Why the US retirement system ranked 29 out of 48 countries

The Mercer CFA Institute Global Pension Index, an annual index that ranks 48 retirement systems around the globe, has given the United States a C+ rating. Yahoo Finance Senior Columnist Janna Herron joins Wealth! to discuss the global study and how retirement in the US compares to top-scoring countries like the Netherlands and Iceland.

Read more about the study's findings here.

To watch more expert insights and analysis on the latest market action, check out more Wealth here.

This post was written by Melanie Riehl

Video Transcript

An annual index that ranks 48 retirement systems around the globe has given the United States what many would consider a low grade here with the story we've got.

Yahoo Finance Senior columnist Janet Herron.

Janet, great to have you here on set with us.

All right, you gotta break this down.

First, tell us the background of this ranking system.

OK?

So the researchers at Mercer and the C AC FA Institute looked at over 50 indicators to rank a retirement systems adequacy, sustainability and integrity.

Um, they looked at the benefits that retiree retirees are receiving now, if that retirement system can withstand what is the global trend of dropping birth rates and increasing lifespans?

And if private retirement plans are regulated enough so that it encourages long term confidence?

And so the US came in What place?

Well, we didn't flunk, OK, but we didn't do great.

Um, the US earned just AC plus and it came in 29th of 48 countries.

We got AC plus for adequacy and AC for both sustainability and integrity.

And what's even more concerning is that the US retirement system has never gotten a grade above C plus since the index started in 2009.

Wow.

OK, so which countries then got an A. I mean, we were looking through this in the break, and I was I was astounded, actually, to find some of these right and there's only four countries that got an A the Netherlands, Denmark, Iceland and Israel.

Interesting.

So So what are the biggest, Perhaps differences between areas that got an A and the issues in the US retirement system.

Right?

So, um, according to the report, there's two big things and that's how our pensions are funded and the shortfalls of our private retirement savings.

So traditional pensions pay out a certain benefit for a certain amount of time.

Um, but because people are living longer, the benefits will be paid out longer.

So there's a funding issue there.

And because the population is ageing, there are fewer workers to pay into those pension systems.

And by the way, Social Security is facing a similar problem.

Now, pensions aren't common as common in the US.

Um, so the rest of us depend on 401 ks and collectively, as you may have heard, and I think everyone has, we haven't saved enough.

In fact, we are expected to outlive our savings by 10 years.

OK, so the Netherlands, Well, I mean, I guess that means we're healthy, but at the same time, we need a little bit more savings.

So the Netherlands actually got the highest index score.

What lessons can the United States learn from them?

Yes.

So the Netherlands, it's almost quasi mandatory for employers to pro provide retirement plans.

Um, the government doesn't mandate it.

But the unions there, the industry unions do.

And they require companies to provide and enrol workers into these plans.

So by default, their retirement plan participation rate is much, much higher.

Um, the good news, though, is that the secure act of uh, 2.0 that President Biden signed requires employers offering any new 401K or similar plans to automatically enrol workers and automatically escalate their contributions each year.

These provisions go into effect next year, and the researcher I spoke to said this actually might change or improve the US S grade in the future index rankings.

It's great to hear