Speech

Social Security Reform and Demographic Reality DeltaStateUniversity Cleveland,Mississippi October19,2004 When I travel to give a speech, on WORLD POPULATION TRENDS whatever topic, I often find that AND GOVERNMENT PENSIONS the subject of Social Security Becauseitisimportanttounderstandwhy comes up in the Q&A session theSocialSecuritysystemandsimilarsystems after the speech. Because I have received so inothercountriesarestressed,Ibeginwithsome many questions on the topic over the years, I’ve basicfactsaboutpopulationgrowth.Worldpop- decided that Social Security would be a good ulationhasmorethandoubledinthepast50 subject for careful treatment in a speech. More- years,andhasnearlyquadrupledsince1900.A over,I’mconvincedthatthemostlogicalaudience recentforecastfromtheUnitedNations,however, for the topic is a young audience. That may sur- predictsthatworld-populationgrowthwillbe prise you, but I’m hoping that by the end of my slowingduetofallingfertility.U.N.forecasters remarks you will agree that Social Security is predictthat,bymid-century,theworldaverage actually more of an issue for you than it is for fertilityrate—thatis,theaveragenumberofchil- thosecurrentlyreceivingSocialSecuritybenefits. drenawomanwillbearinherlifetime—willhave Moreover, the issue is one for you today, and fallento1.85.Atthatrate,fertilitywillbebelow not just looking forward to your own retirement. thereplacementrate—thelevelconsiderednec- The reason, in short, is that income you earn essaryforpopulationtostayconstant—ofabout today in your part-time and summer jobs as stu- 2.1childrenperwoman.Consequently,world dents,andthatyouwillearnwhenyougraduate, populationisactuallyexpectedtobegindeclining sometimetowardtheendofthiscentury. will be subject to Social Security taxes. Current Thisworldwidetrendtookrootindeveloped projections are that those taxes may have to rise countrieswherefertilityratesarealreadywell dramatically to sustain the system. And, having belowitsreplacementrate.Infact,amonglarge paid those taxes, it is likely that the benefits you developedcountries,onlytheUnitedStatesstill receive when you retire will represent a very hasafertilityrateabovethereplacementrate. low rate of return on your contributions to the Thesechangeshavelargelybeendrivenbythe Social Security system. countries’prosperity:Ascountriesbecomemore Beforeproceeding,Iwanttoemphasizethat prosperous,womentendtomarryandhavechil- theviewsIexpressherearemineanddonot drenlaterinlife,resultinginfewerchildrenover necessarilyreflectofficialpositionsoftheFederal theirlifetimes. ReserveSystem.Ithankmycolleaguesatthe Althoughdramatic,theongoingfertility FederalReserveBankofSt.Louisfortheircom- trendsindevelopedcountriesarenotsolely ments;HowardWall,assistantvicepresidentin responsiblefortheprojectedfallintheworld theresearchdivision,providedextensiveassis- fertilityrate.Afterall,thesecountriesmakeup tance.However,Iretainfullresponsibilityfor onlyabout20percentoftheworld’spopulation. errors. Instead,itisrapideconomicgrowthindevelop- 1 ECONOMICGROWTH ingcountries,includingthetwomostpopulous— eachyear,thateveryonegoestoworkatage20, IndiaandChina—thatisgeneratingtheworld- thateachindividualretiresatage60andthen leveltrend.ThecaseofChina,inparticular, diesatage70.Theexampleisobviouslyhighly illustrateshowrapidlypopulationtrendscanbe artificial,butthatfactdoesnotaffecttheargument