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The Pension Time Bomb: $400 Trillion by 2050

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The Pension Time Bomb: $400 Trillion by 2050

The Pension Time Bomb: $400 Trillion by 2050

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Are governments making promises about pensions that they might not be able to keep?

According to an analysis by the World Economic Forum (WEF), there was a combined retirement savings gap in excess of $70 trillion in 2015, spread between eight major economies..

The WEF says the deficit is growing by $28 billion every 24 hours – and if nothing is done to slow the growth rate, the deficit will reach $400 trillion by 2050, or about five times the size of the global economy today.

The group of economies studied: Canada, Australia, Netherlands, Japan, India, China, the United Kingdom, and the United States.

Mind the Gap

Today’s infographic comes to us from Raconteur, and it illuminates a growing problem attached to an aging population (and those that will be supporting it).

Since social security programs were initially developed, the circumstances around work and retirement have shifted considerably. Life expectancy has risen by three years per decade since the 1940s, and older people are having increasingly long life spans. With the retirement age hardly changing in most economies, this longevity means that people are spending longer not working without the savings to justify it.

This problem is amplified by the size of generations and fertility rates. The population of retirees globally is expected to grow from 1.5 billion to 2.1 billion between 2017-2050, while the number of workers for each retiree is expected to halve from eight to four over the same timeframe.

The WEF has made clear that the situation is not trivial, likening the scenario to “financial climate change”:

The anticipated increase in longevity and resulting ageing populations is the financial equivalent of climate change

Michael Drexler, Head of Financial and Infrastructure Systems, WEF

Like climate change, some of the early signs of this retirement savings gap can be “sandbagged” for the time being – but if not handled properly in the medium and long term, the adverse effects could be overwhelming.

Future Proofing

While implementing various system reforms like raising the retirement age will help, ultimately the money in the system has to come from somewhere. Social security programs will need to cut benefits, increase taxes, or borrow from somewhere else in the government’s budget to make up for the coming shortfalls.

In the United States specifically, it is expected that the Social Security trust fund will run out by 2034. At that point, there will only be enough revenue coming in to pay out approximately 77% of benefits.

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Gold

Comparing Recent U.S. Presidents: New Debt Added vs. Precious Metals Production

While gold and silver coin production during U.S. presidencies has declined, public debt continues to climb to historically high levels.

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Gold and Silver Coin Production During U.S. Presidencies

Recent U.S. Presidents: Debt vs. Coins Added

While precious metals can’t be produced out of thin air, U.S. debt can be financed through central bank money creation. In fact, U.S. debt has skyrocketed in recent years under both Democrat and Republican administrations.

This infographic from Texas Precious Metals compares the increase in public debt to the value of gold and silver coin production during U.S. presidencies.

Total Production by Presidential Term

We used U.S. public debt in our calculations, a measure of debt owed to third parties such as foreign governments, corporations, and individuals, while excluding intragovernmental holdings. To derive the value of U.S. minted gold and silver coins, we multiplied new ounces produced by the average closing price of gold or silver in each respective year.

Here’s how debt growth stacks up against gold and silver coin production during recent U.S. presidencies:

 Obama's 1st term (2009-2012)Obama's Second Term (2013-2016)Trump's term (2017-Oct 26 2020)
U.S. Silver Coins Minted$3.7B$3.3B$1.4B
U.S. Gold Coins Minted$6.7B$5.1B$2.9B
U.S. Public Debt Added$5.2T$2.9T$6.6T

Over each consecutive term, gold and silver coin production decreased. In Trump’s term so far, the value of public debt added to the system is almost 1,600 times higher than minted gold and silver coins combined.

During Obama’s first term and Trump’s term, debt saw a marked increase as the administrations provided fiscal stimulus in response to the global financial crisis and the COVID-19 pandemic. As we begin to recover from COVID-19, what might debt growth look like going forward?

U.S. Public Debt Projections

As of September 30, 2020, the end of the federal government’s fiscal year, debt had reached $21 trillion. According to estimates from the Congressional Budget Office, it’s projected to rise steadily in the future.

 2021P2022P2023P2024P2025P2026P2027P2028P2029P2030P
U.S. Public Debt21.9T23.3T24.5T25.7T26.8T27.9T29.0T30.4T31.8T33.5T
Debt-to-GDP ratio104.4%105.6%106.7%107.1%107.2%106.7%106.3%106.8%107.4%108.9%

By 2030, debt will have risen by over $12 trillion from 2020 levels and the debt-to-GDP ratio will be almost 109%.

