Social Security faces demographic nightmare

WASHINGTON – No one can say we weren’t warned. For years, scholars of all shapes and sizes – demographers, economists, political scientists – have cautioned that the populations of most advanced countries are gradually getting older, with dramatic consequences for economics and politics. But we haven’t taken heed by preparing for an unavoidable future.

The “we” refers not just to the United States but to virtually all advanced societies. In fact, America’s aging, though substantial, is relatively modest compared with many European countries and Japan.

The latest warning comes in a massive report on government “pensions” – what Americans call Social Security – from the Organization for Economic Cooperation and Development (OECD) in Paris. The OECD is a group of mostly advanced nations, and the report warns that “the pace of pension reforms … has slowed.”

The problem is simple. Low birth rates and increasing life expectancies result in aging populations. Since 1970, average life expectancy at age 60 in OECD countries has risen from 18 years to 23.4 years; by 2050, it’s forecast to increase to 27.9 years – that is, to nearly 90. The costs of Social Security and pensions will explode.

Governments are aware of these pressures and have raised eligibility ages. But changes have been modest and grudging. Only three countries have retirement ages exceeding 68 (Italy, the Netherlands and Denmark). The increases in the official retirement age are slower than the projected increases in life expectancy, meaning there’s more time for retirement. For men, the average OECD retirement age is projected to increase 1.5 years to “just under 66 years around 2060.” For women, the rise in the retirement age is about 2.1 years, also to around 66.

The implication: Unless retirement ages are raised sharply or benefits are cut deeply, more and more of the income of the working-age population will be siphoned off through higher taxes or cuts in other government spending to support retirees.

The prospective pressures will be enormous, as the table, abbreviated from the OECD report, indicates. It shows the “dependency ratio” for some major countries. The dependency ratio relates the number of elderly – those 65 and older – to the working-age population – those 20 to 64. If the two populations were identical, the ratio would be 100 percent. Although that’s not the case for any major country, most face steep gains. Germany, for example, goes from an elderly population that’s about a third the size of the working population, 35 percent in 2015, to one that’s more than half, 59 percent in 2050.

“Few reforms are as contested as raising the retirement age,” says the OECD report “Pensions at a Glance 2017.” “Why is it so unpopular to work longer even among people with longer life expectancy and in good health?”

Good question. The answer illuminates a dilemma of democracy: Giving people what they want in the present may damage our collective future.

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