altered.Partlyasaresultofrapideconomicgrowth Iamabouttomake,becauseforpresentpurposes andpartlybecauseoftheChinesegovernment’s thedistributionofdeathsatvariousagesabove one-childpolicy,thefertilityrateinChinaisnow andbelowage70doesn’tmatter.AndI’llassume about1.7,wellbelowreplacementrate.Asa thateveryoneworksduringtheworkingyears result,China’spopulationisprojectedtoreacha fromage20toage60. peakabout2030andthentobeginshrinking. Becauseeachpersongoestoworkatage20 Adeclineinthebirthrateobviouslymeans andretiresatage60,eachpersonworksfor40 thatpopulationgrowthwillslow.Butnofancy years.Becausethenumberofbirthsisonemillion calculationsarerequiredtounderstandthata peryear,atanygiventimethereareonemillion sharpdeclineinthebirthratewillalsocreatean 20-yearoldpersons,onemillion21-yearoldper- imbalanceinapopulation;thedeclineinthe sons,andsoforthuptoonemillion59-yearold numberofyoungpeopleinevitablymeansthat persons.Thus,thetotalnumberofworkingper- theproportionofolderpeopleinthepopulation sonsatanygiventimeis40million. willrise.Asaconsequence,whiletheworld’s Withonemillionbirthsperyear,thetotal populationgrowthhasslowed,therehas,there- numberofyoungdependentsfromage0toage fore,alsobeenanagingofthepopulation. 19is20million.Becausepeopleretireatage60 Agoodsummarymeasureofapopulation’s anddieatage70,thereare10millionretired ageisthemedianage—theagesuchthathalfthe dependents.Thus,thetotalnumberofnonwork- populationisolderandhalfisyounger.Overthe ingdependents,youngandoldtogether,is30 lasthalfcentury,themedianageoftheworld’s million.The40millionworkingpersonshaveto populationhasincreasedby2.8years,from23.6 supportthemselvesandthe30milliondepend- in1950to26.4in2000.TheU.N.forecastsmedian ents.Ifwejustusetheexampleoffoodsupply, agetoriseto36.8yearsin2050.Moredeveloped the40millionpersonshavetoproduceenough countriesareexpectedtohaveanincreasein foodfor70millionpersons. medianagefrom37.3yearsto45.2years,and Nowsupposethatabreakthroughinmedicine lesserdevelopedcountriesfrom24.1yearsto allowseveryonetolivetoage80insteadofage 35.7years.Japanistodaythecountrywiththe 70.However,assumethatpeoplecontinueto oldestpopulation,havingamedianageof41.3 retireatage60.In10yearstheretireddependent years.Japanisprojectedtohaveamedianageof populationgrowsto20millionpersons.Thetotal 53.2yearsin2050. numberofdependents,youngandold,growsto 40millionpersons.Theworkingpopulationof 40millionmustnowsupportitselfplus40mil- liondependents,atotalof80millionpersons. WHY POPULATION AGING IS SO Thedependencyburdenonworkershasrisen IMPORTANT substantially. Relativelyfewpeopleseemtounderstand Whatdoestheincreaseinthedependency whypopulationagingissoimportant.Soletme burdenmeantoworkingpeople?Assumingthey presenttoyouahighlysimplifiedexampletoget wereasproductiveandhard-workingasthey thepointacross. couldbeintheinitialsituation,theynowhave Supposewehaveacountrywithastable toreducetheirownconsumptiontoleaveenough populationinalong-runsteadystate,which foodandothergoodsfortheincreasednumber meansthatthesituationrepeatsitselfyearafter ofdependents.Thetotalfoodsupplyhastobe year.Assumethatthereareonemillionbirths spreadamongmorepeople;averagefoodcon- 2 SocialSecurityReformandDemographicReality sumptionmustfallbyone-eighthbecausethe agepeoplebeginstodecline.Inthatfirstyear, foodmustbespreadamong80millionpersons onemillionpersonsretirebutonlyone-halfmil- insteadof70million. lionpersonsjointheworkforce.Aslongasthe