The Future of Social Security: Global Comparisons and Potential Reforms

Social Security, established in 1935, has become a vital safety net for Americans approaching retirement and their families. It’s a program that has integrated deeply into the lives of millions and is viewed as essential. Despite its importance, members of Congress and the Senate are hesitant to alter it, even though projections suggest its funding might be depleted by 2037.

To provide some context, approximately $1.5 trillion in Social Security benefits will be distributed monthly to around 68 million Americans and over 67 million beneficiaries in 2024, operating under a budget of $14.2 billion. The complexity of the Social Security Administration’s Program Operations Manual System, which spans over 20,000 pages, underscores its status as a sensitive topic in American politics.

As Americans grapple with economic challenges, including inflation, many are exploring strategies to protect their wealth. From considering investments in tangible assets to securing life insurance without extensive medical tests, individuals are seeking ways to secure their financial futures. Additionally, financial moves that can quickly elevate one’s net worth are becoming increasingly popular.

In the realm of Social Security reform, there is a divide between political parties. Some Republicans are proposing an increase in the full retirement age from 67 to 70, while Democrats are advocating for higher contributions from the wealthy to support the program. Given these differing perspectives, it might be helpful to examine how retirement systems in other countries operate.

United Kingdom: National Insurance System

The UK’s National Insurance system, which functions similarly to social security, was introduced in 1912 and is managed by the Department for Work and Pensions. As of 2021, it oversaw an expenditure of 220 billion pounds (approximately $280 billion USD), making it the largest government program in the UK.

Both employers and employees contribute a minimum of 8% of salaries to this system, which is notably lower than the 12.4% contribution rate in the U.S. Currently, the state pension age in the UK is 66, but it is set to rise to 67 between 2026 and 2028, with the possibility of reaching 68 in the coming years, depending on parliamentary decisions.

For those eligible to receive the full pension, the UK’s State Pension provides 221.20 pounds per week, which translates to over $1,125 USD monthly. In contrast, if someone in the U.S. were to retire at 70 in 2024, the maximum monthly benefit would be $4,873 USD, significantly higher than in the UK.

India: Employees’ Provident Fund

In India, the Employees’ Provident Fund Organisation (EPFO) manages the Employees’ Provident Fund, where both employers and employees contribute 12% of the employee’s salary. However, navigating the system can be challenging, as evidenced by the 427 questions listed on its FAQ page, which would take more than 35 hours to read through if one spent 5 minutes on each answer.

India’s Employees’ Provident Fund covers only a small segment of the organized workforce, specifically those in a direct and regular employer-employee relationship. This means that out of a labor force of 400 million, only about 35 million people are covered for old-age income protection, according to Dezan Shira and Associates.

For those eligible, benefits can be accessed as early as age 50, with full pension available at 58. In 2023, it was reported that employees receive around 38% of their last salary as a pension.

Canada: Old Age Security and Canada Pension Plan

Canada’s retirement system involves contributions of 11.9% of a salary, divided equally between employer and employee. The country supports retirees through two primary programs: Old Age Security (OAS) and the Canada Pension Plan (CPP).

OAS is a monthly payment available to those 65 and older, with the amount based on the number of years lived in Canada after turning 18. For those aged 65 to 74, the maximum monthly OAS payment is $718.33 CAD, and it increases to $790.16 CAD for those 75 and older, which is approximately $518 and $570 USD, respectively.

The CPP provides a taxable monthly benefit that replaces part of an individual’s income upon retirement and continues for life. While the standard retirement age for CPP is 65, individuals can start receiving it as early as 60 or as late as 70. In 2024, the maximum monthly amount for those starting their CPP pension at 65 is $1,364.60 CAD, though the average monthly payment as of April was $816.52 CAD, equivalent to $984 and $589 USD, respectively. This is still lower than the maximum benefit available in the U.S.

Potential Reforms in the U.S.

One potential solution for the United States, inspired by international trends, is to raise the retirement age. Denmark, for instance, plans to increase its retirement age from 66 to 68 by 2030 and to 69 by 2035. Similarly, Germany will raise its retirement age to 67 by 2031.

However, there is no straightforward solution to the looming issue of a depleting Social Security fund. Any resolution is likely to be contentious, with options including benefit cuts or reduced spending, which could lead to a decline in the quality of retirement life. Alternatively, increasing taxes on higher income brackets might also be an unpopular choice. What is clear, though, is that inaction over the next decade could jeopardize the security of those nearing retirement.