There are two serious problems with America’s Social Security system. Almost everyone knows about the first problem, which is that the system is bankrupt, with huge unfunded liabilities of about $30 trillion.
The other crisis is that the system gives workers a lousy level of retirement income compared to the amount of taxes they pay during their working years. Younger workers are particularly disadvantaged, as are African-Americans because of lower life expectancy.
These are critical issues, but perhaps looking at a couple of charts is the best way to illustrate why the Social Security system is inadequate.
Let’s start by looking at some numbers from Australia, where workers set aside 9 percent of their income in personal retirement accounts.
This system, which was made universal by the Labor Party beginning in the 1980s, has turned every Australian worker into a capitalist and generated private wealth of nearly 100 percent of GDP. Here’s a chart, based on data from the Australian Prudential Regulation Authority.
Now let’s look at one of the key numbers generated by America’s tax-and-transfer entitlement system. Here’s a chart showing the projected annual cash-flow deficits for the Social Security system, based on the just-released Trustees’ Report.
By the way, the chart shows inflation-adjusted 2012 dollars. The numbers would look far worse if I used the nominal numbers.