It’s worth noting that debt will likely grow substantially regardless of who is elected in the 2020 U.S. election. Central estimates by the Committee for a Responsible Federal Budget show debt rising by $5 trillion under Trump and $5.6 trillion under Biden through 2030. These estimates exclude any COVID-19 relief policies.

What Could This Mean for Investors?

As the U.S. Federal Reserve creates more money to finance rising government debt, inflation could eventually be pushed higher. This could affect the value of the U.S. dollar.

On the flip side, gold and silver have a limited supply and coin production has decreased over the last three presidential terms. Both can act as an inflation hedge, while playing a role in wealth preservation.

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Politics

Mapped: The Countries With the Most Military Spending

Global military spending surpassed $1.9 trillion in 2019, but nearly 75% of this total can be traced to just 10 countries.

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Mapped: The Countries With the Most Military Spending

Whether it’s fight or flight, there’s a natural tendency of humans to want to protect themselves.

In this day and age, this base instinct takes the form of a nation’s expenditures on armies and armaments, towards an end goal of global security and peacekeeping.

This graphic from the Stockholm International Peace Research Institute (SIPRI) delves into the top military spenders as of 2019.

Top 10 Biggest Military Spenders

Let’s first take a look at the overall growth trends. The world’s military spending grew by 3.6% year-over-year (YoY)—currently the highest rate this decade—to surpass $1.9 trillion in 2019.

While just 10 countries are responsible for nearly 75% of this amount, the U.S. alone made up the lion’s share with 38% of the global total. In fact, its YoY rise in spending alone of $49.2 billion rivals Germany’s entire spending for the same year.

Naturally, many questions rise about where this money goes, including the inevitable surplus of military equipment, from night vision goggles to armored vehicles, that trickles down to law enforcement around the nation.

Here’s how world’s top 10 military spenders compare against each other:

CountryMilitary Spending ('19)YoY % changeMilitary Spending as % of GDP ('19)
U.S. 🇺🇸$731.8B+5.3%3.4%
China 🇨🇳$261.1B+5.1%1.9%
India 🇮🇳$71.1B+6.8%2.4%
Russia 🇷🇺$65.1B+4.5%3.9%
Saudi Arabia 🇸🇦$61.2B-16.0%8.0%
France 🇫🇷$50.1B+1.6%1.9%
Germany 🇩🇪$49.3B+10.0%1.3%
UK 🇬🇧$48.7B0.0%1.7%
Japan 🇯🇵$47.6B-0.1%0.9%
South Korea 🇰🇷$43.9B+7.5%2.7%
Global Total$1.92T+3.6%2.2%

China and India, currently embroiled in a border dispute, have upped the ante for military spending in Asia. India is also involved in clashes with its neighbor Pakistan for territorial claim over Kashmir—one of the most contested borders in the world.

India’s tensions and rivalry with both Pakistan and China are among the major drivers for its increased military spending.

—Siemon T. Wezeman, SIPRI Senior Researcher

Germany leads among the top spenders in terms of highest YoY military spending increases. According to SIPRI, this is a preemptive measure in the face of perceived growing Russian threats.

These concerns may not be unfounded, considering that Russia comes in fourth for defense expenditures on the global stage—and budgets more towards military spending than any country in Europe, at 3.9% of its total GDP.

Military Spending as a Share of GDP

Looking more closely at the numbers, it’s clear that some nations place a higher value on defense than others. A country’s military expenses as a share of GDP is the most straightforward expression of this.

How do the biggest spenders change when this measure is taken into consideration?

Military Spending by GDP Share

Eight of the 15 countries with the highest military spending as a percentage of GDP are concentrated in the Middle East, with an average allocation of 4.5% of a nation’s GDP.

It’s worth noting that data is missing for various countries in the Middle East, such as Yemen, which has been mired in a civil war since 2011. While SIPRI estimates that combined military spending in the region fell by 7.5% in 2019, these significant data gaps mean that such estimates may not in fact line up with the reality.

Explore the full data set of all available countries below.

