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This country has the best retirement system in the world

By Brett Arends

When it comes to Medicare and Social Security, we pretty much get out what we put in

Big government keeps getting more expensive because more of us are living longer, and when we do, we want more and better medical treatments because they are now available.

Heart transplants didn't cost Medicare a nickel when the program was first set up because they didn't exist. You just died.

Now do the same for every other medical procedure you can think of that was invented, or has been developed, over the past 50 years. You don't have to have a hearing aid, you know. I bet you can get an old-fashioned "ear trumpet" cheap on eBay. Like they used in the good old days.

And all of this is why Social Security and Medicare, which soaked up just 15% of the federal budget under LBJ, now account for a third of it and will soon hit about two-fifths. (You can check all the numbers at the federal Office of Management and Budget website here) Actually, the two were already up to 38% of federal spending in 2019, before Covid came along and blew all the spending numbers to smithereens.

Why does this matter? Because politicians are in a smackdown in Washington right now over federal taxes, federal spending, the debt ceiling, Social Security, and Medicare.

There are good arguments to be made on both sides about taxes and spending generally. I don't care how liberal or "progressive" you are, anyone who has dealt with the federal government for 10 minutes can identify waste and cost-savings. They're as obvious as the nose on your face.

(Renewing a passport? Allow three months. Don't get me started.)

But when it comes to Medicare and Social Security, we pretty much get out what we put in. Social Security is money in and money out: You can't cut expenses without actually cutting someone's monthly checks. And while Medicare must logically have more room for flexibility and presumably savings, overall the money finances the medical system: If we pay less, we'll get less medical care.

And it's not really the budget buster we think anyway. Medicare accounts for 13% of the federal budget this year. In 1997, it was 12%.

So anyone talking about cuts is going to have to talk about what they actually want to cut, not airily wave their hands in the air and talk vaguely about waste and greed and cutting the vast, unnamed sums of money being spent on mysterious unnamed "other people." Will granddad get his monthly check or not? Can he get his heart transplant or not? Simple questions.

Which brings me to a new report that dropped onto my desk on global pension systems around the world, compiled by German insurance giant Allianz. Pretty much every country in the world is dealing with the same issues we are: more old people, more and better medical options.

Turns out, according to Allianz's numbers, maybe we shouldn't complain so much. Overall the U.S. has the fifth best pension system in the world, at least when you factor in things like financial sustainability as well as generosity of benefits.

And yet we pay in one of the lowest contribution rates of anybody. U.S. contributions work out around 10% of total national wages, Allianz calculates.

Singapore, it's more than 35%, if you can imagine. Italy, Brazil, Spain, Britain, rioting France, China, India, Norway, Switzerland and many others are paying in more than 20%. And only a few developed countries are paying in less: notably South Korea and New Zealand, in single digits.

Something to think about next time someone asks whether we should raise payroll taxes or cut Social Security or Medicare.

Our contributions work out only around 10% of income, even though our FICA taxes are just over 15% of wages, because many forms of "income" -- including capital gains, dividends, coupons, and wages over the $160,000 threshold -- are largely or completely exempt.

Meanwhile, many congratulations to Denmark--home of Nikolaj Coster-Waldau, the Little Mermaid, the mysterious concept of "hyggelig," the world's happiest people (allegedly)...and the world's best retirement system.

So, at least, says the analysis by Allianz.

The Danes led the field by a clear margin, followed by the Dutch, the Swedes and the Kiwis--and us Americans.

There again, the Danes pay some of the highest taxes of anybody in the world: General government revenues come in above 50% of annual gross domestic product, according to the IMF. In the U.S. they're about 33%.

Do we want to raise taxes by a half? I'm betting we don't. On the other hand, we may prefer to raise our contribution rates from today's very low rates rather than to cut the payouts.

-Brett Arends

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.


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04-22-23 1042ET

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