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Published: Oct 18, 2023 4 min read
Photo-illustration of man with American flag standing on pile of money with globe in the background.
Olive Burd / Money; Getty Images

The American retirement system just earned a C+ for the financial security it provides citizens — a lackluster grade for the world's largest economy.

The United States now lands outside the top 20 countries in a new ranking of 47 national pension systems in the 2023 edition of the Mercer CFA Institute Global Pension Index, which analyzes countries based on more than 50 indicators in three categories: adequacy, sustainability and integrity.

A C+ means "a system has some good features but also has major risks and/or shortcomings that should be addressed; without these improvements, its efficacy and/or long-term sustainability can be questioned," the report reads. The U.S. shares that grade with countries like Kazakhstan, Croatia and Spain.

The index doesn’t claim to be a grade of living standards in retirement, as it focuses narrowly on the financial security of retirement income systems like Social Security and pensions “now and in the future.” But it does come at a time when there’s increased attention on the long-term viability of such programs: France saw massive protests earlier this year when it raised its retirement age, and the U.S. is growing ever closer to a projected 2034 Social Security funding shortfall.

"Retirement income systems around the world are under pressure like never before," David Knox, lead author, actuary and senior partner at Mercer, said in the report.

Mounting government debts and inflation are threats to the sustainability of retirement income programs globally. Also, given that countries including the U.S. rely on current workers to pay the pensions of retiring citizens (known as pay-as-you-go arrangements), the report notes that governments will have to come up with solutions as many populations are getting older due to falling birth rates. Possible solutions include reducing benefits or increasing the eligibility age.

Why the U.S. slipped in 2023

The three highest-ranking countries on the list for retirees are the Netherlands, Iceland and Denmark. The U.S. is down at No. 22.

The U.S. scored its highest rank (16th) in the sustainability category, which measures the likelihood of a country’s pension system being able to provide strong benefits in the future. This subindex includes contribution rates, coverage of the private pension system and government debt, among other factors.

Performance in the other two subindexes was less impressive. The adequacy category judges the extent to which pension systems provide sufficient retirement income. The U.S. ranked 24th in this category. Taxation incentives and vesting rules for retirement income programs are also key to this index.

The third index is about the regulation of retirement income programs, especially private-sector pensions and the laws that govern them. This is where the U.S. lost the most ground from 2022 to 2023, contributing to a slip in the country’s overall score from 63.9 to 63.0 (out of 100). The U.S. now ranks 41st here.

The report provides several recommendations it says could help the U.S. increase its scores, including improving retirement income for lower-income people and limiting access to funds before retirement.

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