CSIS: Aging Problem Even Worse Overseas

November 20, 2002

The Center for Strategic and International studies released the CSIS Aging Vulnerability Index showing the potential risks to various developed countries if they do not confront the policy implications of their rapidly aging populations. The index, assembled by Richard Jackson and Neil Howe, shows that

The rapid aging of the developed countries will pose a major challenge for global prosperity and stability during the first half of the twenty-first century. Today, there are 30 pension-eligible elders in the developed world for every 100 working-age adults. By the year 2040, there will be 70. In Japan, Italy, and Spain, the fastest-aging countries, there will be 100. In other words, there will be as many retirees as workers. This rising old-age dependency ratio will translate into a sharply rising cost rate for pay-as-you-go retirement programs—and a crushing burden on the budget, on the economy, and on working-age adults in any country that does not take serious steps to prepare.

Ten years ago, global aging barely registered as a policy issue. Today, with the retirement of large postwar baby-boom generations looming just over the horizon, it is the focus of growing concern among political and policy leaders worldwide. From Australia to Sweden, the developed countries are beginning to debate—and enact—major reforms.

The CSIS Index is calculated based upon four basic categories:

• public-burden indicators, which track the sheer magnitude of the public spending burden;



• fiscal-room indicators, which track each country's ability to accommodate the growth in old-age benefits via higher taxes, cuts in other spending, or public borrowing;



• benefit-dependence indicators, which track how dependent the elderly are on public benefits and thus how politically difficult it may be to reduce their generosity;



• elder-affluence indicators, which track the relative affluence of the old versus the young—another trend that could critically affect the future politics of benefit reform.

Based upon these measures, an overall score is calculated.

Despite the impending insolvency of the Social Security program, the United States scores behind only to the UK and Australia in preparedness for population aging. These two countries, which scored well ahead of all others, share America's favorable demographics relative to the rest of the world, but both have also already reformed their national pension programs. In both the UK and Australia these reforms have been based upon personal retirement accounts, similar to those proposed for Social Security in the United States.

Richard Jackson and Neil Howe authored Cato Institute Social Security Paper No. 11. "The Myth of the 2.2 Percent Solution."

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