While 35% of Americans have no money set aside for retirement, only about 20% of Americans rely solely on Social Security benefits for retirement income. That statistic may be the difference between the 41% surveyed who say they need a miracle and Americans. Iceland may rank high on the list of retirement security because of its great public pensions, but not if public debt rocks their distribution.
The forecast for retirement calls for drizzle and a chance of panic for many investors. In a new study just short of half of all those surveyed – about 41% - said that “its going to take a miracle” for them to retire on time. That sentiment doesn’t seem to square with the recently reported higher amounts in American’s retirement accounts[1] or that the news that there is a trend towards more Americans hiring investment advisors. So just what is behind this sentiment? Let’s dig in.
Nataxis Global Retirement Index, a survey and report of results from an investment management firm that surveys the global investing field recently released their results. Their study found four major areas of concern among investors: 1) inflation and its impact on supply chains; 2) low interest rates, especially the public policy of keeping those interest rates low to boost the economy during the pandemic with a resulting lag in interest income for retirement; 3) public debt and it’s potential impact on public retirement benefits; and 4) uncertainty or unpredictability of major stakeholders. On this last point, 7 in 10 of respondents said that “the costs of healthcare and long-term care will severely impact their financial security in retirement.”[2]
While some news media, like CBNC, reported that these sentiments were those of Americans, that isn’t quite what the survey found. In that study, the US ranked 17 of 41 countries in 2021 for retirement security, a drop from 2020 but a rise from 2019. The ranking consists of measurements for health, quality of life, material well being and finances in retirement. By way of comparison, Canada ranks 10th out of 41 and Mexico ranks 37th of 41. Iceland, surprisingly, ranks first, with high scores in material well being. Apparently, weather is not a factor of consideration for quality of life.
The Nataxis study also provides global results, broken down by generation, with some surprising results about retirement readiness. The average age most respondents thought they’d retire was 62, with a generation gap of about 2 years between Generation Y (60) and Generation X (62). This number is pretty different than how American’s have responded in various surveys over the last decade. For example, Pew research found that 2/3rds of Americans plan to work past 65.[3] And Gallup research has shown the average expected age of retirement to be between 65 and 67 in America.[4]
The attention grabbing, eye-popping statistic in the Nataxis study of 41% of respondents saying they’d need a miracle to retire on time is a global one. It too breaks down by generation, with 46% of Generation Y agreeing with that statement and only 40% of Generation X agreeing. While 35% of Americans have no money set aside for retirement,[5] only about 20% of Americans rely solely on Social Security benefits for retirement income.[6] That statistic may be the difference between the 41% who need a miracle and Americans. That’s because the impact public debt will or could have on public benefits (like Social Security) hits harder in a country more dependent on public benefits, like Iceland. The reason Iceland tops that retirement security index discussed above, is because it has a very generous public pension fund, called ellilífeyrir. Those Icelanders who have lived in Iceland for 40 years between the ages of 16 and 67 can claim a full old-age pension. Others who have resided in the country for less time receive a proportionally reduced old-age pension.[7] An increase in public debt would have a big impact on those whose entire pension is received from the government. The prevalence, and increasing availability of, 401(k) retirement plans helps insulate American investors from public debt worries. 401(k)s may be helping Americans feel less like they need a miracle.
[2] https://www.im.natixis.com/us/research/2021-global-retirement-index
[3] https://www.pewtrusts.org/-/media/assets/2018/11/whendoamericansplantoretire_final.pdf
[4] https://news.gallup.com/poll/234302/snapshot-americans-project-average-retirement-age.aspx
[5] https://www.fool.com/retirement/2020/02/19/youll-be-shocked-by-how-many-americans-have-no-ret.aspx
[6] https://www.manhattan-institute.org/are-americans-prepared-for-retirement
[7] https://ec.europa.eu/social/main.jsp?catId=1114&langId=en&intPageId=4595
These articles are prepared for general purposes and are not intended to provide advice or encourage specific behavior. Before taking any action, Advisors and Plan Sponsors should consult with their compliance, finance and legal teams.
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