing how it has worked for decades by “moving from a mostly collective benefit structure to a more individual defined contribution (DC) approach,” as Mercer CFA puts it.
