With the global village finding its inhabitants aging and with record numbers of people over the age of 65, a recent study by Natixis Global Asset Management that examines the level of retirement security in 43 nations is particularly pertinent. The study looks at 18 performance indicators that are key to the older demographic component of society and covers four thematic indices and their component subindices that are important for a quality life in one’s sunset years:
1.) Material Wellbeing – the material means to live comfortably in retirement – includes income equality, income per capita and unemployment subindices.
2.) Finances in Retirement – access to quality financial services to help preserve savings value and maximize income – includes old-age dependency, bank non-performing loans, inflation and interest rates subindices.
3.) Health – access to quality health services – includes life expectancy, health expenditure per capita and non-insured health expenditures indices
4.) Quality of Life – a clean and safe environment – includes happiness, air quality, water and sanitation, biodiversity and habitat and environmental factors subindices.
Regionally, of the top ten performers, eight are located in Western Europe and the remaining two are located in the Asia Pacific Region. The bottom ranking nations are the BRIC countries (Brazil, Russia, India and China); that said, Russia and Brazil perform better than Greece and China ranks ahead of both Turkey and Greece. Here are the top ten performers with their GRI score for 2017 and a comparison to the 2016 score in brackets:
1.) Norway – 86 percent (86 percent)
2.) Switzerland – 84 percent (84 percent)
3.) Iceland – 82 percent (80 percent)
4.) Sweden – 80 percent (79 percent)
5.) New Zealand – 80 percent (80 percent)
6.) Australia – 78 percent (78 percent)
7.) Germany – 77 percent (78 percent)
8.) Denmark – 77 percent (77 percent)
9.) Netherlands – 77 percent (78 percent)
10.) Luxembourg – 76 percent (76 percent)
While most of the top ten nations have strong scores across subindices, even the strongest nations have issues with the Finances in Retirement index, largely because of high tax burdens and a high public debt-to-GDP ratio. Germany, Sweden and Denmark all face problems with a shrinking base of younger workers which will ultimately prove to be problematic as fewer and fewer workers support an aging population (growing old-age dependency ratio). As you can see on this graphic from the World Bank, the growth in the old-age dependency ratio is a global issue:
For instance, here are some examples of the growing old-age dependency ratio problems among the world’s developed economies, comparing the ratio in 1960 to the ratio in 2016:
Australia – 14 and 23
Austria – 18 and 28
Belgium – 19 and 29
Canada – 13 and 25
Denmark – 17 and 30
France – 19 and 31
Germany – 17 and 33
Greece – 12 and 34
Japan – 9 and 45
Netherlands – 15 and 29
Norway – 18 and 25
Spain – 13 and 29
Sweden – 18 and 32
United Kingdom – 18 and 28
United States – 15 and 23
Here is a table showing the breakdown in the Global Retirement Index scores for the top 25 nations in the study:
United States – saw declines in two of the four indices; quality of life and material well-being. The United States highest ranking sub-index is Health which sits in 7th place overall with the only indicator to fall being life expectancy. Despite the United States high per capita income (5th overall), its worst performing sub-index is the Material Wellbeing subindex which sits at 28th place overall, largely because of America’s issue with high levels of income inequality.
Canada– saw declines in two of the four indices; quality of life and material well-being coming in at 15th and 20th place overall compared to 8th place for Finances and 9th place for Health. Canada’s highest ranking subindex is Health which sits in 10th place overall with its life expectancy indicator rising on a year-over-year basis. While Canada’s income inequality is not particularly high (21st place overall compared to 28th place for the United States), it has fallen on a year-over-year basis. As well, there have been declines in the employment and per capita income indicators.
With the global population aging, particularly in the world’s developed economies, security in retirement will become an increasingly important aspect of life. With many of the world’s most advanced nations suffering from a rising old-age dependency ratio at the same time as low interest rates have lulled them into taking on what can only be described as dangerous levels of sovereign debt, retirees over the next 20 years may find that their retirement is not as secure as that of their parents, particularly given the growing strain on the health care system and dropping returns on investments thanks to a decade of ultra-low interest rates.
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