Jamie Spencer
The U.S. retirement system struggles to keep pace with many other nations, earning a C+ grade and placing 29th out of 48 countries in the 2024 Mercer CFA Institute Global Pension Index, released Tuesday. The report analyzed both public and private sources of retirement income, such as Social Security and 401(k) plans, highlighting areas where the U.S. falls short compared to global peers.
U.S. Retirement System Faces Key Challenges
A similar report from Natixis Investment Management ranks the U.S. 22nd out of 44 countries, marking a decline from a decade ago when it held the 18th spot. Experts agree that the U.S. faces significant hurdles in providing adequate retirement security for its aging population.
“I think [a C+ grade] would describe a rating where there is a lot of room for improvement,” said Christine Mahoney, global retirement leader at Mercer.
The United States’ ranking reflects two key problem areas: insufficient retirement plan coverage and the high rate of “leakage” from retirement savings accounts before individuals reach retirement age. “Leakage” refers to money withdrawn prematurely from retirement accounts, reducing the funds available for future retirement income.
How the U.S. Compares to Top Performers
While the U.S. lags behind, other nations have excelled in creating robust retirement systems. The Netherlands topped the Mercer index with the No. 1 spot, followed closely by Iceland, Denmark, and Israel, all earning “A” grades. Singapore, Australia, Finland, and Norway received B+ grades, reflecting their strong retirement systems.
Fourteen countries, including the United Kingdom, Canada, and Germany, earned a B grade, demonstrating a balanced approach to retirement security. The diversity among these systems highlights that each is tailored to a nation’s specific economic, social, and political context.
Coverage Gap and 401(k) Leakage Hamper U.S. Ranking
The U.S. retirement system is often described as a three-legged stool, consisting of Social Security, employer-sponsored retirement plans, and personal savings. Yet, a critical flaw is that not all American workers have access to these essential supports.
Unlike many other nations, U.S. employers are not required to offer retirement plans such as pensions or 401(k) accounts. As of March 2024, about 72% of private-sector workers had access to a retirement plan through their employer, and only 53% participated, according to data from the U.S. Bureau of Labor Statistics. This leaves a large segment of the workforce without sufficient retirement savings opportunities, which contributes to the nation’s lower ranking.
“Leakage” from 401(k) plans is another issue that undermines retirement security. Withdrawals taken before retirement age, often to address emergencies or financial needs, deplete the savings intended for later years. The widespread nature of these early withdrawals means that many retirees face a shortfall in their expected retirement income.
Room for Policy Improvement
The U.S. government has made some attempts to improve the retirement system. Recent initiatives, such as auto-enrollment for 401(k) plans and the establishment of state-sponsored retirement savings programs for those without access through their employers, aim to close the coverage gap. However, much remains to be done to ensure that Americans have adequate financial resources in retirement.
Retirement systems worldwide are designed to fit their nation’s unique needs, but there are universal factors that can predict how well they support older citizens, the Mercer report notes. The effectiveness of a retirement system hinges on providing broad access to savings plans, encouraging adequate contributions, and preventing premature withdrawals.