ThecalculationIjustmadeassumedthatthe birthrateremainslow,yearafteryearthework reductioninfoodpercapitawasspreadequally forcedeclines,whilethenumberofretiredper- acrosstheentirepopulation.Butsupposewe sonsdoesnotbegintodeclineforanother40years. wantedtokeepthefoodsupplyperperson Becausethenumberofworkingpersons unchangedforbothyoungandelderlydepend- declinessteadily,ifthereisnoreductioninthe ents.Then,workingpeoplewouldhavetoreduce consumptionlevelofretiredpersonsworking consumptionenoughthattheincreasednumber personsmustreducetheirconsumptionyear ofelderlypersonscouldconsumeanunchanged afteryear.Eventually,after40years,thework amountperyear.Ifyoumakethecalculation, forceiscutinhalf,to20millionpeople,while you’llfindthatworkingpeoplewouldhaveto theelderlydependentpopulationremainsat20 reducetheirownconsumptionby25percent. million.Therearealso10millionyoungdepend- Theargumentappliestoallconsumptiongoods ents.Thus,theworkforceof20millionpersons andnotjusttofood. mustsupportitselfplusatotalof30million Clearly,increasedlifeexpectancyinrecent dependents. yearsispresentingexactlythissortofchallenge Withthesharpdeclineinthebirthratestart- tooursociety.Iftheretirementageremains inginabout1960,theUnitedStatesandother unchanged,andtheaverageannualpensionalso developedcountriesfaceexactlythissituation. remainsunchanged,andsocietycontinuestopro- Asthebabyboomgenerationretires,thenumber videanunchangedlevelofgoodsandservices, ofelderlydependentswillriserelativetothe includingschooling,totheyoung,thenworking numberofworkingagepersons.FortheUnited peoplewillhavetoreducetheirconsumption States,theelderlydependencyratiohasrisen significantly.Elderlyretireeswillenjoyan from0.17in1960to0.21in2000.Theratiois unchangedstandardofliving,attheexpenseof projectedtocontinuetoincrease,to0.37in2040, workingpeoplewhohavetoproduceallthegoods ormorethandoublethe1960ratio.Thedepend- consumedbythemselvesandsociety’selderly encyratioisdefinedhereastheratioofpopula- dependents. But,thesituationtheUnitedStatesandother tion65andovertotheworkingagepopulation. developedcountriesfaceisevenmoredifficult thanmyexamplehasillustratedsofar.Therea- sonisthatnotonlyhaslifeexpectancyrisenbut ECONOMIC IMPLICATIONS OF alsothebirthratehasdeclined.Toillustratethe THE GRAYING POPULATION importanceofthiseffect,consideramodification Whenacountryhasastablepopulationina tomysimpleexample. steadystate,asinthefirstartificialexampleI Theexercisewejustdiscussedhadonemil- constructed,apensionsystemcanworkquite lionbirthsperyearandeachpersonlivedtoage easily.Inmyfirstexample,youwillrecall,each 80.Nowsupposethenumberofbirthsdeclines suddenlytoone-halfmillionperyear.Thisisa personhadaworkinglifeof40yearsandaretired largedecline,butinfactnotfaroutoflinewith lifeof10years.Essentially,incomereceivedover experienceinsomecountriesoverthelast50 40yearshadtosupportconsumptionover50 years.Forthefirst20years,thenumberofyoung years.Ignoringcompoundinterestforsimplicity, dependentsdeclines.Thatdeclineisanetplus saving$5,000foreachyearoftheworkinglife forworkingpeople,astheymustsupportfewer wouldcreatearetirementnesteggof$200,000, youngdependents.However,21yearsafterthe whichcouldthenbespentattherateof$20,000 declineinthebirthratethenumberofworking peryearfor10retiredyears. 