The U.S. retirement system ranks 29th out of 48 countries in the Mercer CFA Institute Global Pension Index. It received a C+ grade, indicating considerable room for improvement. Two main issues contribute to this ranking.
First, there is limited coverage of workplace retirement plans. Only about 72% of private sector workers have access to a plan, and just 53% participate. Second, the U.S. allows high rates of 401(k) “leakage” before retirement.
When workers switch jobs, around 40% withdraw at least some of their 401(k) savings each year.
U.S. retirement system challenges
This reduces the amount available for retirement.
Christine Mahoney, global retirement leader at Mercer, said, “The people who have [a plan], it’s probably pretty good on average, but you have a lot of people who have nothing.”
Top-ranked countries like the Netherlands, Iceland, and Denmark impose stricter restrictions on early withdrawals. They also have public retirement programs with higher minimum benefits than Social Security provides. David Blanchett, head of retirement research at PGIM, noted, “If you move through jobs, have low savings rates and leakage, it makes it difficult to build your own retirement nest egg.”
Policymakers are trying to address these issues.
Seventeen states have launched auto-IRA programs requiring employers without plans to enroll workers in state plans. The federal Secure 2.0 law also aims to expand 401(k) eligibility and raise the threshold for cashing out when leaving a job. Despite some positive features, the U.S. system faces challenges in ensuring adequate and sustainable retirement income for all Americans.
Experts say expanding access to plans, limiting early withdrawals, and providing more education could help improve the country’s ranking in the future.
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