Here’s why the $39 trillion U.S. retirement system gets a C+ grade

On Sep 19, 2022

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The U.S. retirement system may seem flush — yet it ranks poorly in relation to those in other developed nations.

Collectively, Americans had more than $39 trillion in wealth earmarked for old age at the end of 2021, according to the Investment Company Institute.

However, the U.S. places well outside the top 10 on various global retirement rankings from industry players, such as the Mercer CFA Institute Global Pension Index and Natixis Investment Managers 2021 Global Retirement Index.

According to Mercer’s index, for example, the U.S. got a “C+.” It ranked No. 17 on Natixis’ list.

Here’s why the U.S. falls short, according to retirement experts.

The U.S. has a ‘patchwork retirement design’

Iceland topped both lists. Among other factors, the country delivers generous and sustainable retirement benefits to a large share of the population, has a low level of old-age poverty, and has a higher relative degree of retirement income equality, according to the reports, which use different methodologies.

Other nations, including Norway, the Netherlands, Switzerland, Denmark, Australia, Ireland and New Zealand, also got high marks. For example, Denmark, Iceland and the Netherlands each got “A” grades, according to Mercer’s index.

Where the U.S. largely lags behind those countries, experts said, is that its retirement system isn’t set up so that everyone has a chance at a financially secure retirement.

“Even though we have $40 trillion invested, it’s a very uneven, fragmented, patchwork retirement design that we work with in the U.S.,” said Angela Antonelli, executive director of the Center for Retirement Initiatives at Georgetown University. “Some people do very, very well but a lot of other people are left behind.”

Consider this statistic: Just three of the 38 countries in the Organization for Economic Co-operation and Development rank worse than the U.S. in old-age income inequality, according to the bloc of developed countries.

Indeed, poverty rates are “very high” for Americans 75 years and older: 28% in the U.S. versus 11%, on average, in the OECD.

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Many Americans don’t have workplace retirement plans

The U.S. retirement system is often called a “three-legged stool,” which consists of Social Security, workplace arrangements such as pensions and 401(k) plans, and individual savings.

One of the structure’s primary shortfalls is a lack of access to workplace savings plans, according to retirement experts.

Just over half — 53% — of U.S. workers had access to an employer-sponsored retirement plan in 2018, according to a recent estimate by John Sabelhaus, a senior fellow at the Brookings Institution and adjunct research professor at the University of Michigan. That’s an improvement from nearly 49% a decade…