3 ECONOMICGROWTH Assumethatthe$200,000nesteggwas makeitimpossibleforbothpublicandprivate investedinbonds.Then,asaretiredpersonsold pensionsystemstokeeptheirpromises.Or,it bondsworth$20,000eachyear,workingageper- maybepossibletokeepthepromisesonlyby sonswouldbebuyingthesamebondstoaccumu- imposingamuchlargerburdenontheworking latetheirnesteggs.Theprocessworkssmoothly, populationthanhadpreviouslybeenexpected. becausetherearefourworkingpersonsforeach retiredperson.Thus,fourworkingpersonseach saving$5,000peryearbuy$20,000worthof SOCIAL SECURITY IN THE bonds,orexactlytheamountbeingsoldbyeach UNITED STATES retiredperson. Butthisprocessdoesn’tworksmoothlywhen NowI’llturntoamoreexplicitdiscussionof theagedistributionofthepopulationbecomes thepolicyconsequencesofthegrayingofthe unbalanced.Inmyartificialexample,whenthe populationongovernmentpensionsystems— birthrateiscutinhalf,eventuallythereareonly SocialSecurityintheUnitedStates.Specifically, halfasmanyworkingpersonsasbeforebutfora IwilldiscusstheconsequencesofourSocial timethesamenumberofretiredpersonsasbefore. Securitysystembeingapay-as-you-gosystem, Thus,whenaretiredpersonsells$20,000worth whichmeansthatbenefitspaidtoretireescome ofbonds,thereareonlytwoworkingpersonsto fromtaxespaidbypeoplewhoareworkingcur- buythebonds.Onepossibilityisthateachwork- rently.Keepinmind,though,thattheU.S.Social ingpersonbuys$10,000worthofbondseachyear, Securitysystemwouldbestrainedevenifit insteadofthe$5,000eachpersonexpectedto werefullyfundedratherthanapay-as-you-go saveforretirement.Or,perhapsretiredpersons system,becausesomeonemustbuytheassets findthattheycannotsell$20,000worthofbonds soldbyafullyfundedsystemtomeetitspension eachyear,becausetheirefforttodosodepresses obligations. bondprices.Ifworkingpersonsrefusetobuy Withapay-as-you-gosystem,asthepopula- morethan$5,000worthofbondseachyear,then tionofacountryages,thenumberofelderly bondpricesfallsothateachretiredpersononly personsreceivingbenefitsrisesrelativetothe endsupselling$10,000worthofbonds,which numberofworking-agedpersonswhopaytaxes. cutsinhalfthestandardoflivingforretired Asaresult,theaveragetaxpayermustshouldera persons. largerandlargertaxburdentosupportthepension Theseconsequencesareunpleasant—that system.Alternatively,retirementbenefitsmust eachworkingperson,oreachretiredperson,or becuteitherbyraisingtheretirementageorby both—endupwithastandardoflivingbelow cuttingtheannualpension,orsomecombination. whathadbeenexpected.But,unfortunately,these WhenaworkerpaysSocialSecuritytaxes,the consequencesareaninevitableresultofthe moneyisnotputintoafundtocollectinterest changeintheagedistributionofthesocietygiven untiltheworkerretires.Instead,mostofthemoney theassumptionthatpeopleretireatage65. isusedtopaythebenefitsofexistingretirees. Intheanalysissofar,Ihavesaidnothing OnlythesurplusisputintotheSocialSecurity aboutSocialSecurity.Anypensionarrangement, trustfund.In2003,forexample,SocialSecurity publicorprivateormixed,mustsomehowdeal benefitpaymentstoretireesaccountedfor89 withachangingagedistributioninthesociety. percentoftherevenuecollectedintaxes.Inother Theillustrativecalculationswe’vejustreviewed words,only11centsofeverydollarinSocial applyindependentlytoprivateandpublicretire- Securitytaxespaidbycurrentworkerswasput mentarrangements,whetherthroughindividual awaytohelppayforthefutureretirementbenefits. savings,corporateoruniversityretirementplans, Anoptimistwouldpointtotheothersideof orgovernmentplanssuchasSocialSecurity.A thisfact:TheamountpaidbyworkersinSocial