This year is not a good time to retire, according to the 2022 Global Retirement Index produced by Natixis Investment Managers.
But the future can be better if people take action, according to Dave Goodsell, executive director of the Natixis Center for Investor Insight and investment manager, U.S. distribution, for Natixis. This year's report is titled "Danger Zone."
“If you are retiring this year, you are going to feel pressure. You are taking more money out of a smaller pool” because of inflation and market volatility, Goodsell said in an interview. “But that does not mean the future situation can’t turn around. The challenge, for those who have not yet retired, is to decide when they can.”
According to the Global Retirement Index, there has been an erosion in the financial security and material well-being of U.S. retirees. The U.S. dropped one place to 18 out of 44 developed countries ranked in the index for overall retirement readiness. The index is based on a number of factors, including such things as finances, the cost of healthcare, climate conditions, the state of governance, and general happiness of the population.
The index rankings are then split into four categories that are ranked separately and the U.S. did not come in in the top 10 for any. It ranked 11th for finances in retirement; 17th for health; 21st for quality of life; and 30th for material well-being. “The U.S. fell in this year’s overall ranking largely because of government debt, taxes and the huge number of aging baby boomers now in or entering retirement,” the report said. This year in particular, Americans face steep market losses, inflation and interest rate hikes, all of which made this year one of the worst on record in which to retire.
Three-quarters of Americans have accepted the conclusion that they will largely be responsible for funding their own retirement, Goodsell said. “Solutions to the retirement security crisis will be increasingly difficult for the U.S. and other countries with a pay-as-you-go retirement system, such as Social Security,” the report said.
Norway earned the first place for overall retirement security this year, followed by Switzerland and Iceland. The remainder of the top 10 countries were Ireland, Australia, New Zealand, Luxembourg, the Netherlands, Denmark and the Czech Republic. The U.S. has never made the top 10 in the 10 years that the index has been compiled
“Getting retirement security right so that people can live with dignity after their working years is a core sustainability issue for society and one of the most important mandates for governments and the financial industry,” Liana Magner, executive vice president and head of retirement and institutional in the U.S. for Natixis Investment Managers, said at the unveiling of the index.
The biggest mistakes people who are still in their working years make regarding retirement are underestimating how long they will live, the impact of inflation, being too conservative in investments, overestimating investment income and forgetting to factor in health care costs, the report said.
“Retirement security challenges have come home to roost in 2022,” Goodsell said. “Inflation has been the long-sleeping giant of worries for retirees and is now at the apex of retirement security threats and the rate hikes the Federal Reserve and other central banks have implemented to quell inflation further compound the problem.”
To help make the future less frightening for retirees, employees should take immediate action. Young workers should save at least a little and should take advantage of automatic escalations in employer-sponsored retirement plans, Goodsell said. Older workers should be prepared to work longer then they anticipated and they should take advantage of “catch up” payments that are allowed for retirement plans.
“An advisor can help individuals save more. The conversation about retirement even can start with the clients’ children. It is important to make sure everyone knows their options,” he added.