There’s increasing pressure on raising retirement ages in the world. Many countries are moving in the direction of raising the retirement age used for their national pensions. Other countries are pretending that their national programs are robust & funded appropriately just the way things are, but they math isn’t in their favor.
In the USA, Republican candidate, Nikki Haley, is calling for Social Security reforms – which include upping the retirement age . She says, “65 is way too low,” and that we should increase it for people in their 20s as they are joining the workforce. (Americans born after 1960 already have a SSA retirement age of 67).
In France, there were explosive street riots earlier this year as President Macron sought to increase the national pension age from 62 to 64. Led by labor unions (many of which represent government employees), more than a million people turned out to protest in Paris. It looks the age increase will happen through an executive order by Macron.
At the same time, China has been holding steadfast to the pension system it adopted in the 1950s, which has an average retirement age of just 54. In China, men are eligible for pensions at 60 years old and women can draw a pension as early as 50 years old. China has long touted its comparatively generous national pension.
Regardless of what politicians tout, all countries should be concerned about the incentives they place on their workforce. Declining birth rates are beginning to make the demographics of many countries look economically untenable as too few young people are available to support older people. Japan has been the bellwether on this front as 29% of their population is now over 65, which is twice as high as 30 years ago when their economy started irreversibly slowing.
Nikki Haley aside, few of the presidential candidates in the 2024 race are joining her in discussing raising the retirement age. Regardless of what party wins, I’m guessing few politicians that win in 2024 will want to deal with this right now. We’re fortunate that our population is younger than many, our birth rate is higher than most, and we benefit as a place that many want to emigrate too.
If you were King/Queen for a day, how would you address the retirement age tied to Social Security / National Pension?
Image: Freepik.com
MrFireStation 
I would like to start with my thoughts on fixing Social Security, by highlighting two lies that we can expect to hear from politicians, especially of the Demonrat variety.
The first lie will be that the sole issue with the current Social Security finances is that there are too few workers to support the large, retired baby boomer population. Expect to hear that the solution is that the US needs to allow more immigration to increase the population of younger workers. Here is why the US cannot simply import ‘workers’ to solve this problem. According to the Federation for American Immigration Reform, illegal low skilled immigration will cost US taxpayers $150.7 Billion in 2023. Instead of paying taxes that will help shore up Social Security, illegal immigrants are net consumers of taxpayer funded services. Chain migration of the younger workers’’ parents, will only exacerbate the problem.
https://www.fairus.org/issue/publications-resources/fiscal-burden-illegal-immigration-united-states-taxpayers-2023
Expect to hear the second lie that the ‘wealthy’ defined as those who earn enough that they are maxing out Social Security each year and earn subsequent income where Social Security is not withheld are freeloaders. This argument attempts to manipulate people via the green-eyed monster of envy, and overlooks that higher earning taxpayers pay taxes at higher bracket rates, and when they retire their Social Security payout will be a smaller percentage of their lifetime contributions than those who are receiving the minimum payout.
Here are some figures from the National Academy of Social Insurance. For a 65-year-old who retired in 2017, and always earned at the career averaged Social Security maximum of $120,418 for the 40 quarters would receive $30,105 annually for a 25% payout. Those at the lower end, who only earned and paid Social Security taxes at $22,215 for 40 quarters would receive $11,517 for a 50% payout.
https://www.nasi.org/learn/social-security/how-do-benefits-compare-to-earnings/
How did we get ourselves in the mess as a country? During the baby boomers’ working years, we paid excess Social Security Taxes, and the problem is that the politicians spent the money (starting will Bill Clinton) instead of saving it. Jeremy Siegel is a professor of finance at the University of Pennsylvania’s Wharton School. He published this as an opinion editorial in the Wall Street Journal for his 70th birthday, when he elected to start receiving Social Security. His title was, “My Sorry Social Security Return”.
Mr. Siegel’s SSA statement showed that he and his employer had paid $329,640 during his working tenure at the University of Pennsylvania. If his $329,640 ‘contributions’ had been invested at a stock market return, he would have received 3X his $3,500 monthly payout. If the government had held the funds in trust and invested them in treasury bills, the government would have made a 50% profit. Another interesting point that Mr. Siegel made was that he and his employer had paid $1,000,000 into Medicare because since 1994, there has been no cap on Medicare ‘contributions’. Note that I use single brackets around the word ‘contributions’ which is government’s misuse of the word, which really should be tax.
