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The United States’ retirement system does not receive high marks compared to other countries.
In fact, the U.S. earned a C+ grade and ranked 29th out of 48 pension systems worldwide in 2024, according to the Mercer CFA Institute’s annual Global Pension Index released Tuesday. We analyzed public and private sources of retirement funding, including Social Security and 401(k) plans.
A similar index compiled by Natixis Investment Management ranks the United States 22nd out of 44 countries this year. The ranking has dropped from 18th place 10 years ago.
“I think [a C+ grade] Kristin Mahoney, global retirement leader at consulting firm Mercer, says:
Mercer said the Netherlands took first place, followed by Iceland, Denmark and Israel, each receiving an “A” rating. Singapore, Australia, Finland and Norway received a B+.
Fourteen countries received B grades: Chile, Sweden, Great Britain, Switzerland, Uruguay, New Zealand, Belgium, Mexico, Canada, Ireland, France, Germany, Croatia and Portugal.
According to the Mercer report, retirement plans are naturally different because they respond to a country’s unique economy, social and cultural norms, politics, and history. However, the report found that there are certain characteristics that generally determine how well older adults fare financially.
The U.S. system is often referred to as the “three-legged chair” and consists of Social Security, workplace retirement plans, and personal savings.
The lackluster standing of the United States around the world is due to wide disparities in the proportion of people who have access to retirement plans at work, and ample opportunities for savings to be “drained” from accounts before retirement. Mahoney said that was the main cause.
Employers are not required to offer retirement plans, such as pensions or 401(k) plans, to workers. According to the U.S. Bureau of Labor Statistics, about 72% of private sector workers had access to services as of March 2024, and about half (53%) participated.
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“Those who have [a plan]It’s probably pretty good on average, but there are a lot of people who don’t have anything,” Mahoney said.
By contrast, some of the top-tier countries, such as the Netherlands, “cover almost every worker in the country,” said Graham Pearce, head of global defined benefit pensions at Mercer.
Additionally, top-rated countries generally have stricter limits than the United States on the amount of cash their citizens can withdraw before retirement, Pearce explained.
For example, American workers can withdraw their 401(k) savings when they change jobs.
According to the Employee Benefit Research Institute, about 40% of job leavers withdraw cash “prematurely” each year. Another academic study conducted in 2022 looked at more than 160,000 U.S. employees who left their jobs from 2014 to 2016 and found that about 41% cashed out at least some of their 401(k), and 85% It turns out that the balance has been completely depleted.
Employers are also legally allowed to cash out small 401(k) balances and send checks to workers.
For example, the U.S. may offer more flexibility to people who need access to funds for emergencies, but this so-called drain also reduces the amount of savings they have available for retirement, experts say. The family says.
David Blanchett, head of retirement research at PGIM, Prudential’s investment management arm, says, “People who move from job to job, have low savings rates, and are unable to save enough, find it difficult to build their own retirement nest eggs. It’s difficult,” he says.
Social Security is considered the primary source of income for most older Americans and provides the majority of retirement income for a significant portion of the population age 65 and older.
As of June 30, about 9 out of 10 people age 65 and older were receiving Social Security benefits, according to the Social Security Administration.
Blanchett said Social Security benefits are generally tied to a worker’s wages and work history. For example, this amount is fixed at the worker’s highest salary for 35 years.
Benefits are progressive, with low-income earners generally replacing a larger proportion of their pre-retirement pay than higher-income earners, but Social Security minimum benefits are lower than those in other countries, such as Scandinavian countries with public retirement systems. That’s low compared to the rest of the country, Blanchett said.
“It’s not a safety net,” he said.
“I would say that increasing the minimum state pension benefit for all retirees would make all Americans more resilient in retirement,” Blanchett said. said.
That said, policymakers are trying to resolve some of these issues.
For example, 17 states have established so-called automatic IRA programs to fill gaps in coverage, according to the Center for Retirement Initiatives at Georgetown University.
These programs typically require employers that do not offer workplace retirement plans to automatically enroll workers in state plans and facilitate payroll deductions.
Recent federal legislation known as Secure 2.0 also expanded aspects of retirement plans. For example, it made more part-time workers eligible to participate in 401(k)s and raised the dollar threshold for employers to cash out the balances of departing workers.
