U.S. slips in global retirement index: To retire securely, Americans need a better plan

A new study that measures retirement security among workers and retirees from around the world finds that confidence in the US system is slipping and ranks low compared to other peer nations.

The annual Natixis Investment Managers’ Global Retirement Index (GRI) surveys workers and retirees from 44 countries and has some good news: respondents report improved economic conditions, mainly the result of employment growth, wage gains, and interest rates. Officials at Natixis noted that for the first time in 10 years, nearly all developed countries in the report, including the U.S., received total higher scores in retirement security over the prior year.

However, some measurements of retirement security are falling, primarily due to concerns about inflation, public debt, and a decline in health scores. The study found that the United States fell to 20th place from 18th in retirement security among the countries in the Index.

Changing scores, rising concerns about retirement

The rankings are based on a wide range of factors including finances, health care, environment, the state of governance, and general happiness.

In four areas, the US rankings had the following results in the latest report:

• Finances in retirement: 13th place, down from 11th place.
• Material well-being: 21^st place, up from 30th.
• Quality of life: 21^st place, no change.
• Health (life expectancy): 25^th place, down from 17th.

The report noted that although 52% of working Americans said they will have the financial freedom to do what they want in in retirement, nearly half (48%) also expect to make tough choices and trade-offs, including:

• 42% expect to have no other option but to live frugally in retirement.
• 31% anticipate being stuck having to work in retirement.
• 31% expect to be forced to move somewhere less expensive.
• 28% think they will have to rely on family and friends to make ends meet.
• 26% expect to have to sell their home.

“As economies have rebounded from the global pandemic, employment and wages have increased but so has inflation, forcing central banks to boost interest rates. It’s a good news-bad news scenario for retirement security, and further underscores the complexity of the retirement funding challenge,” said Liana Magner, executive vice president and head of Retirement and Institutional in the US for Natixis Investment Managers.

Up and down economy gives investors mixed messages

The “good news/bad news” aspect of the GRI study’s findings may reflect some confusion among investors. One point that the Natixis report makes is that the rising interest rates, often seen as bad news for the economy overall, are actually a positive trend for investors.

“We reported that rising rates are particularly good for retirees because they are better able to generate income off their investments,” Dave Goodsell, executive director at Natixis Center for Investor Insight. “Rates had been at or near historic lows for the better part of 15 years. Recent Fed action has pushed rates higher, and retirees are able to lock in those higher rates with longer duration bonds.”

Goodsell noted that inflation hadn’t been a significant factor for nearly 15 years in the U.S. and that investors had become accustomed to that state of affairs. He noted that in the U.S., more than of 80% of survey respondents said they saw inflation as a threat to their retirement security.

The report suggests several trends will be important to watch in coming years. For example, higher levels of public debt could be a problem. Although public debt in the U.S. declined from 160% of GDP to 144%, the survey found that 77% of respondents said that high levels of public debt will result in reduced retirement benefits in the future.

Related: Retirement insecurity: Pre-retirees less confident they can cover basic living expenses

The aging population is another issue; the elderly are the fastest-growing segment of the U.S. population, and the fertility rate has dropped by nearly half since the baby boom years. “Rising old-age dependency on the younger, working population is exerting undue pressure on traditional notions of retirement, particularly as more people live longer,” the GRI report noted.

The bottom line, Goodsell said, is that investors need to be well-informed and better-prepared for the future. “This year, the number of people who say it will take a miracle to achieve a secure retirement increased from 41% in 2021 to 48%,” he said. “And this was from investors with a minimum of $100,000 in assets. They don’t need a miracle; they need a plan.”