The U.S. retirement system received a C+ grade again this year, but its score declined for the second year in a row in a new ranking of the world’s retirement systems.
The U.S. system, which is primarily funded by individual retirement accounts (IRAs), 401(k)s and Social Security, ranks 29th out of 48 countries, according to the Mercer CFA Institute Global Pension Index released Monday. . The overall score was 60.4 out of 100, down from 63.0 last year and 63.9 in 2022. This was also lower than the overall average of 63.6 points.
In the United States, scores decreased in all subcategories that make up the overall score, including relevance, sustainability, and integrity. The biggest hurdle, however, was the sufficiency of benefits provided by current pension systems and design features that could increase the likelihood of adequate retirement benefits.
The United States’ adequacy score was 63.9, down from 66.7 last year and below the average of 64.9 for all countries surveyed, placing it 30th out of 48 countries surveyed.
The United States gives its lowest-income workers 15.6% of their average worker’s income at retirement, according to data from the Organization for Economic Co-operation and Development (OECD). “A better system will give you a number of at least 25% of the average wage,” said Dr. David Knox, lead author of the Mercer CFA Global Pension Index and an actuary and senior partner at Mercer.
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Why are retirement systems under stress?Knox said decades of declining birth rates have reduced the working population and continued to widen the disparity between the retired and working-age population.
“This trend, combined with longer lifespans and a lingering cost-of-living crisis, will directly impact the future success of America’s retirement savings plans,” he said.
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What steps can the United States take to strengthen its retirement system?
Graham Pearce, global defined benefit segment leader at Mercer, said improving access to retirement plans and financial education is essential.
In the U.S., only 52% of the working-age population has a retirement account, Knox said. “In a better system, this number would be 80% or more,” he said. This means that “nearly all employees, whether temporary or full-time, are funding their retirement through employee or employer contributions, or both,” he said. .
The report also noted that many gig and contract workers in the United States are excluded from traditional retirement plans.
The United States also needs to strengthen financial education in schools and “provide universal access to quality, relevant advice and guidance,” Pearce said. “At the moment, quality independent financial advice is out of reach for most plan participants.”
Which country has the best retirement plan?
According to the survey, the top three countries are the same as last year.
1st place Netherlands (score 84.8/100)
2nd place Iceland (83.4)
3rd place Denmark (81.6)
Which country has the worst retirement system?
According to the report, the bottom three countries are:
1st place India (44.0/100)
2nd place Argentina (45.5)
3rd place Philippines (45.8)
