The $400 Trillion Problem No One Wants to Talk About

Across the developed world, the math on pensions is falling apart. In the 1950s, there were 16 workers for every retiree in the United States. Today, there are fewer than three, and by comparison, they are still doing pretty well. In Japan, the working age population has shrunk by 14 million since 1995, and in France, pension spending already eats up 14% of the country's GDP, one of the highest shares in the world. These systems were built for a time where people had more children and had fewer years in retirement. But that world is gone. Global life expectancy has jumped by 30 years, birth rates have collapsed, and the numbers simply don't balance. By 2050, one in six people on earth will be over the age of 65, up from one in 11 today. At the same time, fertility rates have fallen below replacement levels in nearly every developed country, and that means fewer people entering the workforce and fewer taxpayers supporting everyone else who's already retired. But even still, almost no government wants to touch the problem because fixing it means asking people to work longer, pay more, or get less, and none of those options wins elections. Already this rock and hard place is destabilising several major global economies, and by the numbers alone, it's only going to get worse. So, is the pension problem possible to solve? What happens if we don't? And finally, is there any country that's actually making any progress on this issue? We all know that AI is reshaping the job market rapidly. Nearly half of workers worldwide fear unemployment due to AI and technology. The worst part? They still think they won't get affected until it hits them like a truck. Which is why I have teamed up with Outskill to bring you a two-day live AI mastermind training, which has so far been attended by 10 million plus people globally. They are hosting a two-day live AI mastermind workshop this Saturday and Sunday, from 10am to 7pm EST. Now, usually this is a paid training worth $395, but Outskill is running their big Black Friday sale and offering all of my viewers a free seat in the training. This is not some scammy course taking advantage of the current fear around AI, it is actually built from expert mentors from companies like Microsoft, OpenAI, NVIDIA, Google, and more. In just two days you will learn 10 plus AI powered tools, master AI in Excel, Sheets, and Presentations. Start building your own AI agents and workflows. So, if you are interested in upskilling yourself and building your business or career with AI, save your free spot now via the link in the description before the seats vanish and join their whatsapp community so that you never miss a beat. Pensions were one of the greatest economic promises of the 20th century. You work now, you contribute to the system, and then you retire and society takes care of you. But that deal only works if the math does, and increasingly, it doesn't. Most pension systems around the world run on what's called a pay as you go model. The money you pay in today doesn't go into a vault with your name on it, it goes straight to today's retirees. Then, when it's your turn, the next generation of workers fund your retirement. This system worked well enough in the decades after WW2 because economies were growing, birth rates were high, and there were plenty of workers to support every retiree. In 1950, the United States had more than 5 times as many workers for every retiree as they have now, and that meant a massive base of contributors supporting a relatively small number of people collecting benefits. Fast forward to today, and that ratio has collapsed from 16 to just 2. 7 workers per retiree. And remember, that's also including the influx of women entering the workforce, so the change is even more drastic than the numbers alone would suggest. By 2035, it's expected to fall even further to 2. 3. We're seeing this trend everywhere. Across Europe, Japan, and South Korea, the ratios are even worse. Some are already approaching just 2 workers per retiree. This is what economists call a dependency ratio crisis. Too few people working to support too many people not working, and the consequences are enormous. In the United States, the most immediate danger is insolvency, meaning the inability of the system to cover what it owes its retirees. The US runs the largest pension system in the world, with over 73 million people receding social security. It's funded by a 12. 4% payroll tax split between employees and employers, so in theory the system balances itself. As long as enough people are paying in, there should always be enough to pay out. But now that balance is starting to go off kilter. By 2035, social security's combined trust funds are projected to run out of reserves. After that, payroll taxes will only cover about 83% of promised benefits, down from nearly full coverage in past decades. In other words, unless something changes, retirees could see an automatic 17% cut to their income. For the average American retiree living on $1,900 a month, that's $300 they can't afford to lose. And we haven't even accounted for inflation yet. Even if benefits stay the same on paper, rising prices are already eroding into what those dollars can actually buy, meaning each social security check is worth less in real terms every year. And that's just at the federal level. State level pension funds are in deep trouble too. As of 2022, state pensions were underfunded by $1. 27 trillion. In states like Illinois, New Jersey, and Kentucky, public pension plans have less than 60% of the assets they need to pay future retirees. That shortfall is the equivalent of about 7% of those states early retirement income.

