US retirement system earns just a C+ in global study

In a new ranking of global retirement systems, the U.S. notched a C+ grade that puts it on par with nations like Kazakhstan, Colombia, Spain and France. 

The new Mercer CFA Institute Global Pension Index, released Tuesday, rates retirement income systems across the world by using the weighted averages of adequacy, sustainability and integrity.  

The C+ rating means that America’s retirement system “has some good features but also has major risks and/or shortcomings that should be addressed; without these improvements, its efficacy and/or long-term sustainability can be questioned,” according to the study.

The U.S. scored 63 out of 100 possible points, coming in 22nd place out of the 47 countries examined. 

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“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,” Katie Hockenmaier, partner and U.S. defined contribution research director at Mercer, said in a statement. 

The three most common sources of retirement income in the U.S. are Social Security benefits, employee pensions and personal savings – a trio dubbed the “three-legged stool” by financial planners.

Not every worker has access to a retirement-savings plan through work. More than half of Americans did not qualify for a retirement plan through their job, according to a recent study by the Economic Innovation Group.

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Social Security only replaces about 40% of pre-retirement income for the average worker when they retire, meaning there are often significant financial gaps. 

The entitlement program also faces long-term solvency issues, with the latest findings indicating that it could begin running out of money as soon as 2033. 

Unless major changes are made before 2034 to shore up the trust fund, more than 66 million Americans would see a benefit reduction between about 23% to 25%. 

The Mercer study said that the U.S. could improve its retirement system by raising the minimum Social Security payment for low-income retirees, improving the vesting benefits for individuals with retirement-savings accounts and reducing “pre-retirement leakage” by making it more difficult to access those funds before retirement.

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Only four countries – the Netherlands, Denmark, Iceland and Israel – scored an A grade, which means they have a “first-class and robust retirement income system that delivers good benefits, is sustainable and has a high level of integrity.”