This country’s social-security system could teach the U.S. a valuable lesson
When I worked for NBC and CNBC many years ago, it was owned by General Electric GE, +0.91%. Its legendary chief executive, Jack Welch, had a mantra that has stayed with me through the years: “Change now before you’re forced to later.”
The solutions are well-known, too: Raise payroll taxes, eliminate the cap that limits how much big earners pay into the system or raise the eligibility age.The politicians we keep sending to Congress haven’t done anything because these steps involve inflicting pain on voters, something no politician likes to do.Three decades ago, Sweden faced the same problems America does now: a declining birthrate, people living longer and a pay-as-you-go system that couldn’t make ends meet.
Some commentators say retirement funds could be wiped out during a market crash. But the Cato Institute’s Johan Norberg notes that this “ignores that the money isn’t all invested or withdrawn at the same time, meaning that the performance in a single year isn’t crucial.” In other words, privatized assets, which again are limited to begin with and are invested over the course of a long working career, have had ample time to compound, and can only be paid out little by little each month.
All have one thing in common: “[T]hey set the course for sustainability very early on, at a time when the demographic bomb was still ticking quietly. They can therefore serve as a model for many developing countries, which also still have a window of opportunity to stabilize their pension systems. In many other countries, however, it will hardly be possible without painful reforms.”
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