Soon the debate on Social Security will be renewed.
The recommendations are already on the table— it is time to start moving from a pay-as-you-go retirement system to a funded system. The first step should be a partial privatization so that workers invest directly in their own retirement accounts.
Discussion will be predictable. Among the usual suspects, some will say the idea is too little, too late. Others will say it’s all a ploy to increase the flow of money (and profits) to the mutual fund and insurance industry. You may be tempted to tune out.
Don’t.
There is good evidence that our future, our children’s future, and the future of our grandchildren will be shaped by three major problems: the end of cheap energy, a looming water shortage, and global aging. Of the three, global aging is the most certain but most obscured by political bombast.
So I have a suggestion.
Buy a copy of “Gray Dawn: How the Coming Age Wave Will Transform America and the World.” Written by Pete Peterson and published by Times Books ($23 HB, $14 PB) in 1999, it is the best and most balanced book on the subject that I have encountered in 25 years of reporting on the subject.
One of the books’ greatest virtues is brevity. It covers the subject in 237 pages that are well punctuated with powerful graphic illustrations. Trust me, this isn’t the last word— but it’s a really good Clift Notes.
The book even has some good news— the United States is better positioned than any other industrial nation to deal with the problem of aging. We are younger. We will remain younger through a higher birthrate and immigration. And we currently have more assets put aside for old age security than any other nation.
Unfortunately, we still have a major problem— our unfunded old age income and health care obligations dwarf the national debt. For us, the combination of declining birth rates and increasing life expectancy means that supporting the elderly will be a major burden for future workers.
This will happen simply because the ratio of workers to retirees will decline. From 4.2 workers per retiree in 1995, the ratio is expected to decline to 2.3 in 2050, nearly doubling the already high burden per worker.
But we’ve got it easy.
Most of Europe has birth rates so low population is expected to decline. As population declines, the number of workers to support the elderly will plummet. Already, there are only 1.3 workers per retiree in Italy. The number is expected to reach 0.7 by 2050. Yes, you read that right— there will be more people retired than working.
The most dramatic population problem, however, is in China. There, the combination of government policies that allow only one birth per family and the traditional preference for a male child has created a ballooning imbalance between the male and female population. By the year 2020, one demographer estimates, the surplus of young Chinese males in their 20s will be greater than the female population of Taiwan.
Can we solve such gigantic problems? No.
What we can do is be thankful that our aging problem may be manageable. Indeed, Mr. Peterson advocates a number of steps to solve the problem:
- Encourage people to delay retirement and work longer.
- Encourage immigration.
- Encourage larger families with well-educated children.
- Promote a culture of “filial obligation” in which there is more direct family care for the elderly.
- Make benefits dependent on financial need, reducing payments by 10 percent for each $10,000 of income over the national median but not reducing benefits by more than 85 percent.
- Make old age saving mandatory.
Note that only two of Mr. Peterson’s six recommendations directly involve money. That’s because he has the wisdom to see aging and retirement as a social issue with economic elements. More than money is involved.
Unfortunately, that wisdom may not be included in the debate that’s coming our way.
This information is distributed for education purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product, or service.
Photo: Markus Winkler
(c) Scott Burns, 2022