Highway to the (Retirement) Danger Zone

A new report popped up in my inbox that I want to tell you about today. The report’s title: Danger Zone—Global retirement security challenges come home to roost in 2022. 

The report is a ranking of Western countries based on their level of retirement security. Spoiler alert: America ranks well outside the top 10, down at #18, primarily because Uncle Sam performed poorly in two sub-indexes—Material Wellbeing and Finances in Retirement. Eight of the top 10 countries are European, while the other two are Australia and New Zealand. 

Here are a few facts that struck me from the report: 

• The Czech Republic, where I live, ranks #10, unexpectedly high, largely because it’s the leader by a wide margin in the Material Wellbeing sub-index. 
• Much of the world, including most of the leading nations, have seen their score in the Quality of Life sub-index decrease over the last 10 years. 
• Ireland, which a decade ago ranked #38 in the world, is now #4—a monstrous leap—primarily the result of a drastic improvement in Finances in Retirement, along with smaller but still meaningful improvements in Health and Quality of Life. 

Before I go on, let me give you some background on the report. It comes from Nataxis Investment Managers, a wealth management firm that, along with CoreData Research, first started compiling this annual ranking in 2012. It began as part of an effort “to identify, measure, and track the key factors that would determine if individuals around the world would be able to live with dignity in the years after work.” 

I don’t know that I agree with all the data points the report uses to determine what is effectively retirement happiness. For instance, the Quality of Life sub-index takes into account air quality, biodiversity, and habitat.  

Yes, all of those are important to a certain degree, but I am not convinced they play such a defining role in retirement. Moreover, each of those items is specific to a country’s micro-geography. I mean, air-quality and biodiversity differ across America from city to city and state to state, so I’m not sure a generalized score covering an entire country is terribly meaningful. 

That said, the report has value to me because it catalogs unique data relevant to retirement that is often overlooked in much more simplistic rankings.  

Finances in Retirement, for instance, considers items including government indebtedness. That has a big impact on policies that could very well impact retiree income. We’re already seeing U.S. politicians using America’s vast debts and deficits as rationale for wanting to radically revamp/slash Social Security. 

It also looks at unemployment, which might seem irrelevant to a cohort that largely doesn’t work. But employment plays a significant role in taxes, which plays a significant role in government affording Social Security and healthcare programs that primarily benefit retirees. High unemployment means far less tax revenue to help support retirees. 

I share this because when I was speaking at the recent International Living conference in Atlanta several weeks ago, I had a lot of people pull me aside and ask me where they should be looking to live a better retirement. 

Of course, that is a hugely personal decision. I could tell you Portugal’s Algarve, or Punta del Este, Uruguay, or even coastal Croatia or Greece are great destinations for a happy retirement. But those answers are specific to my and my wife’s tastes and desires. 

So it is, then, that reports like this one from Nataxis are great starting points for research on where one might think about pursuing retirement. Granted, most of the top countries are quite expensive, except for the Czech Republic, which is highly affordable. 

But lower down the list, when you get to places like Spain, Portugal, Mexico and a few others, costs are much cheaper.  

And while they rank lower on the list, the reality to keep in mind is that rankings such as these are relative to what locals experience in local currency. When you’re an American retiring abroad, your experience is different in financial terms. 

Spain is a great example of this. 

Nataxis has Spain ranked #38, but that’s exclusively because Spain ranks near the bottom in the Material Wellbeing sub-index, which takes into account two measures that weaken the country: Spain’s high unemployment rate, which has been well into the mid-teens for years, and a per-capita income that’s middling at best in Europe. 

However, an American in Spain is living on a U.S. income/retirement nest egg and isn’t reliant on Spanish social security income. 

So, what they care about is healthcare, and there Spain ranks among the best in the world, tied with the U.S. And they’ll likely care about Quality of Life issues, where again Spain ranks higher than the U.S. and on par with a lot of Europe. 

To me, that’s how I would read these reports. Think about them not in local terms, but in terms of an American living abroad and what indexes are most important—Health and Quality of Life. That gives you a good starting point for thinking about where you might like to try to build a new and more affordable life in retirement.