Now, if America's problem is running out of money, Japan's people. With a median age of nearly 50, Japan has the third oldest population on earth behind only Monaco and St. Pierre. By 2050, close to 40% of Japan's citizens will be over 65, and since 1995, its working age population has shrunk by 13 million. That means pension spending now eats more than 9% of Japan's GDP. Besides too many people retiring, Japan also shoulders a loss generation that never had a fair shot at saving for retirement in the first place. After Japan's economic bubble burst in the early 1990s, companies froze hiring and slashed wages. Millions of young graduates found themselves locked out of Japan's traditional corporate career tracks, and they were forced into part-time or temporary jobs. The country now calls this era the Employment Ice Age. During this time, employees worked without benefits, without job security, and most importantly, without access to the main pension system. Now, 30 years later, the same generation is entering its 40s and 50s with very little savings, patchy pension contributions, and no stable safety net. Economists warn that when they reach retirement age, Japan could face a serious crisis, millions of elderly citizens with almost no pension at all. That is a terrifying prospect for a country that's already stretched thin. The government now spends more on pensions than healthcare than ever before, about 20% of Japan's entire economy. To keep up, it's had to borrow heavily, helping to push public debt to over 250% of GDP, the highest in the developed world. France faces a different kind of pressure, not in solvency, but the fiscal weight pensions put on the national budget. Pension spending already eats up about 14% of France's GDP, one of the highest shares in the world, and that means that every euro spent on keeping the pension system afloat is a euro that can't go towards hospitals, infrastructure, energy, defense, or just balancing the national budget. And then there's China. Unlike Japan or France, China's pension system is relatively new, but it's aging at record speed. Decades of the One Child Policy have left China with a narrow base of young workers and a rapidly growing elderly population. By 2050, nearly 366 million Chinese citizens will be over 65, more than the entire population of the United States today. According to government forecasts, China's national pension fund could run dry by the early 2030s. That is a massive challenge for a country whose people have become accustomed to rapidly improving living standards. Unlike advanced economies, China hasn't had decades of prosperity to build private savings, so millions of retirees will depend heavily on a system that might not be there when they need it most. Add all of this together, and the global picture looks grim. The World Economic Forum estimates that by 2050 there will be a $400 trillion gap between what people need in retirement and what's actually been saved to pay for it. That's about four times the size of the entire global economy today. So, if the problem with pensions is so obvious, what are governments doing to fix it? Well at the moment, not much. Every solution comes with short-term pain and politicians aren't rewarded for solving long-term problems. That's why even leaders who really agree on anything take the same stance here. Donald Trump said earlier this year, social security won't be touched, other than if there's fraud or something. It's going to be strengthened. Biden made the same pledge. If anyone tries to cut social security or Medicare or raise their retirement age, I will stop it. Fixing pensions means asking people to either work longer, pay more, or get less. And none of those options wins elections. In democracies, most leaders think in two to five-year cycles. Pension systems, on the other hand, are 100-year promises. That mismatch between political time and demographic time is why everyone keeps kicking the can down the road. Take one of the simplest fixes. Raising the retirement age. Economically, it makes sense. People live longer, so working a few extra years should help balance the system. But let's take France as an example. When the government raised the retirement age from 62 to 64 in 2023, millions of people took to the streets. Garbage piled up in Paris, strikes shut down trains and schools, and approval ratings for President Macron plummeted. Even though France spends more of its GDP on pensions than most other countries, voters saw the reform as a betrayal of a hard-earned right. So raising the retirement age has proved challenging. So then, the second option is cutting benefits. Again, it works on paper. If there isn't enough money, you reduce payouts, but in practice, it risks pushing millions of seniors into poverty. In France, nearly a quarter of retirees already rely on their pensions as their only income. In Japan, roughly one in five seniors already lives in relative poverty, which means even modest cuts risk pushing hundreds of thousands of people below the poverty line. And inflation is only making things worse, lowering the real value of those payments year after year. And then there's another layer to the dilemma. Older voters are the most likely to turn up to the ballot box. They are also the ones with the most to lose from pension reforms, so politicians have every incentive to protect benefits, even if it means blowing up the budget later. Now, if governments can't cut spending, their next move is to raise revenue, usually by asking younger workers to pay more. The problem is that raising payroll taxes hits every group that already feels squeezed by housing costs, student debt and inflation. In places like the UK and Japan, younger generations

