If you think our Social Security system is heading for trouble, look abroad. In much of the world, people are having fewer children and...
WASHINGTON — If you think our Social Security system is heading for trouble, look abroad.
In much of the world, people are having fewer children and living longer. Japan is on a path where its retirees will equal the number of workers in 35 years.
In 45 years, there will be 10 retirees for every seven workers in Italy. The United States will still have 23 workers for every 10 retirees.
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Even in China, where there seems no end to the number of people who want jobs, there will soon be fewer workers supporting retirees than in America, thanks to China’s one-child policy.
All these countries are learning that leaving it to the young to support the elderly — a pay-as-you-go system like Social Security — is not a feasible financial model.
“We’re in much better shape to confront the aging challenge than the countries of continental Europe or Japan,” said Richard Jackson, director of the Global Aging Initiative at the Center for Strategic and International Studies in Washington, D.C. “But good shape is a relative statement.”
The puzzle each country faces is how to increase retirement savings before it’s too late. The alternative is higher taxes and lower benefits.
In Japan, taxes have gone so high, and young people have so little faith in getting anything from it when they retire, that large numbers of people refuse to pay retirement taxes.
Last year’s Japanese legislative attempt to remedy the situation featured exposes showing that seven Cabinet members and the leader of the main opposition party had evaded retirement taxes.
“They do it every five years, and then they have to come back and do it again,” Jackson said.
The Japanese are famous savers. But a decade of low interest rates has left Japan with a very old-fashioned defense against poverty in old age. More than half of Japan’s elderly live with their adult children.
More than 20 countries have created personal retirement accounts that let people save for their own retirement, usually while still paying taxes to support those already retired.
Results are mixed. Evasion is so widespread in China that the government uses private accounts to pay continuing, pay-as-you-go obligations under the old pension system.
Chile, which introduced private accounts in 1981, has seen positive results, said Estelle James, a consultant for the World Bank.
Workers pay 10 percent of their income into accounts administered by brokerage firms. When they retire, their savings account is converted into an annuity.
Large numbers of Chile’s self employed and temporary workers don’t participate, however. And many new retirees are surprised to see brokers take 20 percent or more of their savings, thanks to compounded administrative fees.