Judging from the near-constant stream of retirement-focused surveys, you may have surmised that Americans rank poorly relative to their international counterparts in retirement readiness because of the inadequate savings rates and retirement planning so often cited in these reports.
As it turns, however, Americans' are among the best-prepared for their golden years.
Indeed, a new report from the Aegon Center for Longevity and Retirement, "A Retirement Wake-Up Call: The Aegon Retirement Readiness Survey 2016," pegs the U.S. right at the top among the original 9 countries surveyed since 2012. When measured against a key benchmark, the Aegon Retirement Readiness Index (ARRI), the U.S. surpasses nations occupying the number 2 and 3 spots, Germany and the U.K.
Improvement in the U.S.' ARRI score also has outpaced that of the other 9 countries: up 1.1 points since 2012. That compares to gains ranging between zero and 0.8 for the other 9 countries surveyed between 2012 and 2016.
A key reason for the U.S.' high ranking and improvement: widespread and growing adoption of 401(k)s, 403(b)s and similar defined contribution plans in the workplace. The U.K. notwithstanding, adoption of these plans has lagged in the other nations surveyed.
The U.S.' ARRI score is "attributable to an across-the-board increase in sense of responsibility, awareness, and savings-related activities," says Catherine Collinson, president of Transamerica Institute and executive director of the Aegon Center for Longevity and Retirement. "In both the U.S. and U.K., progress has also been buoyed by the financial market recovery."
The report cautions, however, that greater gains are needed. All of the countries surveyed — the U.S. included — fall below the score Aegon deems as high in terms of retirement readiness: 8 on the ARRI 1-to-10 sliding scale, where 1 is ranked the lowest and 10 the highest. In pursuit of that benchmark, countries will have to make up for lost ground: When measured against 2015 results, ARRI scores fell marginally, including among 2 of 6 countries added to the survey since its inception, India and Brazil.
Components of the formula
To arrive at a score, Aegon ranked responses to six questions related to personal responsibility, awareness, financial understanding, retirement planning, financial preparations and income replacement. Since the report's launch in 2012, Aegon has interviewed more than 70,000 people across the world. For its 2016 survey, Aegon polled 16,000 workers and retirees in 15 countries on 4 continents: Europe, the Americas, Asia and Australia.
Since 2012, the ARRI composite score has risen— but unevenly —and progress is slow. Among the 9 countries for which Aegon has measured retirement readiness since 2012, the aggregate ARRI edged up to 5.5 from 5.2.
The report attributes the rise in the score to "positive movements in people's feelings about planning and saving." Offsetting the gain is, oddly, a dip in the degree of personal responsibility people say they have to generate enough income in retirement.
The survey cautions that more must be done in future years to help workers secure their retirement goals because life expectancies are on the rise globally. Both governments and businesses that avail employees of retirement plans, the report notes, will have to bear a "shared responsibility."
"Increasing longevity combined with lower birth rates are putting greater strain on government pensions systems like Social Security," said Collinson. "People worldwide are aware of the need for change, but little progress is being made towards actual change."
Globally, survey respondents expect that social security and other government programs will fund nearly half (46 percent) of their retirement income. This high figure contrasts with an unfortunate reality: Many governments have instituted measures to limit the value of future benefits. When asked how governments should address rising costs of social security, globally:
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31 percent of survey respondents say that government should boost funding for social security by raising taxes, while not cutting the value of individual payments;
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15 percent believe the government should reduce costs by reducing benefits, without having to increase taxes; and
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27 percent say that government should "take a balanced approach."
For many, however, such a balanced approach does not extend to raising the retirement age to offset a rise in the cost of living. Nearly 4 in 10 individuals polled (39 percent) say the retirement age should remain as is. That compares with 20 percent who say a rise in the retirement age should increase in tandem with life expectancy.
The survey also highlights the "value of habitual saving," and opportunities for non-savers to start building a nest egg:
Thirty-eight percent of workers describe themselves as habitual savers (those who say they are always saving for retirement). Habitual savers are seven times more likely to achieve a high ARRI score than the non-savers (37 percent compared to five percent). The reasons people start saving for retirement fall into two broad categories: "life stage" (47 percent) and "employment-related" (39 percent).