What Denmark’s Pension Reform Means for U.S. Retirees
Denmark has recently raised its official retirement age to 70 (from 67) for those born in 1971 or later. While this change may seem distant from our day-to-day lives, it offers a valuable lens for examining the growing pressures on entitlement programs around the world, including our own.
In this brief update, we explore how Denmark’s actions reflect a broader trend in retirement reform and why delaying similar conversations in the U.S. could lead to more difficult choices down the road.
Denmark Leads with Action
Denmark’s shift in retirement age didn’t happen overnight—it’s the result of a 2006 law that ties retirement age to life expectancy. As people live longer, Denmark has chosen to adjust benefit timing to keep the system solvent, rather than rely on tax increases or benefit cuts alone.
This move is not isolated. Other countries, including France and Germany, have taken similar steps to raise retirement ages. Although these reforms are often unpopular, they represent a realistic approach: as people live longer and spend more years in retirement, the benefit structures must also adapt.
The U.S. System Is on the Clock
The 2025 Social Security Trustees Report is expected to confirm that the Old-Age and Survivors Insurance (OASI) Trust Fund may be depleted by 2033. At that point, only about 79% of scheduled benefits would be payable unless Congress acts.
To maintain solvency through 2098, the Trustees have outlined options:
· A 3.33 percentage point payroll tax increase (from 12.4% to 15.73%);
· A 20.8% reduction in all benefits; or
· A combination of both.
If action is delayed until 2035—the projected year of trust fund depletion according to the 2024 Social Security Trustees Report—the required tax increase would rise to 4.02%, or benefits would need to be cut by 24.6%. That would place a heavier burden on a smaller group of workers and retirees.
Most importantly, while the 2024 report identifies the need for reform, it does not include raising the retirement age as part of its recommended solutions. Instead, it focuses on increasing taxes, reducing benefits, or combining the two, which have proven to be a political non-starter regarding any action to address this looming issue.
What This Means for You
While the precise direction of U.S. Social Security policy remains uncertain, we believe that uncertainty is no excuse for inaction. At Compass Wealth Management, we integrate scenario-based planning into every retirement strategy, allowing us to help clients stay prepared, no matter what reforms take shape.
We model long-term projections that account for a range of potential Social Security adjustments, ensuring your plan remains resilient even in the face of change.
We identify and implement strategies to diversify your retirement income, supplementing Social Security with other sources where appropriate.
If you're wondering how potential Social Security reforms could affect your personal retirement outlook, we’re here to help you navigate what’s ahead.
Have questions or want to speak with our team directly? Contact us.
Robert Amato, CFP®, CIMA®
Principal
--------
This article may not be copied, reproduced, or distributed without Compass Wealth Management’s prior written consent.
Compass Wealth Management is a Registered Investment Advisor. Advisory services are only offered to clients or prospective clients where Compass Wealth Management and its representatives are properly licensed or exempt from licensure. This article is solely for informational purposes and is not intended to be relied on as a forecast, research, or investment advice, and is not a recommendation, offer, or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and nonproprietary sources deemed by Compass Wealth Management to be reliable, are not necessarily all-inclusive, and are not guaranteed as to accuracy. Past performance is no guarantee of future results. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader. Investments involve risks.