Greeks Show How Harsh Social Security Cuts Can Be

DallasNews

May 11, 2010

Europe

Europe is showing the world that a national debt crisis can force drastic social security changes overnight.

Greece is paying a high price for emergency government loans to stave off its creditors. An over-generous pension scheme is making a U-turn. 

Some Greek retirees are facing pension cuts of 14 percent. All retirees are facing a three-year freeze in benefits.

The retirement age for women will be raised to 65 to match the retirement age of men. Both men and women will have to wait until age 60 to take early retirement, with a smaller pension.

The government is cutting the number of "hazardous" jobs, such as hairstylist, that allow Greeks to retire on a full pension as young as 50. Pensions will be indexed so that a longer average lifespan means a smaller monthly check.

Sales taxes on many goods are rising to 23 percent. Excise taxes on fuel, tobacco and alcohol are spiking as well.

Nearly one in five Greeks is over age 64. These measures will hit them hard. They will also ruin the retirement plans of still more Greeks.

Spain, France, U.S.

Spain and France, two of Europe's other generous pension payers, are also heading for trouble. They once shared a theory that early retirement would lower joblessness among the young. With more Europeans living into their 80s, that theory is creating more problems than it solves. Spain, already heavily in debt after a U.S.-style housing collapse, could be forced to act fast.

There's no urgency about keeping the U.S. Social Security system affordable. Even though 52 million Americans already receive Social Security checks and retiring baby boomers will swell the rolls, the system is solvent for at least 25 years.

But American debt is growing. Creditors as varied as the Chinese government and individual savers could back away.

Richard Jackson , head of the global aging initiative at the Washington-based Center for Strategic and International Studies, says time is critical to success.

The two main fixes for pensions are working longer and putting aside more private savings. Both require lots of time.

"The third option is to forge much better relations with your kids," Jackson said. "But part of the whole purpose of government pensions was to divorce old-age security completely from dependence on your own children."

Some economists are urging the government to strengthen Social Security now to show global markets that the United States is serious about cutting its debt.
Making things worse

Cutting pensions and delaying retirement fall hardest on those with the most physically demanding and least-paying jobs. They already have more health problems and live shorter lives.

"If we reduce Social Security benefits, we exacerbate a growing problem: What are we going do about retirement in this country?" said Lawrence Mishel, president of the Economic Policy Institute, a Washington think tank focused on economic problems among lower- and middle-income Americans.

Raising taxes is another way to fix the system. Jackson points out that middle- and upper-income Americans already get less in Social Security benefits than they pay in.

But what's hard now becomes harder and more painful with delay. 

Economist Jacob Kirkegaard of the Peterson Institute for International Economics says Europe's debt crisis is the only the beginning of a "long, hard slog" for many nations that countered the financial crisis with borrowed money.

"Financial markets and investors are saying, 'We don't trust governments to continue to run these kinds of deficits any longer; therefore, we need more fiscal austerity now,' " he said. 

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