Country2019 Spending, US$B2019 Share of GDP
U.S.$731.753.4%
China$261.081.9%
India$71.132.4%
Russia$65.103.9%
Saudi Arabia$61.878.0%
France$50.121.9%
Germany$49.281.3%
UK$48.651.7%
Japan$47.610.9%
South Korea$43.892.7%
Italy$26.791.4%
Australia$25.911.9%
Canada$22.201.3%
Israel$20.475.3%
Turkey$20.452.7%
Spain$17.181.2%
Iran$12.622.3%
Netherlands$12.061.3%
Poland$11.902.0%
Singapore$11.213.2%
Taiwan$10.421.7%
Algeria$10.306.0%
Pakistan$10.264.0%
Colombia$10.083.2%
Kuwait$7.715.6%
Indonesia$7.670.7%
Iraq$7.603.5%
Thailand$7.321.3%
Norway$7.001.7%
Oman$6.738.8%
Mexico$6.540.5%
Sweden$5.921.1%
Greece$5.472.6%
Ukraine$5.233.4%
Switzerland$5.180.7%
Romania$4.952.0%
Belgium$4.820.9%
Denmark$4.561.3%
Portugal$4.511.9%
Bangladesh$4.361.3%
Finland$3.971.5%
Malaysia$3.771.0%
Egypt$3.741.2%
Morocco$3.723.1%
Philippines$3.471.0%
South Africa$3.471.0%
Austria$3.240.7%
Argentina$3.140.7%
New Zealand$2.931.5%
Czechia$2.911.2%
Brazil$2.731.5%
Peru$2.731.2%
Lebanon$2.524.2%
Bulgaria$2.133.2%
Jordan$2.034.7%
Hungary$1.901.2%
Slovakia$1.871.8%
Nigeria$1.860.5%
Azerbaijan$1.854.0%
Ecuador$1.772.3%
Kazakhstan$1.771.1%
Sri Lanka$1.671.9%
Angola$1.471.6%
Bahrain$1.413.7%
Uruguay$1.222.0%
Kenya$1.151.2%
Chile$1.151.8%
Serbia$1.142.2%
Ireland$1.110.3%
Lithuania$1.082.0%
Croatia$1.011.7%
Tunisia$1.002.6%
Tanzania$0.801.3%
Belarus$0.781.2%
Sudan$0.721.6%
Latvia$0.712.0%
Armenia$0.674.9%
Estonia$0.662.1%
Uganda$0.652.1%
Dominican Republic$0.620.7%
Cambodia$0.602.3%
Bolivia$0.601.4%
Slovenia$0.571.1%
Zimbabwe$0.550.7%
Ethiopia$0.550.6%
Côte d’Ivoire$0.541.1%
Botswana$0.522.8%
Mali$0.472.7%
Luxembourg$0.430.6%
Nepal$0.431.6%
Cameroon$0.421.1%
Paraguay$0.421.0%
Brunei$0.423.3%
Namibia$0.413.0%
Honduras$0.401.6%
Cyprus$0.401.6%
Burkina Faso$0.362.4%
DRC$0.350.7%
Senegal$0.351.5%
Guatemala$0.340.4%
El Salvador$0.321.2%
Georgia$0.322.0%
Republic of Congo$0.302.7%
Zambia$0.291.2%
Gabon$0.271.6%
Jamaica$0.271.6%
Chad$0.242.2%
Ghana$0.230.4%
Afghanistan$0.231.2%
Albania$0.201.3%
Guinea$0.202.0%
Bosnia-Herzegovina$0.180.9%
Niger$0.171.8%
Togo$0.173.1%
Trinidad & Tobago$0.170.7%
Mauritiana$0.162.8%
North Macedonia$0.151.2%
Mozambique$0.140.9%
Krygyzstan$0.121.5%
Guyana$0.121.7%
Rwanda$0.121.2%
Mongolia$0.100.7%
Montenegro$0.091.6%
eSwatini$0.091.8%
South Sudan$0.093.4%
Malta$0.800.6%
Fiji$0.081.6%
Nicaragua$0.080.7%
Papua New Guinea$0.080.4%
Madagascar$0.080.6%
Benin$0.070.7%
Malawi$0.070.9%
Kosovo$0.070.8%
Burundi$0.061.8%
Lesotho$0.041.5%
Moldova$0.040.4%
Timor-Leste$0.031.0%
Central African Republic$0.031.5%
Sierra Leone$0.030.7%
Seychelles$0.021.3%
Belize$0.021.2%
Mauritius$0.020.2%
Liberia$0.020.5%
Gambia$0.010.8%
Cape Verde$0.010.5%
Haiti$00.0%
Costa Rica$00.0%
Iceland$00.0%
Panama$00.0%

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