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Who's most ready for retirement? Not Americans

Feb 25, 2014 @ 11:55 am

By Carl O'Donnell

Retirement, Medicare, health care costs, Social Security, global retirement costs
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New retirees across the nation are scrambling to get by in one of the least retirement-friendly countries in the developed world.

An index released Tuesday by Natixis Global Asset Management ranks America only 19th globally for retirement security, lagging much of Europe, including the Czech Republic, and far behind frontrunner Switzerland, which overtook last year's frontrunner, Norway, thanks to rising incomes, healthy financial institutions and high marks for citizens' subjective well-being.

The global retirement index ranks countries based on health, material well-being, quality of life and finances. America lagged on all of these fronts, ranking 21st, 36th, 22nd and 24th in each of these categories, respectively.

(Related: 10 best countries for retirement)

In terms of finances, America was bested by countries such as Chile and Costa Rica. This was largely the result of America's high and growing government debt, propelled by an unsustainable system of public retirement benefits.

“From my standpoint, much of this has to do with fiscal head winds,” said David Lafferty, chief market strategist for Natixis Global Asset Management. “There are no compromises on the horizon in terms of Social Security, Medicare or Medicaid.”

The government is by no means completely to blame. The private sector also has dealt its fair share of blows. For example, the broad 30-year trend towards lower bond yields has put pressure on pension funds, causing liabilities to balloon so quickly that assets haven't kept up, Mr. Lafferty said.

The death of the defined-benefit plan hasn't helped either. Americans are less and less likely to spend a career at a single company, meaning that corporate pension plans just don't make sense, he said. Defined-contribution plans, such as 401(k) plans, have picked up the slack — but at a cost.

“The general trend is towards shifting the burden of retirement savings away from the employer and onto the employee,” Mr. Lafferty said.

Perhaps most frustratingly, the record low interest rates of recent years mean that baby boomers scrambling to make up for recession-era losses have had almost no place to turn. At least on this one, both Americans and Europeans are stuck in the same sputtering boat, he said.

“Regardless of how you think the Fed's polices have affected the economy, there's no question that low rates have punished savers,” Mr. Lafferty said.

On another part of the survey — material well-being — America has one major strength: the United States is among the wealthiest countries in the world. Unfortunately, steep income inequality and high unemployment rank the country a middling 36th in a category led by Norway, Luxembourg and Austria.

Health care is another major weak spot, affecting both retirees' quality of life and finances significantly. Despite spending more on medical care than any other country in the world, the U.S. has a relatively low life expectancy of less than 79 years, according to the World Bank.

U.S. health care is also cost-prohibitive, especially as patients age. One of the most serious problems is the cost of long-term care, said Roger Roemmich, the chief investment officer at ROMA Wealth Strategies and author of retirement guide “Don't Eat Dog Food When You're Old!” (iUniverse, 2013).

“The vast majority of people believe that Medicare will cover at least part of these costs,” Mr. Roemmich said. “The fact is that Medicare seldom pays anything.”

Many U.S. retirees find themselves footing the bill for a nursing home — $50,000 a year on average, according to AARP — all by themselves, drawing down their assets enough for Medicaid to kick in, Mr. Roemmich said.

To be fair, the high rankings of many European countries in this survey come at a cost. The source of the continent's richer welfare programs is hardly creative: most of these countries just impose higher taxes, Mr. Lafferty said.

The deeper problem facing most developed countries, meanwhile, can't be fixed by government policy or shrewd investment.

“The root of this issue is that the number of workers who are young and support the system has grown smaller relative to the number who are retiring,” Mr. Roemmich said.

All of the data used in the Natixis study was compiled by CoreData Research, which relied on information from international organizations and academic sources, including The World Bank, United Nations and the World Health Organization.

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