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The U.S. retirement system doesn’t get good marks compared to other countries.
In fact, the United States earned a C+ grade and ranked 29th out of 48 global pension systems in 2024, according to the Mercer CFA Institute’s annual Global Pension Study. Hintpublished Tuesday. He analyzed public and private sources of retirement funds, such as Social Security and 401(k) plans.
A similar one hint compiled by Natixis Investment Management places the United States 22nd out of 44 countries this year. Its position has declined from ten years ago, when it ranked 18th.
“I think [a C+ grade] would describe a rating in which there is a lot of room for improvement,” said Christine Mahoney, global head of pensions at Mercer, a consultancy.
The Netherlands ranked first, followed by Iceland, Denmark and Israel, respectively, all of which received an “A” grade, according to Mercer. Singapore, Australia, Finland and Norway received a B+.
Fourteen countries – Chile, Sweden, the United Kingdom, Switzerland, Uruguay, New Zealand, Belgium, Mexico, Canada, Ireland, France, Germany, Croatia and Portugal – received a B.
Of course, retirement systems differ in the extent to which they take into account a nation’s unique economies, social and cultural norms, politics and history, according to the Mercer report. However, certain traits can generally determine the financial situation of older adults, according to the report.
The American system is often described as a three-legged stool, consisting of Social Security, occupational pension plans, and individual savings.
The United States’ poor position in the world is largely due to a huge gap in the proportion of people with access to a workplace retirement plan and the many opportunities for savings to “leak” from accounts before retirement, Mahoney said.
Employers are not required to offer a retirement plan such as a pension or 401(k) plan to workers. About 72% of private sector workers had access up from one in March 2024, and about half (53%) participated, according to the U.S. Bureau of Labor Statistics.
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“People 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.
In contrast, some of the top-ranked countries, such as the Netherlands, “cover virtually every worker in the country,” said Graham Pearce, global defined benefits segment leader at Mercer.
Additionally, top-rated countries generally have tighter restrictions than the United States on the amount of money citizens can withdraw before retirement, Pearce explained.
American workers can withdraw their 401(k) savings when they change jobs, for example.
About 40% of workers who leave their jobs cash in “prematurely” each year, according to the Employee Benefit Research Institute. A distinct academic study of 2022 examined more than 160,000 American employees who left their jobs between 2014 and 2016, and found that about 41% have cashed out at least part of their 401(k) – and 85% have completely emptied their balance.
Employers are also legally allowed to cash out small 401(k) balances and send a check to workers.
Even though the United States could offer more flexibility to people who need to dip into their funds in an emergency, for example, this so-called drain also reduces the amount of savings they have in their old age, said the experts.
“If you’re someone who moves from job to job, has low savings rates and leakage, it’s difficult to build your own retirement nest egg,” said David Blanchett, head of the retirement research at PGIM, the investment management arm of Prudential.
Social Security is considered a major source of income for most older Americans, providing the majority of their retirement income for a significant portion of the population over 65.
At this point, about nine in ten people aged 65 and over received a Social Security benefit as of June 30, according to the Social Security Administration.
Social Security benefits are generally tied to a worker’s salary and work history, Blanchett said. For example, the amount is attached to a worker’s highest 35 years of salary.
Although benefits are progressive, meaning that low earners generally replace more of their pre-retirement wages than higher earners, the minimum Social Security benefit is lower than in other countries, such as those in Scandinavia, with public pension programs, Blanchett said.
“It’s less of a safety net,” he said.
“There is something to be said, as a public retirement benefit, increasing the minimum benefit for all retirees would strengthen the retirement resiliency of all Americans,” Blanchett said.
That said, policymakers are trying to address some of these issues.
For example, 17 states have established so-called auto-IRA programs in an effort to close the coverage gap, according to the Center for Retirement Initiatives at Georgetown University.
These programs typically require employers who do not offer a workplace retirement plan to automatically enroll workers in the state plan and facilitate payroll withholding.
A recent federal law known as Secure 2.0 also expanded some aspects of the retirement system. For example, it made more part-time workers eligible to participate in a 401(k) and increased the dollar threshold for employers to cash out the balances of departing workers.