RAISING RETIREMENT AGE AN UNPOPULAR SOLUTION

While we prepared for a recent trip to Europe, which included a week in Paris, we grew concerned about potential intrusion from encounters with persistent anti government demonstrations in the French capital. Our fears proved to be unfounded. However, the contentious issues involved remained palpable. More than a million residents have repeatedly taken to the streets to protest President Emanuel Macron's attempt to impose a largely unpopular policy change which would raise the age French citizens are eligible to retire with a full pension from 62 to 64. The president's reasoning has been that the increase is absolutely necessary to keep the country's pension system afloat. Prime Minister Elisabeth Borne, afraid that her government might not have the votes to adopt the retirement bill, a key priority of Macron's second term, invoked Article 49:3 of the French constitution. This strategy allowed the bill to pass without a vote in the National Assembly, leaving protesters with a "fait accompli." Outsiders frequently appear puzzled about the regularity with which the French public openly expresses its discontent. Even when the increase in their retirement age to 64 takes effect, the French will still be able to retire earlier than citizens in any other European country. Most have raised their effective age to 67, and a few plan to take it up to 69. Some observers claim that protest is deeply embedded in French culture, dating back at least to the revolution of 1789. Alexis Poyard, a prominent youth activist, concludes that: "In France we protest whenever we are sad or when we are angry." It does not hurt that these popular outbursts have often been successful The mass revolt in 1968 caused President Charles de Gaulle to flee the country. In 1995, persistent protests and massive strikes pressured the government into backing down from its earlier effort at overhauling the pension system. And the "Yellow Vest" protests a few years ago forced Macron to abandon his effort to introduce a carbon tax. Justified or not, the popular uproar across the country highlights the need to pay attention to funding problems for retirement programs, anticipated to mature in a growing number of countries within the coming decade. These include our own country, where the funding for entitlement programs are getting in the way of debt reduction efforts. However, we have known for some time that, barring appropriate reforms, our Social Security Trust Fund will run dry by 2034. The underlying challenges are well known. The biggest one is "not enough workers!". The ratio of workers who pay into the system to Social Security beneficiaries taking money out is shifting from 2.8 workers for each beneficiary in 2022 to a projected 2.1 by 2035. Basic problems are: A rapidly aging population, longer life expectancy, and lower fertility rates. By 2031 there will be 75 million Americans over the age of 65. This is up from 39 million in 2008. By 2031, the youngest baby boomers - born between 1946 and 1964 - will have passed the Social Security full retirement age of 67. People are living longer. In 1935, when Social Security began, people at the age of 65 could expect to live an additional 12.5 years. Now, women age 65 can expect to live another 21.8 years, and men an additional 19.2 years. All of this places an additional strain on the system. At the same time, the fertility rate, the level at which a population replaces itself from one generation to another, is dropping rapidly. This rate should be 2.1 children per woman. In the U.S., by 2030, this replacement rate is projected to drop to 1.75. Our population is shrinking. While many European countries come in even lower, most still have growing populations because of immigration. The net result is ultimately that we end up with fewer workers paying into the system and a growing number of recipients who no longer contribute to the trust fund. To begin to address this imminent economic problem, politicians of all stripes appear to concentrate on postponing the inevitable by raising the retirement age from the current 67 - for people born in 1960 or later, to 69 or 70, and raise the age at which maximum delayed retirement credits are earned from 70 to 72. However, this approach would only reduce the Fund's deficit by 28%. While we may not express our displeasure with this solution in the way the French are, this is hardly a popular approach. The "solution" might be acceptable to professional groups retiring from cushy, highly compensated jobs. However, for those who have spent their working life doing heavy physical labor, being forced to work additional years before retiring will be less inviting. Alternative solutions, although politically less palatable because they involve taxes or immigration, are not only potentially more beneficial, they are socially more equitable and reasonable. Increase the pool: Admit millions of additional immigrants. They have proven to increase the number of start-ups, help the rate of economic growth, and offset our replacement fertility deficiency. Increase the tax base: Lift the payroll tax cap. Right now, Social, Security taxes only apply to the first $160,200 of a person's annual income. Completely eliminating the cap, without an increase in benefits for those who exceed it, would cut the projected deficit by 73%. Or, alternatively: Increase the tax rate: Social Security taxes account for 90% of the Trust Fund's income. The current rate stands at 12.4%. We could increase the tax rate to 16%, shared equally by employers and employees. In short, the problem is real. However, solutions, other than kicking the can down the road, are available to those with the political will to entertain them. Theo Wierdsma