Here is the final paragraph from Mr. Siegel’s article. “So are affluent seniors making out like bandits? Not at all. The bandit is the federal government, which provides benefits that are millions of dollars short of what anyone whose earnings are at or above the tax cap easily could have accumulated on his own.”
https://student-doctor.blogspot.com/2015/12/my-sorry-social-security-return.html
I think Mr. Siegel is onto how this problem gets fixed. For current retirees, the government needs to honor their commitments to those who relied upon them to save their ‘contributions’ instead of spending them. For younger workers, our children, they need to have money socked away into investment accounts earmarked and invested exclusively for them. The funds need to be safeguarded to keep greedy short sighted politicians’ hands away from them. The payout will be closer to T-bill rates, where Mr. Siegel calculated the government would earn a 50% profit. In this case the profit would be used to get the government out of the financial mess they got themselves into by spending our excess ‘contributions’ during our working careers.
LikeLike
Quite a response to being ‘King for the Day’, Klaus! Here are a few of my thoughts on each of your comments …
1. I do think immigration will help with the retirement numbers, but agree that looking the other way when illegal immigration is happening isn’t the way to do it. It’s too bad we can’t get past the problems at the border to discuss legal immigration with merit. My son has a friend from India that just graduated from college in the midwest and is on a waiting list 30 years long for citizenship.
2. Agree that the wealthy are not the problem with Social Security. The Left would like to make the program into a welfare program so that they can avoid the cost of being fair to everyone. The payout % differences you quote from NASI shows that they are already doing that.
3. Agree that Social Security has been a terrible investment over the long term. It’s a little apples-and-oranges comparing Social Security with the stock market, given that the former is “guaranteed” and the latter carries real risk. Risk comes at a cost. That said, in retrospect, the stock market seems as if it has been quite stable over long periods of time (15-30 year windows).
4. Replacing current SSI with some kind of investment account scheme makes a lot of sense. I also think that the public understands how these kind of accounts can work, given that we have 401K, HSA, and 529 plans that work on the same principles.
LikeLiked by 1 person
Thanks for the kind words. It has been said many times in this forum that the US needs better financial education. Why did they take personal finance out of the requirements for high school graduation?
The only group that would not like an American public with better financial literacy would be the politicians who manipulate the financially illiterate with emotions.
LikeLiked by 1 person
I never had any personal finance class required when I was a kid. I don’t think my son did either. I did have a class called ‘Business Law’ that got into contracts and such. That was helpful. My son was a Scout and they have a merit badge called ‘Personal Management’ that covers financial topics. It’s an ‘Eagle Required’ badge that I was a counselor for. The kids really learned a lot of useful stuff for that badge.
LikeLiked by 1 person
I am an Eagle Scout too, but do not remember Personal Management as a merit badge. I was very fortunate to be in Boy Scouts during the organization’s golden age and learned many useful life skills.
Have you been following what has been going on with Boy Scouts lately? The left has gotten ahold of the organization and ruined it. They actually went bankrupt a couple years ago because of numerous lawsuits that were the result of sexual abuse of minors. Ironically, this came less than a decade after the ACLU sued to allow gay scout leaders. Dennis Prager said on his radio show, “The left ruins everything they touch.” There are large evangelical churches in the LA area that broke off from the Boy Scout National Organization and have their own equivalent.
LikeLike
The Boy Scouts are a little off topic here, but the sex abuse scandal in that organization goes back to the 1970s – and likely before. I don’t think it’s a case of the Left suddenly ruining scouts. It seems wherever & whenever you get adults & kids together, there is a high risk of abuse. That’s likely true since caveman times. The Scouts & Catholic Church are often in the media, but the amount of abuse that takes place in K-12 education (and rarely gets reported/media attention) is also incredibly shocking. Scouts should simply be training for personal responsibility & effective leadership. We don’t have enough of that in this world. The sexual orientation of the scouts & their leaders shouldn’t have anything to do with reaching those objectives. The BSA just needs to keep the kids safe and simply do their job. That will keep them out of headlines … and courthouse.
LikeLike
I started to comment yesterday but the day got away from me. I do need to point out first that I am challenged in commenting on your blog as it is a black background and with my iPad I can’t see what I type thus I am drafting this in WORD to copy over.
This is the beauty of your blog. Great thought provoking subjects and a few really educated people who comment. I will add that the comments are respectful and while they may differ a little on the political arena. We are more like Ronald Reagan and Tip O’neal. We might differ politically but we can discuss a topic unlike most politicians today.
I am also an Eagle Scout 1977 which was when Scouting was challenging after the Vietnam War and a backlash in Maine to anything remotely military including activities in which uniforms were involved. I also was an adult Scouter with my boys including leading a weeklong backpack summiting Mt Whitney and a Philmont Trek. When I was a scout, we always knew the leaders who were “a bit light in the loafers”. Sadly, friends who are Eagle Scouts were not allowed to be adult leaders due to their sexual orientation. They would be great leaders and would never prey on young boys.
