Retirement Blues

Kudos to Natixis, an asset management business: they have compiled a useful index to measure how retirees fare across the globe. It looks as if the place to be is Norway. Those folks rank top. The US lags way back, just ahead of the UK.

The index tries to capture a holistic view of the well-being of retirees. It takes into account health, material well-being, finances, and quality of life. Of course some of these are tough to measure, but at least Natixis tries and manages to be consistent. So their index gives a good relative picture of what retirement is like in various countries.

The US ranks 19th on a list dominated by European nations.

• It comes in at 23rd for health. This is despite spending almost twice as much as anyone else per person. The problem is life expectancy where the US is bottom of the league in the developed world. Our health care system really sucks. This is made worse by the fact that our retirees have to allocate increasing amounts to cover medical bills, while other nations are better at providing cheaper health care later in life.
• It comes in a surprising 38th for material well-being. This may shock you. The US has the highest GDP per capita in the world, and has for a while. The problem is inequality. That wealth is so unevenly distributed across the US population that the average retiree here cannot expect to be as well of as his or her peers in countries like Poland or Singapore. Yes, inequality matters. We have created a massively unfair country – on purpose. And our retirees suffer as a result.
• It ranks 28th in finances. This is largely due to the precarious funding, or under-funding, of our pensions. A great number of our pensions look good until we examine whether the money exists to pay out the cash being promised. Then the holes appear. Plus the shift throughout the past few decades to move away from defined benefit plans to defined contribution plans has left a vast number of Americans relying on risky personal investments. We also rely too much on the value of real estate – our homes – which we have to sell in order to get at the cash. An additional factor is when the risk of saving for retirement was shifted onto the shoulders of our workers, they were not suitably compensated for that risk. Wages have been stagnant meaning that most workers have not saved enough – nor can they – to ensure a well financed retirement.
• Finally, the US ranks 26th in terms of quality of life. This is largely due to environmental issues – the US lags in paying attention to its environment and this offsets the other quality of life score in which it performs well.

It is always foolish to take an index like this one and make big decisions based upon it. Its value is more in the relative positioning and in the way in which it surfaces issues. It helps us put our approach to retirement in some perspective, by giving us insight into how others have gone about the job.

Frankly we don’t do well.

The story is familiar:

Our workers aren’t sharing in the wealth we are creating sufficiently for most of them to look forward to a safe, secure, and healthy retirement. So, while we generate great wealth, we are not using or distributing that wealth so that our population is protected in old age.

Behind the glitz of our fancy health care treatments, and the enormous investments of our pension companies, a sad story has developed. If you’re wealthy you will retire well. If you’re not, look out: you’ve been ignored, and you’re on your own.

As a nation we don’t care about our elderly. Nor do we seem to care about ourselves: we will be elderly too and the prospect doesn’t look good. Our short term focus and our aversion to taxes are coming home to roost. And no one in Washington appears worried. On the contrary: the talk is of how we reduce, rather than protect, our safety nets.

Look for the US to slide down the league tables in future.

Addendum:

Coincidentally, Thomas Edsall in today’s New York Times hammers away at the strange debate we are having about our safety net. Specifically he points out that most commentators and analysts engaged in the discussion and thus shaping policy would be hurt by the simplest solution to the funding of Medicare and Social Security: eliminate, or raise, the upper limit on income subject to payroll taxes. Right now  a little over 5% of taxpayers have incomes above the current limit of $113,700. Getting rid of the cap would ensure fiscal soundness for Social Security. Yet the solution is hardly ever mentioned, and if it is, it is dismissed as politically infeasible. Why? Because those dismissing it are the very people who would have to pay more. Instead they shift the debate to being about cutting benefits. This is despite the fact that about two-thirds of all our retirees depend on Social Security for about half their income.

If the simplest and best solutions not on the table because of the self-interest of our elite leadership, is it little wonder that we rank so low on retiree well-being? Not at all. The elite is looking after itself. And damn the rest of us.