U.S. Retirement Security Slipping

Natixis Global Asset Management and CoreData Research recently released their 2017 Global Retirement Index (Index)--their fifth such Index to date assessing retirement security in 43 developed countries. The Index utilizes 18 drivers of retirement security, grouped into four categories: health, finances, quality of life, and material well being. The data respecting the United States is disappointing.

From 2016 to 2017, the U.S. slipped three places in overall retirement security-from number 14 to number 17--due to increasing income inequality and declines in happiness and relative life expectancy (number 30), even though the U.S. spends more per capita on health care than any other country. The U.S. ranked only number 28 in the material well being category and had the 6th lowest score for income equality despite ranking 5th in per capita income. The U.S. also had the seventh highest public debt as a percentage of gross domestic product; and, although its environmental score improved a tad from last year, the U.S. still had the seventh-lowest environmental score.

A central theme of the Index is that demographics will play a key role in future retirement security in ALL 43 countries. In a nutshell, people are living longer and getting older. Today, there are 600 million individuals over age 65 and this number is expected to increase to 2.1 billion by 2050. This changing demographic means there are increasingly fewer workers for each retiree, which places pressures on retirement systems that depend on workers and their employers who pay into the systems. For most countries, there are not enough workers to support their aging populations over the next 30 years.

Pension managers have been feeling these demographic changes. Longer life expectancies mean that benefits must be paid longer, which, along with historically low interest rates, increases pension liabilities and widens any pension funding gaps. Given the threat and realization of unfunded pension liabilities, many employers have switched from offering traditional defined benefit pension plans, which pay a guaranteed income for life, to defined contribution plans, which typically pay only a lump sum account balance. As discussed in Post #58, the lump sum typically lasts for less than six years; so, not much retirement security there.

Bottom line: Most of us will need to be more resourceful and self-reliant if we wish to retire comfortably, meaning we will need to save and invest more, spend less, and work longer (if we are able).

To read the entire Index, click here:
https://ngam.natixis.com/us/resources/2017-global-retirement-index

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