largeshifttowardanolderagedistributionmay Securitytaxesexceedsthebenefitsbeingpaid 4 SocialSecurityReformandDemographicReality out,sotheSocialSecuritytrustfundhasbeen U.S.SocialSecuritysystemfacesthesame growing.Aslongasthefundcontinuestogrow, demographics-drivenproblemsasothercountries. everythingwillbefine.Butthisoptimismis Forthetimebeing,theU.S.fertilityrateisabove short-sightedbecausebeforelongthenumberof thereplacementrate,butfertilityisprojectedto peoplereceivingSocialSecuritybenefitswillbe beginfallingwithinthenextcoupleofyears.In growingfasterthanthenumberofpeopleofwork- addition,betweennowand2050,themedian ingage.Specifically,theelderlydependency ageintheUnitedStatesisexpectedtorisefrom ratio—theratioofthepopulationaged65and 35yearstocloseto40years.Asaconsequence overtothepopulationagedbetween20and64— ofthesetrends,policymakersintheUnitedStates willriserapidlyincomingyearsasthoseborn facethesamechoiceasthoseofothercountries: duringthebabyboomof1946-1964comeof increasetheSocialSecuritytaxburdenonthe retirementage. workingpopulation,orreduceSocialSecurity So,althoughtheSocialSecuritytrustfundis benefitlevels,orsomecombination. currentlygeneratingasurplus,itis,infact,in actuarialdeficitbecausethesystemwillbeunable tofundfutureSocialSecuritycommitments. BACK TO THE ROOTS Undercurrentprojections,withoutchangesto Tounderstandtherootsofthepresentsitua- taxand/orbenefitlevels,by2018theSocial tion,itisillustrativetolookattheformativeyears Securitysystemwillbeginreceivinglessintaxes oftheSocialSecuritysystem.Inthemidstofthe thanitpaysoutinbenefits.Ifadjustmentsare GreatDepression,theSocialSecurityprogram notmadetobenefitlevels,thetrustfundswill wasdesignedasapay-as-you-gosystemsothat soonneedtobebolsteredthroughhighertaxes benefitscouldbepaidassoonaspossibleto onthosewhowillbeworking—which,presum- ably,willincludemostofyou. retireestoprovidethemwithsomemeasureof Therehasbeensomecarefulworkonthis basicincomesupport.SocialSecuritytaxeswere subjectbytheOrganisationforEconomicCo- firstleviedinJanuary1937,andrevenueswere operationandDevelopment(OECD),anorgani- placedintoaspecialtrustfund.Undertheorigi- zationcomprisedofeconomicallyadvanced nalSocialSecurityAct,monthlybenefitpayments democraticcountries,includingtheUnitedStates. weretobeginin1942;soonafteritwasenacted, OECDprojectionsindicatethatpublictransfers theSocialSecurityActwasamendedtobring toretiredpersonsforpensionsandhealthcare thevestingdateforwardto1940. willincreaseintheaverageOECDcountryby6 Ourpresentcollisioncoursebeganwiththe percentofGDP,from21percentto27percent, firstSocialSecuritypayments.Thefirstmonthly betweennowand2050.Unlesspromisedfuture retirementcheckwasissuedonJanuary31,1940, benefitsarecutsignificantly,substantialtax toIdaMayFullerofLudlow,Vermont.Overthe increaseswillbenecessarytoeffectsuchtransfers. threeyearsthatshecontributedtotheSocial However,asarecentOECDreportconcludes, Securityprogram,shepaidatotalof$24.75in drastictaxincreasescouldmakemattersworse SocialSecuritytaxes.Herinitialmonthlycheck byreducingtheincentivesformarketworkand of$22.54accountedfornearlyallofthetaxes forsaving.1Indeed,theOECDconcludesthatin shepaidintothesystem,andshewouldgoonto manycountriesitmaybenecessarybothtoreduce collectnearly$23thousandinSocialSecurity promisedbenefitsandtoincreasetheincentives benefitsovertherestofherlife—morethan900 forwork. timestheamountthatshehadcontributed. TheUnitedStates,therefore,iscertainly ThisexampleillustrateshowtheSocial notaloneinfacingasignificantchallenge—the Securitysystemhasalwaysbeenmoreofa 1 OECD.