Mixito | E+ | Getty Images
The US retirement system does not receive high marks compared to other countries.
In fact, the United States received a grade of C+ and ranked No. 29 out of 48 global pension systems in 2024, according to the Mercer Institute's annual CFA Global Pensions Index, released Tuesday. He analyzed public and private sources of retirement funds, such as Social Security and 401(k) plans.
A similar index compiled by Natixis Investment Management puts the United States 22nd out of 44 countries this year. Its position has declined from a decade ago, when it ranked No. 18.
“I think (a C+ grade) would describe a rating where there is a lot of room for improvement,” said Christine Mahoney, global head of retirement at consulting firm Mercer.
The Netherlands ranked first, followed by Iceland, Denmark and Israel, respectively, all of which received “A” grades, according to Mercer. Singapore, Australia, Finland and Norway received a grade of B+.
Fourteen countries – Chile, Sweden, the United Kingdom, Switzerland, Uruguay, New Zealand, Belgium, Mexico, Canada, Ireland, France, Germany, Croatia and Portugal – received a B grade.
Of course, retirement systems differ because they address a nation's unique economics, social and cultural norms, politics and history, according to the Mercer report. However, the report found that there are certain characteristics that can generally determine how financially successful older adults are.
The American system is often referred to as a three-legged system, consisting of Social Security, workplace retirement plans, and individual savings.
Mahoney said the United States' weak position in the world is largely due to the large gap in the proportion of people who have access to a workplace retirement plan, and to the high opportunities for savings to “leak” from accounts before retirement.
Employers are not required to offer a retirement plan such as a pension or 401(k) plan to workers. About 72% of private sector workers had access to one in March 2024, and about half (53%) participated, according to the U.S. Bureau of Labor Statistics.
More personal finance:
Life spans are growing but “health spans” are shrinking
What to do with RMDs when you don't need the money
Who would benefit from Trump's proposed tax break on car loan interest?
“People who have (a plan), it's probably pretty good on average, but there are a lot of people who don't have anything,” Mahoney said.
In contrast, some of the highest-ranking countries such as the Netherlands “basically cover all workers in the country,” said Graham Pearce, global defined benefits sector leader at Mercer.
Additionally, Pierce explained that higher-ranking countries generally have greater restrictions compared to the United States on how much cash citizens can withdraw before retirement.
For example, American workers can withdraw their savings from a 401(k) fund when they change jobs.
About 40% of workers who leave their jobs cash out “prematurely” each year, according to the Employee Benefit Research Institute. A separate academic study from 2022 examined more than 160,000 American employees who left their jobs from 2014 to 2016, and found that about 41% of them cashed out at least some of their 401(k) — and 85% depleted their balance completely.
Employers are also legally permitted to cash out small 401(k) balances and send workers a check.
While the United States may provide more flexibility for people who need to tap their money in emergencies, for example, this so-called leakage also reduces the amount of savings they have available in old age, experts said.
“If you're someone who's moving between jobs, and you have low savings and dropout rates, that makes it difficult to build your retirement nest egg,” said David Blanchett, head of retirement research at PGIM, the investment management arm of Prudential.
Social Security is a major source of income for most older Americans, providing the majority of retirement income for a large portion of the population over the age of 65.
Up to that point, about nine in 10 people 65 or older were receiving Social Security benefits as of June 30, according to the Social Security Administration.
Social Security benefits are generally tied to a worker's wages and work history, Blanchette said. For example, the amount is tied to the top 35 years of a worker's wages.
While the benefits are progressive, meaning that lower earners generally redeem a larger share of their pay before retirement than higher earners, the minimum Social Security benefits are lower than in other countries, such as Scandinavia, that have public retirement programs, Blanchette said.
“It's less of a safety net,” he said.
“There is something to be said that, as a public benefit for pensions, increasing minimum benefits for all retirees would enhance retirement flexibility for all Americans,” Blanchett said.
However, policymakers are trying to solve some of these issues.
For example, 17 states have created so-called automatic IRA programs in an attempt to close the coverage gap, according to Georgetown University's Center for Retirement Initiatives.
These programs generally require employers that do not offer a workplace retirement plan to automatically enroll workers in the state plan and facilitate payroll deduction.
A recent federal law known as Secure 2.0 also expanded aspects of the retirement system. For example, making more part-time workers eligible to participate in 401(k)s and raising the dollar threshold for employers to disburse balances to departing workers.