Returning to the subject of the future of social security. I am a reader of history and have taught many insurance and risk management classes. Social Security is by definition a social welfare program. I really get my extreme right wing friends going when as a social security and Medicare recipient I congratulate them on receiving welfare. This is the same as the socialist snowplows.
Let me explain. When social security came into being it was a method of keeping the elderly out of poverty. Age 65 was the age as a small segment of the working population lived beyond that age. The system has morphed significantly since inception.
When my great uncle who raised my father turned 65 in 1964, he had never paid into the system as he had been self-employed. My father paid his past contributions in one payment which was earned back in social security payments in one year. My great uncle lived on this income for another 21 years.
Presently the age for full benefits is 67 years but to avoid running out of funds, taxes need to be raised or the age for full benefits needs to be raised or it needs to be means tested which is near impossible as even low-income earners don’t want it viewed as a welfare program.
Social Security was never intended to be a retirement plan nor to fund travel and gambling entertainment of the middle and upper classes. Presently FICA taxes are limited to a level of income and likewise benefits are based upon income earned during I think a 35 years of FICA work.
Then there is an off-set for those like me who receive a government pension (which as an employee I paid as part of my renumeration). I contributed into social security for 18 years prior to government employment and now I have paid in for four years post government employment. I plan to draw social security at age 70 to avoid extra taxation to benefits as I continue to earn wages.
My monthly benefit will be based on the average of the prior 35 years of FICA wages which many of those years are zero due to government employment. The benefit will then be reduced by a percentage recognizing my government pension, so yes, my benefit will be means tested. I will also point out the my FICA taxes as a self-employed individual are double that of a wage earner as I pay both sides of the tax.
I was also a Personal Management merit badge counselor and my children had a personal finance class in California High School. My eldest an Accountant was allowed to audit the class a second time as he so enjoyed “The Stock Market Game” they played and he actually helped teach that portion of the class!
LikeLiked by 1 person
Thanks for going the ‘extra effort’ in submitting a response, Dave! I pretty much only use my iPad or iPhone nowadays. I have a laptop, but it might be the last one I buy.
Congrats on your Eagle Scout accomplishment. I just looked it up: despite the BSA’s challenges, there were 61K Eagles awarded in 2019, compared with 25K in 1977, when you joined the rank. Good to see that growth.
The Minnesota North Star Boy Scouts district has allowed gay leaders for almost 30 years, I think. When it became an issue nationally, it was already decided here for several decades. It wasn’t controversial here as they keep the focus on personal responsibility & leadership skills. Everyone benefits from that focus and it keeps the politics out.
Yes, SSI is a form of social welfare, I suppose. It seems almost everything the government does subsidizes someone at the cost of someone else to fulfill some social aim, doesn’t it. I don’t generally like that, but politics wouldn’t stop me from cashing a check myself. I often say, “if their dumb enough to give it out, we should be smart enough to take it.” Especially those of us that have paid a disproportionate share.
My paternal great-grandpa stopped working before WWII when SSI was started. Like your great uncle, he collected a lot of checks before he passed in 1966.
Of the choices to ‘fix’ SSI, which would you pick over another? If you were King for the Day, what would be your primary strategy?
LikeLike
Yes, I will take the bait on the question “What would you do to fix social security if you were king for a day?”
But first, from the Friday edition WSJ page A3 about the Florida Hurricane at Cedar Key. “though his excursion boats survived, his dock was pulverized and sits in a pile in the parking lot. The dock wasn’t insured. He was worried that without substantial federal assistance, establishments on Dock Street will not be able to reopen. The strip sits over the water on underpinnings that the storm damaged making repairs costly.”
This storm damage once again is the result of building improperly where perhaps we shouldn’t build. I also note that much of the media footage of flooding in Florida from the recent storm was of water confined to the streets and most housing was unaffected other than housing built decades below at levels within flood prone areas.
My comments about social security follow my philosophy why we have drifted too far into the nanny state.
As far as social security goes, it should revert back to a program designed to keep the elderly (and yes disabled) out of poverty. The maximum payment should be limited to 125% of the poverty level. If you have an adjusted gross income on your 1040 above 125% of the poverty level, no benefit is to be paid. No penalty for early draw of benefits.
Tax rate to be based on sound actuarial principals for the future payments and adjusted every five years limiting amount of income subject to tax in an amount lower than today since many would not be eligible for benefits.
Program would be implemented over twenty years at a decreasing rate such that a 42 year old today would be subject to new scheme but anyone older than 42 would be subject to the change on an incremental basis.
LikeLike