Why Future Grandmas Should Worry

In the past, the U.S. Social Security System received a C+ grade. This year, it has not gotten any better.

But the U.S. is not alone.

Global Retirement Systems

Annually, during the past 15 years the Melbourne Mercer Global Pension Index ranked global retirement systems.

With 50 indicators divided among adequacy, sustainability, and reliability, the Melbourne Mercer Index Scorecard covers 47 retirement systems and 64 percent of the world’s population. At 40 percent of a country’s score, the adequacy component is mostly based on the system’s revenue, savings, benefits, and growth potential. Meanwhile, with sustainability counting for 35 percent, it includes a score for demography, debt, and total assets. Then, through its focus on governance, costs, communication, and protection, integrity is 25 percent.

Light blue and even green is a color we would all want for our own Social Security system:

The Netherlands, Iceland, Denmark, and Israel got the only A grades for their pension systems. Then, at the bottom, we have Argentina.

I’ve copied several country ranking graphics from the Mercer Report:

And finally, China had this analysis:

Our Bottom Line: Pay-As-You-Go

A retirement system is called pay-as-you-go when the payroll tax from today’s labor force goes to current Social Security recipients. As a result, if there are too many elderly individuals and too few workers, you have a problem. Soon after it began, in 1940, the U.S. Social Security system had 222,000 beneficiaries and 35,390,000 covered workers. Then, the ratio was 159.4; in 1960, it dropped to 5.1; in 2022, it plunged to 2.8 workers for every beneficiary.

The Peter G. Peterson Foundation tells us that there are three reasons for the declining ratio. The population is growing older and living longer. Whereas in 1950, eight percent of the U.S. population was 65 or older, now we are looking at 17.3 percent and a projected 22 percent by 2040. In addition, because immigrants tend to be younger, have jobs, and more children, they buoy Social Security finances. And finally, below replacement levels, the U.S. birthrate is down.

I guess it all adds up to a U.S. grade of 63–a C+.

My sources and more: The SSA website is always a handy first stop for entitlements analysis. Then, we took the next step with a global lens through the Melbourne Mercer Global Pension Index. And finally, reports from Pew and Peter G. Peterson and the World Economic Forum added details. Please note that my description of theMercer system was in a previous econlife post.