One way to distill the debate over the sustainability of retirement security in the United States is to evaluate the absolute amount of money that will be paid out each year for public sector pensions vs. social security. Doing this removes the necessity to debate what rate at which public employee pension funds can earn investment returns in the market, which presumably diminishes the amount taxpayers have to contribute to fund these pensions. Instead of evaluating how much money has to go in to fund retirement benefits, this post evaluates how much will come out in actual retirement payments.
Making this analysis easier is the fact that the United States, almost uniquely among nations, enjoys an age distribution that is, for people under 60, almost evenly distributed. As the table below indicates, there are about 20 million people in each five year age group, starting with children under five years old, all the way through adults between the ages of 55 and 60. It is a fairly safe assumption that this trend will continue over the next 40 years, and in fact, if you review the United States – 2050 population pyramid projection from the U.S. Census Bureau, that is exactly what is expected. As will be seen, this even distribution of age groups in the U.S. makes projecting future aggregate retirement payouts for social security and public sector pensions somewhat easier.
Before reviewing the actual calculations, it […] Read More