In the U.S., some Republican lawmakers are proposing to raise the age of eligibility for full Social Security benefits, provoking withering criticism from President Biden and many Democrats. But the debate over when government should begin paying retirement benefits isn’t just a controversy here. It is happening all over the world.
French President Emmanuel Macron has proposed gradually raising the retirement age from 62 to 64, Belgium is debating a plan to base benefit eligibility on years of work rather than age. And China’s new premier Li Qiang hinted that his government may raise the retirement age there by an unspecified period.
The response in France included widespread strikes and mass demonstrations. But despite the street protests, the French Senate has approved Macron’s plan, which now is awaiting a vote in the National Assembly as soon as this week.
Lessons For The U.S.
Is there a lesson for U.S. lawmakers in the French response? Will riots in Paris discourage Social Security reform in Washington? Or will the firm commitment by Macron and the French Senate encourage changes here?
The fundamental problem is exactly the same in the U.S., throughout the developed world, and even in developing countries such as China. The number of working age people paying taxes is insufficient to support a growing cohort of retirees.
That decline is caused by two historic demographic changes. Older adults are living longer than ever and had relatively few children. Those demographics are baked in the financial cake. Nothing will change them, short of a massive increase in immigration of young people from the developing world or a catastrophic wave of deaths among the old that would dwarf even what happened during the pandemic.
However, beyond that fundamental demographic challenge, matters are quite different from country-to-country. And in many ways, the U.S. is not France.
Vive La Difference
Start with those demographics, which are a far more serious problem in France. In the U.S., there currently are three workers for every retiree and by 2050, that number will fall to two. That’s bad. But in France, there were only 1.7 workers for every retiree in 2020 and by 2033, there will be just 1.5.
In addition, U.S. retirees born in 1960 or later already must wait until age 67 to receive full Social Security benefits, three years longer than Macron even is proposing. And workers in certain occupations in France can retire as young as age 52, even though life expectancy is significantly longer than in the U.S.
Not only will there be more workers for each retiree in the U.S., but Social Security benefits are far more modest that than under the comparable retirement program in France. On average, French retirees receive about 60 percent of their pre-retirement earnings through the public pension system. U.S. retirees receive only about 40 percent from Social Security.
To look at it another way, France spends about twice as much on its national pension program as a share of its overall economy than the U.S. does. And overall, social solidarity and social insurance is much more ingrained in France than in the U.S.
But there is another side to this. Many U.S. retirees also have income from private, work-based pensions or from tax-advantaged retirement savings such as IRAs or 401(k)s that don’t exist in France. That’s especially true of high-income retirees.
The U.S. Story
So the story is complicated. On one hand, the French pension system is under far more stress than Social Security. Yet, Social Security also is teetering. Without changes, the trust fund for the old age portion of Social Security will be insolvent in about a decade. Once that happens, the program will be able to pay only about 78 percent of promised benefits.
Any politically viable solution will require a mix of tax increases and some form of benefit reductions that could come by reducing promised benefits for high-income workers or raising the age when retirees receive full benefits.
Keep in mind that there are no credible proposals to raise the early Social Security retirement age of 62. The debate will be over whether to raise the full retirement age beyond 67 to reflect the increase in life expectancy and changes in the nature of work.
It isn’t a simple issue. For example, while raising the retirement age might be appropriate for high-income, white-collar workers who will live many years after age 67, it may be tougher for low-income workers who do physically difficult manual labor and whose life expectancy is shorter.
Raising the retirement age is an issue that won’t go away, either in the U.S. or in the rest of the world.