What Social Security Really Needs

The Wall Street Journal tells us that the U.S. Social Security system has a customer service problem:

While the Trump administration suggests that fraud is a Social Security problem, instead, we should really worry about the long phone waits and 47 local offices set to close.

Also, we can see what the Melbourne Mercer Global Pension Index tells us in its 2024 evaluation.

Evaluating Social Security

With 50 indicators divided among adequacy, sustainability, and reliability, the Melbourne Mercer Index Scorecard covers 48 retirement systems and more than 65% of the world’s population. Simply stated, they are focusing on three basic issues. Adequacy is what we receive. Sustainability focuses on whether the system can endure future challenges like lower fertility and higher longevity. And finally, integrity takes us to “community confidence.” Counting the most, the adequacy component is 40 percent of a country’s score. Next, sustainability counts for 35 percent and integrity is 25 percent.

Globally

For each of the 48 countries, the three sub-component totals ranged from a score of 84.8 to 45.2.

Adequacy

• Judging adequacy, the Melbourne Index includes what different income groups receive as well as their savings rates, home ownership, and household debt–all barometers of retirees’ need. Consequently, the system’s revenue, savings, benefits, and growth potential are what matters.
• For Adequacy, ranging from 34.2 to 85.6 the Netherlands and France were the highest while India and South Africa had the lowest scores.

Sustainability

• With sustainability, pension funding levels, retirement length, labor force participation rates for the older population, and economic growth are the chief concerns.
• The high Sustainability score was 84.3 and the low, 22, with Iceland and Denmark at the top and Italy and Austria in last place.

Integrity

• For integrity, predictably, the focus is governance, operating costs, and communication but less obviously, on private pension systems that can share the load. Here, Integrity scores were between a high of 90.8 and a 27.7 low with the highs going to Finland and Norway, and Argentina and the Philippines at the bottom.

Reflected by our featured image, these were the grades:

U.S.

Although the total U.S. index score dropped from 63 to 60.4, its grade remained a C+. At C+, the U.S. sustainability score positioned it in the top half but adequacy was much lower and integrity, dismal:

Our Bottom Line: Entitlements

When a pension type of payment like Social Security comes from government it is called a transfer payment. Not given to people for creating any good or service, it is money that their country has decided they deserve because they have certain characteristics. They could have reached a certain age or stopped working. They might have a disability. The common thread is the inability to earn an income. As a result, we have created entitlements that include Social Security transfer payments.

From here though, it gets more complicated. In the United States we have public sector transfer payments and private sector employment based pensions. In addition, what we receive can be based on a defined contribution (DC) or a defined benefit (DB). With the former, the payouts are not predetermined whereas with a defined benefit, we have a guarantee for what we will get. This year’s Mercer Report tells us that the world’s systems are gradually shifting to DC from DB. The problem is a potentially ballooning Defined Benefit because people are having fewer babies and living longer.

Indeed, if we proceed with reforming the U.S. pension system, we need first to know accurately what is wrong.

My sources and more: Today, we began with a global Social Security perspective after our recent econlife suggestions for a fix. Then, for more insight, Pew looked into inadequate retirement saving.

Please note that several of today’s sentences were in a previous econlife post.