The U.S. retirement system ranks below average globally.

• The Mercer CFA Institute Global Pension Index ranks the U.S. retirement system at a C+ grade and 29th out of 48 countries.
• Experts identified retirement plan coverage and 401(k) "leakage" as the two main issues.
• Policymakers have taken some steps to improve the system.

The U.S. retirement system doesn't get high marks relative to other nations.

According to the annual Mercer CFA Institute Global Pension Index, released Tuesday, the U.S. received a C+ grade and ranked No. 29 out of 48 global pension systems in 2024. The study analyzed both public and private sources of retirement funds, including Social Security and 401(k) plans.

This year, the U.S. ranks No. 22 out of 44 countries, a decline from its No. 18 ranking a decade ago, according to a similar index compiled by Natixis Investment Management.

Christine Mahoney, global retirement leader at Mercer, a consulting firm, stated that a C+ grade would accurately represent a rating with significant potential for growth.

According to Mercer, the Netherlands ranked first, Iceland and Denmark came in second and third, respectively, and all received an "A" grade. Meanwhile, Singapore, Australia, Finland, and Norway received a B+.

A total of fourteen countries, including Chile, Sweden, the United Kingdom, Switzerland, Uruguay, New Zealand, Belgium, Mexico, Canada, Ireland, France, Germany, Croatia, and Portugal, received a B grade.

The Mercer report found that while retirement systems differ based on a nation's unique economies, social and cultural norms, politics, and history, certain traits can generally determine how well older citizens fare financially.

The three-legged stool of the U.S. system comprises Social Security, workplace retirement plans, and individual savings.

The reason for the U.S.'s lackluster standing in the world is mainly due to the significant difference in the number of individuals who have access to a workplace retirement plan and the numerous opportunities for savings to be lost before retirement, according to Mahoney.

While employers are not obligated to provide a retirement plan such as a pension or 401(k) to their workers, approximately 72% of private sector employees had access to one in March 2024, with about half (53%) participating, according to the U.S. Bureau of Labor Statistics.

Life expectancy is increasing, but life expectancy is decreasing.

Mahoney stated that on average, plans are likely to be good, but there are many individuals who lack a plan.

Some of the highest-ranked countries, such as the Netherlands, have nearly all workers covered by their pension plans, according to Graham Pearce, Mercer's global defined benefit segment leader.

Generally, top-rated nations have stricter rules on how much cash citizens can withdraw before retirement, as explained by Pearce.

When switching jobs, American workers have the option to withdraw their 401(k) savings.

Each year, approximately 40% of workers who leave their jobs cash out their 401(k) prematurely, according to the Employee Benefit Research Institute. A recent academic study examined over 160,000 U.S. employees who left their jobs from 2014 to 2016 and found that about 41% cashed out at least some of their 401(k) balance, with 85% completely draining their accounts.

Employers have the legal right to cash out small 401(k) balances and issue workers with checks.

Experts noted that while the U.S. may provide more flexibility for individuals to access their funds during emergencies, this "leakage" can reduce the amount of savings available for retirement.

According to David Blanchett, head of retirement research at PGIM, Prudential's investment management arm, if you frequently switch jobs, have low savings rates, and experience leakage, it can be challenging to establish a comfortable retirement nest egg.

Over 65 years old, a substantial portion of the population relies on Social Security as their primary source of retirement income.

According to the Social Security Administration, as of June 30, approximately 9 out of 10 individuals aged 65 and above were receiving a Social Security benefit.

According to Blanchett, Social Security benefits are typically linked to a worker's earnings and work history. Specifically, the amount is based on the 35 highest-paying years of the worker's career.

Blanchett stated that while lower earners typically replace a larger portion of their pre-retirement paychecks than higher earners, Social Security's minimum benefit is lower than many other countries, including those in Scandinavia, which have more comprehensive public retirement programs.

"It's less of a safety net," he said.

Blanchett stated that increasing the minimum public pension benefit for all retirees would enhance the retirement resiliency of all Americans.

That said, policymakers are trying to resolve some of these issues.

In an effort to close the coverage gap, 17 states have established auto-IRA programs, as reported by the Georgetown University Center for Retirement Initiatives.

Employers who do not provide a workplace retirement plan are generally required by these programs to automatically enroll workers into the state plan and facilitate payroll deduction.

Secure 2.0, a recent federal law, broadened the retirement system by allowing more part-time workers to join a 401(k) and increasing the balance threshold for employers to cash out departing workers' accounts.