A new survey reveals that Social Security and 401(k) plans aren’t as beneficial as retirement systems in many other countries. The Mercer CFA Institute Global Pension Index recently ranked the Netherlands, with its dual public and private pension structure, at the top.
In a fresh assessment of global retirement structures, the U.S. received a C+ grade, trailing behind countries like the Netherlands, Australia, and Sweden.
The U.S. was ranked 22nd among 47 countries in the latest Mercer CFA Institute Global Pension Index published on Tuesday, marking a minor decline from the previous year. The dominant means by which Americans prepare for their post-work years is through Social Security, 401(k) contributions, and individual retirement accounts. However, this approach is not without significant drawbacks, especially regarding its long-term viability, the study noted.
“White-collar professionals in the U.S. often benefit from employer-backed systems. But there’s a gap when we look at gig economy participants or blue-collar workers,” mentioned David Knox, Mercer’s senior partner, and the study’s primary author.
The onus of ensuring a secure retirement is increasingly falling on the shoulders of individuals in numerous nations, including the U.S., commented Margaret Franklin, the CFA Institute’s president and CEO.
The index considers both governmental and private retirement income sources while weighing the effects of property ownership and household debt on retirement finances. It should be noted that the index primarily focuses on the strength of retirement systems rather than the quality of retirement living.
U.S. employers don’t need to offer retirement benefits to all their employees. Though automatic sign-ups in 401(k) plans have led to increased engagement and higher overall savings for retirement, numerous Americans either lack access to a 401(k) or opt against contributing to individual retirement funds.
Americans also have the flexibility to access their retirement savings before the stipulated time, potentially jeopardizing their future financial stability.
At the top of the rankings stood the Netherlands, ensuring a private and a public pension for all its working population. Their successful model comprises three facets:
- A public pension that offers a uniform rate to all retirees based on their tenure of residency and work in the nation.
- An almost obligatory condition for employers to grant pensions to all employees.
- The option for individuals to add to their retirement pot through personal investments.
For many U.S. retirees, financial pressures are high, often leading them to lean on relatives for economic aid, stated Katie Hockenmaier, U.S. director for defined-contribution research at Mercer. The recent surge in inflation has further impacted older adults, particularly those with fixed incomes, by diminishing their purchasing power.
While the U.S. achieved middling scores in this study, other nations grapple with even graver challenges. Argentina was at the bottom of the list due to its restrictive public pension plan and elective employer-supported programs.