The U.S. retirement system was recently ranked 29th out of 48 global pension systems, receiving a C+ grade. The country’s position has declined from a decade ago, when it was ranked 18th. The highest-ranked nations in terms of retirement systems are the Netherlands, Iceland, Denmark, and Israel, all of whom received “A” grades. The differences in rankings can be attributed to a variety of factors such as access to workplace retirement plans and leakage of savings from accounts before retirement.
The U.S. retirement system is often referred to as a three-legged stool, consisting of Social Security, workplace retirement plans, and individual savings. One of the major reasons for the lackluster standing of the U.S. compared to other nations is the gap in the share of people who have access to a workplace retirement plan. Employers are not required to offer such plans, leading to about 72% of workers having access to one in the private sector. This lack of access contributes to the overall lower ranking of the U.S. in global retirement surveys.
One of the key factors that sets highly-ranked countries apart from the U.S. is the coverage of workers in the retirement system. For example, in countries like the Netherlands, essentially all workers are covered, compared to the U.S. where many individuals have no retirement plan at all. Additionally, top-rated nations have greater restrictions on how much cash citizens can withdraw before retirement, which helps to preserve savings for old age. In the U.S., about 40% of workers cash out their 401(k) prematurely each year, reducing their retirement nest egg.
Social Security plays a significant role in providing retirement income for many older Americans, with about nine out of 10 individuals aged 65 and older receiving benefits. However, the minimum benefit provided by Social Security is lower compared to other nations with public retirement programs, such as those in Scandinavia. Policymakers are working on addressing some of these challenges, with 17 states implementing auto-IRA programs to increase retirement savings coverage and recent federal laws expanding aspects of the retirement system to improve access and savings preservation.
Overall, the U.S. retirement system faces challenges in providing adequate retirement security for its citizens compared to other nations. Factors such as access to workplace retirement plans, leakage of savings, and the level of Social Security benefits contribute to the lower rankings in global pension system assessments. Policymakers are working on implementing initiatives to improve retirement resiliency, but there is still much room for improvement to ensure that Americans have sufficient income during their retirement years.