“StrengtheningGrowthandPublicFinancesinanEraofDemographicChange.”May2004. 5 ECONOMICGROWTH straightincome-transferprogramthanafunded Nevertheless,animplicationoflivinglonger pensionscheme.Itwaseasytomakethesystem shouldnotbethatyoungerpeoplehavetobear workinitsearlyyearsbecausethelaborforce theentireburdenofprovidinggoodsretireeswill payingSocialSecuritytaxesintothetrustfund consumeforthoseadditionalyears.WouldIask waslargerelativetothenumberofbeneficiaries myownchildren,whohavetheirownproblems receivingpensions.Overtime,though,thenum- ofsupportingthemselvesandtheirfamilies,to berofthoseeligibletoreceivebenefitsgrewrela- supportmesoIcanenjoyalifeofretiredleisure tivetothenumberofthoseatworkandpaying ofmanyyearsoftravelandsailing,whicharetwo taxesintothetrustfund. ofmypassions?Iwouldn’tdothatlookingmy Ifitweren’tforthesignificantdemographic ownchildrenintheeye;noramIgoingtolook transformationsthathaveoccurredsincethe youintheeyeandarguethatyoushouldpay passageoftheSocialSecurityAct,theSocial anincreasingtaxburdentosupportmeatan Securitysystemwouldprobablybenotmuch unchangedlevelofbenefitsformyrelatively differentfromanyotherincome-transferpro- longlifeexpectancy.AndIdon’tthinkweasa gram:Taxeswouldbeleviedononegroupofthe societyshouldcollectivelyasktheyoungergen- populationsothatpaymentscanbemadeto erationtosupportalltheadditionalyearsof anothergroup.Intheearly1930s,U.S.Govern- retirementofthebabyboomgenerationthat mentforecasterspredictedthatattheendofthe modernmedicinemakespossible. 20thcenturyournation’spopulationwouldtotal Unlessthoseinmygenerationandthebaby- some145to150millionpersons.Theforecasters boomgenerationwanttoplaceahugetaxburden didn’tcountonthebabyboomthatcamealong onourchildrenandgrandchildren,weneedto afterWorldWarII,however,andtheirforecast adoptsomecombinationoftheonlytwopossible turnedouttobewayoff:By2000,U.S.population solutions.Oneistoreducetheannualpayments hadpassed280million. toSocialSecuritybeneficiaries,andtheotheris Formanyyears,therefore,thelargeworking toreducethenumberofretirementyearsbyrais- populationcreatedbythebabyboomcouldeas- ingtheretirementage.Thesechanges—whatever ilysupportarelativelysmallretiredpopulation mixthecountrydecidesitprefers—shouldbe ofpeoplebornbefore1946.Noteespeciallythat phasedingradually,toavoidanundueimpact thecohortofpersonsbornduringtheGreat onthosewhoareclosetoretirementtoday.My Depressionofthe1930swasrelativelysmall. ownpreferenceistoconcentrateonraisingthe Nowthetablesareturning,asthefirstofthe retirementageforfullbenefits,giventhatpeople babyboomgenerationretires.Therelatively arehealthyandproductivemuchlongerthan smallergenerationsbornafter1960willbethe theyusedtobe. workforcesupportingalargenumberofelderly Foramanwithaverageincome,ourSocial dependents. SecuritySystemisroughlyneutralbetweenages 62and67.Beyondthatage,however,theincentive toremaininthelaborforceislow.Putanother WHAT TO DO way,theimplicittaxofremaininginthelabor Thisdiscussionshouldmakeclearthatthe force—foregonebenefits—isrelativelyhigh.Ata fundamentalproblemoursociety—andallaging technicaldesignlevel,thereareanumberofpos- societies—faceisnotfundamentallyafinancial siblewaystocreateamoreneutralsystemwith