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A Smaller Safety Net?

Sep 10, 2010 • Economic Debates, Government, International Trade and Finance, Labor • 178 Views    1 Comment

In France, a 24 hour workers’ strike brought retirement rights back to the headlines. Saying that a 60 year old retirement age was no longer affordable, French President Sarkozy has proposed moving it up to 62. French workers disagree.

In the U.S., a leader of the Older Women’s League (OWL) reacted angrily to a comment about Social Security from former Senator Alan Simpson. Mr. Simpson is the co-chairman of the recently created National Commission on Fiscal Responsibility and Reform. Using rather vivid language, Mr. Simpson said that Social Security would not have the future capabiity to continue its current obligations. In an email, OWL responded that Mr. Simpson displayed, “…his clear disrespect for Social Security, women and the American people…”

You can see the dilemma. Our resources are limited. In most eurozone countries and in the U.S. federal spending is skyrocketing. To what extent should we provide support to an aging population?

The Economic Lesson

Social Security is a pay-as-you-go system; today’s workers pay the benefits for today’s recipients. When Social Security began in 1935, there were 42 workers for each beneficiary, life expectancy was close to 62, and benefits began at 65. Today, U.S. life expectancy averages close to 78 and minimum benefits can begin at 62. By 2027, the full benefits age will gradually have risen from 65 to 67. Currently, while there are approximately 3.3 workers for each beneficiary, for 2030 the projection is 2.2.

In France also, and in other OECD countries, the older population is growing and birth rates have diminished. By 2050, if current labor force participation rates remain the same, in Europe, there will be one worker for every retired person.

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  • alhyatt2

    The disputes and strikes in France regarding the proposed increase in retirement age are reactions sparked by the same questions that have plagued America for decades: when will social security “run out” and how will this affect future generations? As stated above, as the life expectancy of the older citizens of the US increases, the availability of social security for future generations decreases. There are several things that I think may or might have helped better this situation. For one thing, when the program was introduced the age in which a citizen could receive benefits was older than the average life expectancy. Now, the age for benefits is 16 years before the average American’s age at the time of death. When did this drastic difference in minimum benefit payments take place? This could be part of the reason why the amount of people supporting and elderly citizen have decreased exponentially since 1935. Another thing that may help this situation, is if the government started a fund for the elderly people of America and for people who have already been working for at least 15 years, and pooled money for their social security. As for the Social Security part of your check that is taken out, the government can still take that, but couple it with government bonds with a fairly decent interest rate, so that when that person reaches retirement (and their bonds mature after the set time period) they should have sufficient funds to take care of themselves. This, of course, would work in an ideal economy, where market fluctuation is fairly predictable as days, weeks, and months progress, but the US economy is not in that shape as of yet. We face difficulties in determining how to fix this problem because if we make a false move we could end up damaging our economy even further. To finally answer the question, we should provide financial assistance to the aging population for as long as they are living, but it would be for the system’s (and the country’s) best interest if the retirement age was moved up and accounts were created to support each individual American themselves, not their grandparents.

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