increasingly doubt they'll ever see the benefits they're paying for, and if taxes climb too high, young, mobile workers can simply leave to chase better opportunities in countries with lower burdens. But there's the fourth option, privatisation. In theory, privatised systems shift for a responsibility from the government to the individual, reducing the long-term strain on public finances. Chile tried this back in 1981. It replaced its state pension system with the private retirement accounts managed by investment firms, and for a while, it looked like a success. The model was praised internationally and even inspired parts of pension reforms in Latin America and Eastern Europe. But over time, cracks started to appear. Many workers couldn't afford to contribute enough, and market downturns slashed returns. The result was that pensions were far small than promised, and the people of Chile took to the streets to protest and demand reform. The Chilean government eventually had to step back and guarantee minimum payments, essentially re-socialising the system it had once privatised. Some countries have gone a different route with self-funded retirement systems that encourage people to save through tax-advantaged accounts. Here in Australia, our superannuation system, often just called SUPA, is one of the best-known examples. It's essentially a mandatory retirement savings plan built into the workplace. Employers are required to contribute a percentage of an employee's income into a personal account that workers can access once they retire. Employees can also top it up with voluntary contributions, and both are given favourable tax treatment to encourage saving. Over time, those contributions are invested into stocks, bonds and real estate, growing into a large nest egg that supplements or even replaces government pensions entirely. It's a system that's been running for more than three decades, and it's transformed Australia into one of the world's biggest holders of retirement assets. More than $4 trillion in total, that's larger than Australia's entire annual GDP. In theory, the model takes pressure off public pension budgets by shifting responsibility to individuals and employers, but in practice, it comes with some big trade-offs. The generous tax breaks designed to reward people for saving cost the government dearly roughly 1. 9% of GDP every year in lost revenue. That's money that could otherwise be spent on healthcare, education or infrastructure. So, while superannuation reduces the long-term pension burden, it also narrows the pool of funds governments rely on to run everything else. It's also not perfect from an equality standpoint. World-tier Australians benefit the most because they're able to contribute more and take greater advantage of those tax breaks. Meanwhile, lower-income workers who nominally benefit far less from lower taxes end up relying on the same public pension system the policy was meant to relieve. So yes, it works, but mostly for those who are already doing well. At the end of the day, all the choices come down to the same political paradox. Everyone agrees pension reform is necessary, but no one wants to be the one to do it. The problem is the longer governments delay, the more drastic the eventual fixes will have to So, is anyone actually doing anything about it? A few countries are. In Denmark, for example, the retirement age isn't a fixed number, it's tied to life expectancy. As people live longer, the age to qualify for benefits rises automatically. There's no huge national argument every few years and some reforms that shock the system, just a predictable adjustment that keeps things balanced. When the rule was announced in 2006, the official retirement age was 65. By 2030, it will rise to 68 and possibly 70 by the early 2040s if lifespans keep increasing. That gives people decades to plan ahead and keeps the system solvent without anyone feeling blindsided. Germany and the Netherlands have followed similar paths. Both countries have linked their pension age to demographic data, effectively saying if we're living longer, we're working longer too. In Germany, the retirement age is currently 66 and will reach 67 by 2031. In the Netherlands, it's 67 and will automatically adjust with life expectancy. Then there's Sweden, which many economists see as the model for how reform pensions without political chaos. Back in the early 1990s, Sweden's pay-as-you-go model was collapsing under the same demographic pressures we're seeing today. Lawmakers realised they had two options, wait for the system to implode or rebuild it entirely. They chose the latter. Instead of promising fixed benefits forever, Sweden switched to what is called a notional defined contribution scheme. It works like this. Each worker's benefits are tied to what they've paid in over their lifetime and payouts automatically adjust if the economy slows or if people live longer, so the system just corrects itself over time. For example, when the global financial crisis hit in 2008, benefits dropped by about 4%. Not ideal, but the system stayed solvent and because the rules were transparent, there were no riots, no protests and no panic. Other countries are experimenting with more targeted fixes. One approach is means testing, which means scaling down or cutting pensions for the wealthiest retirees. It's controversial, sure, because it challenges the idea that everyone gets back what they put in, but when budgets are tight, it can make sense to extend the most support to those who truly depend on it. Australia and Canada both use some form of means testing. In Australia, retirees with high incomes or large superannuation balances lose part of their public pension once they pass a certain threshold. In Canada, the guaranteed income

supplement works the same way. It tops up pensions for low-income seniors, but gradually phases out as earnings rise. New Zealand's approach is slightly different. Everyone over 65 receives a flat pension called New Zealand's superannuation regardless of income, but it's taxed as regular income, which means wealthier retirees effectively pay a portion back through their higher taxes. It's a simpler, more transparent way to target support while still preserving the sense that everyone contributes and everyone benefits. So yes, there are no easy answers, but there are some lessons. Countries that act early, like Sweden or Denmark, show that gradual, automatic adjustments are far less painful than sudden crises. People need to believe that the system will still be there for them. The rules won't change overnight, but contributing now will actually mean something later, and reforms that are transparent, predictable and fair can go a long way towards building that trust. If economics teaches us anything, it's that the longer you ignore a predictable problem, the more catastrophic it becomes when it finally arrives. So if pensions really are ticking time bombs and governments can't agree on how to defuse them, maybe it's time to think about something more radical. We actually covered one such idea, a plan from billionaire hedge fund manager Bill Ackman to give every newborn household a thousand dollars to secure their retirement before they even started working. It's obviously controversial, especially considering who it's coming from, but that doesn't necessarily mean it's wrong. You should be able to click to that video on your screen now. Thanks for watching mate, bye.