problembutinsteadaproblemofanexcessive respecttoretirementage,sothatataminimum numberofretiredpeoplerelativetoworking thosewhowanttoworklongerarenotpenalized people.Thisisaproblemwecansolve,anditis fordoingso.Theideaisthatannualbenefitsneed reallyahappyprobleminmanyways.Weare tobehigherbyanactuariallyfairamountwhen livinglongerandinmuchbetterhealth—that retirementisdelayed.Bycontinuingtoworkpast can’tbeaproblem! normalretirementage,peoplesupportthemselves 6 SocialSecurityReformandDemographicReality andpaytaxesthathelptoreducethetaxburden laborforce.Theseincluderemovinglabormarket thatwouldotherwisefallonothers. rigiditiesthatdiscouragepart-timeemployment, TheUnitedStateshasinplaceagradual andimplementingreformsthatwouldincrease increaseintheretirementageforfullSocial theshareofretirementincomefromprivate Securitybenefitsfromage65toage67by2025. sourcesrelativetopublicpay-as-you-gosystems. OurSocialSecuritySystemwasbeguninthe Suchpolicyreformscouldhelpalleviatethefis- 1930swhentheaverage65-year-oldpersoncould calchallengesposedbyagingpopulationsboth expecttoliveaboutanadditional13years;by byloweringdependencyratiosandbyfavoring 2000,thoseadditionalyearsatage65hadrisen economicgrowth. toabout18.Itmakessensethatwelifttheageof eligibilityforSocialSecuritypaymentsinrecog- nitionoftheincreaseinourexpectedlifespans. CONCLUSION However,itisclearthattheincreaseinnormal DemographicchangeintheUnitedStates retirementagefrom65to67thatisincurrentlaw andelsewhereintheworldpresentsenormous doesnotgofarenoughtosolvetheproblem. challenges.Inmuchoftheworld,thecombination It’sworthnotingthatthereisnothingsacro- ofincreasedlifeexpectancyandareducedbirth sanctabouttheretirementage,whichhasbeen ratehascreatedasituationinwhichthepopula- determinedlargelybytraditionratherthandemo- tionisbecomingunbalancedinitsagedistribu- graphictrends.In1881,theGermangovernment tion.Weknowthisproblemisrightaheadofus, underChancellorOttovonBismarckdesigned becausethepeoplehavealreadybeenborn.I theworld’sfirstold-ageinsurancesystemand hopeIhaveconvincedyouthatSocialSecurity chose70astheretirementage.Atthetime,life isnotjustaproblemyouwillhavetodealwith expectancyatbirthinGermanywasonly45years. whenyoucomeclosetoretirementage,butone WhenthecommitteedesigningtheU.S.Social youwillhavetoaddresswithinafewyears.An Securitysystemwasdecidingonaretirement evenmorepressingproblem,whichIhavenot age,committeememberswereguidedbythe discussedtoday,istheMedicaresystem.Taxes retirementagesusedbythe30state-levelsystems tosupportretirementprogramswillfallonyou, thatwerealreadyinplace.Roughlyhalfused65 andnotonthosealreadyretired.Retireeswill astheretirementage,whiletheotherhalfused facethepossibilityofbenefitcuts,tobesure,but 70.Atthetime,theaveragelifeexpectancyatbirth youwillfacethepossibilityoftaxincreases.We wasabout60years,butisnowabout78years. aretrulyallinthissituationtogether,andwe TheOECDhasrecommendedanumberof hadbetterfindawaytodealwithittogether. otherreformstoitsmembercountriestoencourage olderpersonstoremainactiveparticipantsinthe 7

William Poole (2004, October 18). Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/speech_20041019_poole

@misc{wtfs_speech_20041019_poole,
  author = {William Poole},
  title = {Speech},
  year = {2004},
  month = {Oct},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/speech_20041019_poole},
  note = {Retrieved via When the Fed Speaks corpus}
}