Many Americans are anxious about their ability to save enough to fund their retirement, yet the problem may not only be with their own ability to sock away money, but the way the U.S. system is designed. That's according to a new report which give the nation's retirement approach a C+.
The not-so-great rating places the U.S. retirement system on par with nations such as Kazakhstan, Colombia, Croatia, France and Spain, according to the new Mercer CFA Institute Global Pension Index, which was released Tuesday. Meanwhile, the strength of retirement systems in many other wealthy, developed nations, such as the Netherlands, Iceland, Denmark and Israel, far surpassed the U.S., with all four receiving A ratings.
The U.S. system is based on a two-pronged approach: Social Security and private pension plans such as 401(k)s. But many Americans fall through the cracks, such as the roughly one-half of workers who lack access to a retirement plan through their workplace. Social Security, meanwhile, only replaces about 40% of income for the typical worker when they retire, which means many older Americans struggle financially.
"Retirement savings coverage and institutional quality retirement vehicles remain out of reach for many Americans, creating a significant adequacy gap that needs to be addressed," said Katie Hockenmaier, partner and U.S. defined contribution research director at Mercer, said in a statement.
The new study ranks the U.S. 24 in adequacy among the 47 countries that are included in the ranking, which Hockenmaier said highlights "the urgent need for action."
The U.S. could bolster its system by raising the minimum Social Security payment for low-income retirees, with the full minimum payment currently about $1,000 a month, Mercer noted. The nation could also make it tougher to withdraw income from retirement accounts before retirement — something that Americans can do if they encounter hardship, for example.
Mercer also recommends that the U.S. create a requirement that part of a worker's retirement benefit be taken as an income stream, such as through annuities.
The top-ranked nations for retirement provide good benefits for retirees within systems that are well regulated and secure, according to the study. The Netherlands, for instance, is currently reforming its retirement program, but Mercer said its system "will continue to provide very good benefits, supported by a strong asset base and very sound regulation."
About 90% of employees in the Netherlands are covered by company-sponsored pension plans, according to the OECD.
Meanwhile, the Social Security system is hurtling toward a crisis in 2033, when its trust fund is slated to be depleted. If that's not fixed, benefits for all retirees will decline by more than 20%.
Here is the complete lit of retirement system ratings for the nations in the Mercer study. No nations received an "F" rating.
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