Natixis Reports U.S. Drop in Global Retirement Index

Natixis identifies interest rates, longevity and climate change as the three pressing risks affecting retirement in the U.S.

The United States fell two spots among developed nations in the annual Global Retirement Index (GRI) released by Natixis Investment Managers.

Landing in 18th place, the U.S. ranked either the same or lower in all four sub-indices: health, material wellbeing, finances and quality of life. The study pinpoints three global risks—lower interest rates, an increase in longevity and high costs associated with climate change—as responsible for the downshift.

“This is a holistic review for the overall quality of life over the world, and what platforms lead to this overall experience of someone living in different parts of the world,” said Ed Farrington, executive vice president at Natixis, in an interview with PLANSPONSOR. “How comfortable are these participants?”

The study isolates the 2008 financial crisis for introducing interest rate cuts in order to lift global economies during the time. According to the report, reducing these rates in the short-term meant workers had easier access to cash, however as higher priced bonds matured in the long-term, investors could only reinvest in the lower rates.

The study adds that appropriate planning will have to account for investment risk. This includes investing in higher risk assets including equities, even if it means exposing portfolios to volatility.

The aging workforce continues to impact the U.S. economy, as well. Projections from the United Nations show that individuals in developed countries who reach age 60 in 2015 will live an average of 23 more years.

“You’re still seeing for a couple who retires healthy at age 65, there’s a likelihood that one of the two will be alive well into their 90s,” says Farrington.

He adds that a well-designed 401(k) contribution solution and an expansion of workplace retirement plans in every job market can mitigate the complexity served with longevity. One of the easiest tasks retirement plan sponsors can do, he says, is help their employees save money.

Another pressing risk on retirement security is climate change and its financial and health impacts. Mainly viewed with a long-term lens, the study notes the effects of climate change are affecting today’s retirees. For example, older workers are burdened with costs due to natural disasters, including high insurance rates and expenses due to damages. Additionally, the study reports that according to the Environment Protection Agency (EPA), extreme heat in the U.S. has increased the risk of illness among older workers, especially those with chronic illnesses.

“We’re living in climate change, and it could be more severe in older adults,” says Farrington. “Retirees are living in extreme conditions, and it has a direct impact on their health. When that happens, it can lead to dislocation for families, and puts pressure on the government to solve these numbers.”

While climate change is a current driver in security risk, the study notes Millennial workers could be the driving force in weakening its impact. Natixis research shows Millennial investors in the U.S. are more likely than older generations to “align their personal and environmental and social values with investing and purchasing decisions.” And since Millennials will make up 75% of the workforce by year 2025, it’s likely the economy will see its effect.

“They clearly have a desire to have access to more responsible, sustainable investments for their workplace savings and personal savings,” explains Farrington. “[Millennials] are asking more questions, they want to know these things.”

Farrington adds that it’s time for plan sponsors to encourage more sustainably-driven investment options. In past years, these investments were described as “feel-good” options: investors utilized them because it made them feel better about what they were doing for the environment, not because it was sustainably responsible.

“Plan sponsors should be considering them as part of the overall evaluation of investment menus they offer, we should be helping Millennials have more access to responsible, sustainable investments,” he says.

Other factors affecting the U.S. GRI ranking are growing pressures on government resources, such as Social Security and Medicare; economic inequality; a decline in life expectancy compared to top-ranking nations including Japan; and a lower response to quality of life. Nordic countries dominated the top ten in GRI rating, including Iceland, Switzerland and Norway in the top three, as well as Ireland, New Zealand, Sweden and Denmark.

More information about the 2019 study can be found here.