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Personal Finance

Here’s Where Your Country Ranks on Retirement

A global retirement index measures 43 nations on income inequality, financial stability, happiness, and more.

In the retirement security Olympics, it's a sweep for northern Europe.

Norway, Switzerland, and Iceland won the top three spots in Natixis Global Asset Management's fourth annual ranking (PDF), released on Tuesday. The U.S., with a score of 73 percent, strolled in at No. 14 out of 43 nations (right after Luxembourg) in the global retirement index.

Norway joins a number of top 10 countries in having a compulsory workplace savings program. It requires employers to fund private retirement accounts with 2 percent 1 "Additional provisions allow for more paternal employers to fund an additional, voluntary defined contribution plan at 3%–6%," according to the report. of a worker's earnings earnings annually. That pales next to Australia, No. 6, where employers must kick in at least 9.5 percent. 

The retirement leaders, with scores of 77 percent or better: Norway, Switzerland, Iceland, New Zealand, Sweden, Australia, Germany, the Netherlands, Austria, and Canada. 

The bottom 10, whose highest score was 57 percent: India was last, at 12 percent, preceded by Greece, Brazil, Russia, Turkey, China, Spain, Cyprus, Mexico, and Portugal.

At first glance, it looks as if the U.S. made a big jump from last year, when it came in 19th. But that result isn't apples-to-apples. This year's report focused mostly on developed nations, while last year's ranked 150 countries. The methodology changed, too, to a five-year average for real interest rates and inflation, up from a three-year average. That affects a part of the index called “finances in retirement,” one of the report's four sub-indexes that determine the overall ranking. If the new methodology had been applied to last year’s data, the U.S. would have come in 15th.

The U.S. did reach the top 10 in two of the four sub-indexes, including the one that measures the stability of finances in retirement, which gets the most weight in the overall ranking: 

Top 10 Finances Index

This sub-index looks at the ratio of working people for every retirement-age person, the level of bank non-performing loans, inflation, interest rates, tax pressure, 2 "The importance of this indicator lies in the fact that higher levels of taxation will increase the level of disposable income of retirees and affect their financial situation," said the report.   government indebtedness, and governance. The U.S. score, while high, was damped by the nation's "relatively high levels of public debt and increasing tax burdens." As the report said, "rising expenses in the long term seem inevitable as more boomers reach retirement age." 

While the move to auto-enroll employees in retirement plans is a positive in the U.S. and elsewhere, the Department of Labor estimates that about a third of U.S. employees have no access to a retirement plan. Once employees are enrolled in a plan, an even bigger challenge is getting them engaged with it, said David Goodsell, who oversees investor research for Natixis.

A 2015 Natixis survey of 401(k) plan participants in the U.S. found 60 percent saying they put from 1  percent to 7.5 percent of salary into a retirement account, with 40 percent of those people contributing from 1 percent to 5 percent. Many respondents cited personal debt as an obstacle to saving more. Just 36 percent of workers over age 50, who can defer an additional $6,000 of salary above the standard 401(k) cap of $18,000, did so.

Many financial planners recommend saving 20 percent of your income, an ambitious goal for most Americans—and for pretty much anyone around the globe. The report didn't say whether employee contributions were matched by employers. 

The U.S. also did well, at No. 7, in the health-care part of the index, which might come as a surprise to many Americans frustrated by the costs and hassles of their health-care coverage. This measure looks at health spending per capita, the level of uninsured health spending, and life expectancy. The U.S., the report said, has the highest health expenditure per capita of the 43 countries in the index, and ranks sixth for the level of uninsured health expenditures. It was No. 30 for life expectancy. 

Top 10 Health Index

The cost of health care in retirement in the U.S. is high and seems set to go higher, in part because of rising drug prices.

"The trend, and it's been pretty consistent, is that the consumer of health care, whether a pre-retiree or someone in retirement, is taking on more and more of the [financial] responsibility," said Ron Mastrogiovanni, chief executive officer of HealthView Services, which creates health-care cost-projection software. He cited the move to high-deductible health-care plans, the high cost of supplemental, or Medigap, insurance to help cover what Medicare doesn't, and the plan to reduce coverage under the most popular supplemental plan, called Plan F, in 2020 as some of elements of higher costs. 3 Supplemental health insurance is expensive, said Mastrogiovanni. His database shows a national average cost for a single 65-year-old male at $1,589 for his first year in retirement. "One problem with supplemental is how it increases in cost as you age," he said, an increase that totals about 8 percent a year when you factor in inflation of 3.8 percent. For a man living to age 87, that adds up to lifetime spending of $105,000 in future, inflation-adjusted dollars, or $71,000 in today's dollars, according to Mastrogiovanni. And there are huge differences in costs among states because supplemental insurance comes from private carriers. 

One area in which the U.S. had an abysmal ranking was in its high level of income inequality, which helped drive it down to No. 37 of the 43 countries. The U.S. and Singapore share the dubious distinction of being the only countries in the top five for income per capita and in the bottom 10 for their large gaps in income equality. Those data points fall into the "material wellbeing" portion of the index, where the U.S. scores 59 percent to sit at No. 25, below Estonia. That's its lowest score among the report's four sub-indexes, below its No. 16 rank for quality of life.

It's worth watching interest rates, which could cause rankings to shift in future years. Low rates are great if you're buying a house or a car, but they stink if you're trying to live on a fixed income in retirement. While Norway, which has started to cut interest rates, is ranked No. 1 overall, No. 1 in material well-being, and No. 3 in the quality of life and health categories, it is No. 9 in the retirement finance measure. If Norway continues to cut rates, "I'll be curious to see what long-term impact that has on its ranking," said Goodsell.

Right now, though, only Denmark, Switzerland, and Iceland top Norway in the report's measure of contentment. When it comes to retirement, the Norwegians are looking pretty fat and happy.

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