By: Russ Kamp, Managing Director, Ryan ALM, Inc.

The Mercer CFA Institute Global Pension Index 2023 report has been released. The United States was given a score of 63, which placed our retirement readiness at 22 of 47 countries that were evaluated. According to the Mercer CFA study, a 63 places us at roughly the average score (62.9) among those ranked and we were given a letter grade of C+. I don’t know about you but if I had scored a 63 (scale of 0-100) during my school days, my letter grade would have likely been an F. Based on how I feel that we are prepared as a nation, I think that an F is much more appropriate than a C+. What about you?

According to the survey, “the overall index value is based on three weighted sub-indices—adequacy (40%), sustainability (35%) and integrity (25%)—to measure each retirement income system. Adequacy looked at areas such as benefits, system design, savings and government support. Sustainability examined pension coverage, total assets, demography and other areas. Integrity encompassed regulation, governance and protection.”

The U.S. retirement system scored 66.7 on adequacy, 61.1 on sustainability and 59.5 on integrity, with Integrity being the poorest ranking as it trailed the worldwide average score by >12 points. Our retirement system was evaluated based on the Social Security system and voluntary private pensions, which may be job-related (DB or DC) or personal, such as an IRA. Other systems with comparable overall index values to the U.S. included Colombia (61.9), the United Arab Emirates (62.5) and Hong Kong (64.0). I don’t know about you, but being ranked among those countries doesn’t make me feel good about our effort or achievement. Systems scoring the highest were the Netherlands (85), Iceland (83.5), Denmark (81.3), and Israel (80.8) – they were given an ‘A’ grade.

We know that we can do better. The loss of DB pension plans within the private sector is a very harmful trend. Leakage within DC plans makes them more like glorified savings accounts rather than retirement vehicles, and Social Security provides small relief for a majority of recipients. Asking untrained individuals to fund, manage, and then disburse a “retirement benefit” without the financial means, investment skill, and crystal ball to forecast longevity is silly.

Mercer and the CFA institute recommended a series of potential reforms to improve the long-term success of the US retirement system. I just loved this one:

“Promoting higher labor force participation at older ages, which will increase the savings available for retirement and limit the continuing increase in the length of retirement;“

A truly amazing suggestion – if you never retire then you don’t have to worry about whether or not your system will provide an adequate benefit! Problem solved! Many Americans would welcome the opportunity to extend their careers/employment opportunities, but some jobs require physical labor not easily done at more mature ages, while many American companies are anxious to rid themselves of higher priced and experienced talent in favor of younger workers (ageism).

We can pray that the higher US interest rate environment will begin to improve outcomes for our workers whether their plans are a defined benefit or defined contribution offering.