The US could face retirement riots like the one in France as Social Security trust funds could be exhausted as early as 2033.
In recent months, President Emmanuel Macron has sparked unpopular plans to raise France’s national retirement age from 62 to 64.
While the U.S. retirement age of 67 is among the highest in the world, Social Security funds are shrinking after decades of growth—partly because the number of retirees is steadily growing, but also because the pool of those who earn is shrinking.
As the baby boom generation exits the labor market, Social Security funds are coming under increasing pressure, and some experts predict they will run out by 2033. Experts have warned that when that happens, payments won’t disappear altogether, but will likely be cut by about 25%. per cent.
A recent study commissioned by News week, indicated that 29 percent of Americans think the retirement age is already too high. In a March poll by the Associated Press-NORC Center, 79 percent of respondents said they oppose cutting Social Security benefits.
Protests broke out in a number of French cities when President Emmanuel Macron proposed raising the retirement age from 62 to 64.
The number of retired workers receiving Social Security benefits in the United States is steadily increasing. Meanwhile, the pool of people paying for Social Security trust finds is dwindling
France has a relatively low retirement age compared to the US, 67, one of the highest in the world. Protesters are pictured in April chanting at a rally after the French government pushed a pension reform through parliament without a vote
“Social Security faces a looming financial shortfall,” said Richard Johnson, director of the Urban Institute’s retirement policy program. News week.
“The trust funds are scheduled to be exhausted by 2033 — that’s 10 years from now,” reiterated Jason Fichtner, chief economist at the Bipartisan Policy Center.
Making matters worse is the reality that the pool of people of working age, between about 20 and 64, who share the cost of maintaining Social Security beneficiaries is also shrinking.
The latest projections from the Social Security Administration indicate that there will be 2.1 workers per Social Security beneficiary by 2040, up from 3.7 in 1970, according to the Urban Institute.
Another report from the Administration on aging found that more than one in six Americans will be 65 or older by 2020 — a 35 percent increase from a decade earlier.
Richard Fiesta, executive director of the Alliance for Retired Americans, said the Social Security collapse is likely to hit millions of American retirees even harder as the retirement system becomes increasingly dependent on it.
“Social Security is an increasingly important part of retirement income,” he told Newsweek.
And that’s unfortunately due to the decline over the last 30 or 40 years of segregated workplace pensions, as well as a lower savings rate for retirement.
“Unfortunately, social security has become more important for retirement income because of declines in other sources.”
A man protesting in France pushes a box shaped like a coffin with the inscription: ‘Your new pension fund’
The latest projections from the Social Security Administration indicate that by 2040 there will be 2.1 workers per Social Security beneficiary. The percentage of the population over 65 is expected to increase by about 4 percent over the next 20 years
“I don’t think raising the retirement age beyond the current 67 is going to be politically popular, and people proposing that would get backlash,” Fiesta told Newsweek.
“Our own data from the last decade shows that the most unpopular Social Security reform proposal is raising the retirement age,” he said.
This raises the question of what policy can be introduced to deal with the impending pension crisis.
“There are many ways policymakers can prevent Social Security insolvency,” Johnson told Newsweek. One way is to tax people with higher incomes more.
“One option is to inject new revenue into the system by extending Social Security payroll taxes to higher-income workers.
“Social Security income comes primarily from payroll taxes that employees and their employers pay on earnings up to a certain amount each year.”
As it stands now in the US, those who make up to about $160,000 pay Social Security on that income. Johnson suggested that the cap could be raised.
During his 2020 election campaign, Biden proposed that all incomes above $400,000 be subject to the payroll tax. That change would have meant people pay taxes on income up to $160,000 and over $400,000, but not in between.
Fichtner said tax increases would ease some of the tension, but would also leave Americans dissatisfied.
“If you were to raise taxes 10 years from now to cover that increase, you would have to raise our payroll taxes,” he said.
“That would hit current employees today, and I don’t think any Congress will pass a 33 percent tax increase on current employees,” he added.
In March, Biden issued the first veto of his presidency, and that related to pensions.
The veto stopped a Republican-led bill that would have overturned his administration’s rule requiring retirement account planners to consider “environmental, social and governance” factors, also known as ESG.
Former President Donald Trump had banned pension funds from investing in ESG assets during his tenure because they diverted attention from a fund’s traditional goal of making money for the investor and increasing the size of their pensions.
However, because climate change, social impacts and pending litigation have significant financial implications, government officials argue that such investment restrictions are fueling potential disaster.
However, Republicans in Congress who pushed to reverse the Labor Department’s actions say ESG investments provide significant funding to push political agendas, such as action on climate change.