Men and women work out with wooden dumbbells in Tokyo to celebrate Respect-for-the-Aged Day.

In Japan, the number of people age 65 and above today is about one-fourth of those ages 15 to 64. By 2050, Japan's senior population will equal almost two-thirds of the working-age population, compared with slightly more than one-third in the USA. 

The result: The financial challenge American taxpayers face in supporting older citizens is magnified in many other nations.

"They are older, they have promised more, and it's politically difficult to take back what they have promised overseas," says Mark Zandi, chief economist for economic research firm Economy.com. 

A few countries, such as Sweden, have taken early steps to cover the cost of health care and retirement for their aging population. They have retooled retirement plans, tying benefits to contributions, raised retirement ages and increased taxes. They have reined in health care costs. 

The lesson for the USA: Paying for a graying society isn't easy. It's not cheap. But it's better to start now. 

While the birth rate in the USA is declining, "We're replacing ourselves," says Vincent Truglia of Moody's Investors Service. Many countries have birth rates that aren't keeping up with deaths, which means their populations will start to decline. "Japan's fertility rate is so dead low that the population is just starting to drop - and then it will fall precipitously," Truglia says. 

For countries facing such a predicament, the most obvious solution is to raise the birth rate. Australia offers a $2,000 bonus to each couple that has a third child. "Go home and do your patriotic duty tonight," finance minister Peter Costello urged Australians in May. 

Estonia will pay a mother a full year's wages to have a child. Singapore offers cash payments of about $10,000 for third or fourth children, and more vacation days for working parents.

A few countries have other weapons to combat the costs of an aging population. Spain, for example, has relatively few women in the workplace. 

Adding them to the labor force could increase the number of workers supporting the elderly. Norway has oil revenue from the North Sea to offset the cost of national health care and pensions. 

Other developed nations are trying a mix of raising taxes, increasing the age at which people start collecting benefits and requiring individuals to save on their own. Common tactics: 

.Delaying retirement age. 
Some European countries allow retirement at 60 or even earlier. In Italy, for example, people can retire at 57 and collect full benefits, if they have worked 35 years. The Italian government is pushing to raise the retirement age but faces opposition from unions.
"If you were to strip the cost of early retirement from the system, projections wouldn't be quite as bad," says Moritz Kraemer, credit analyst for Standard & Poor's in London. 

.Tying benefits to contributions. 
Many plans abroad base benefits on a percentage of a worker's salary. Wages typically rise faster than inflation, so this method leads to a rapid increase in benefits. 
Sweden's previous pension plan, for example, based pension payouts on the average of workers' 15 highest-earning years. But Sweden changed to a system that bases benefits on the amount each worker contributed in taxes. It makes workers put 18.5% of their salaries into the pension plan. 
By comparison, in the United States, Social Security taxes the first $87,900 a year in income at a rate of 12.4% - split evenly between workers and their employers.
.Paying off other debts. 
A country with a budget surplus is better equipped to meet its liabilities than one with a large deficit, such as the United States. But when a country runs a large surplus, political pressure mounts to return the surplus to taxpayers. Case in point: Norway, with a surplus equaling 12% of its gross domestic product, approved a three-year, $3.5 billion tax cut in 2002. 
Medical costs drive debates 

In all countries, the wild card is the cost of health care. As populations age, more people need more care, and fewer workers pay into the health care system. Aside from the USA, most developed nations have universal health coverage. Citizens get cradle-to-grave health care, paid for by taxes instead of private insurance. 

Health care costs will rise dramatically as the population ages and life spans increase. "No one knows how much it will cost," Kraemer says. "We only have fuzzy ideas on the impact of increased longevity on health care costs." 
If the pattern since 1960 is any indication, however, increases could be substantial. Total U.S. health care costs are 14.6% of the gross domestic product, compared with 5% in 1960. 

The Organisation for Economic Co-operation and Development, an organization that promotes best economic practices among the more advanced world economies, estimates that health care costs as a share of GDP will rise three percentage points worldwide by 2050, from 6% of GDP to 9%, and four percentage points in Australia, Canada, the Netherlands, New Zealand and the United States. 

How some countries are addressing the issue: 

.Sweden. 
Say "welfare state," and people point to Sweden. Medical care for people under 20 is free. A day in the hospital costs about $11 a day, and total medical fees are capped at $122 a year. 
New parents are guaranteed 480 days leave from work from a child's birth to his or her eighth birthday, 390 days of it at 80% pay. The flip side: The maximum national and regional tax is 56%, compared with about 43% in the USA. Unlike the USA, Sweden also has a value-added tax of 25%. VAT taxes are a national sales tax. State sales taxes in the USA range from zero to 7.25%.
In addition to reforming its pension plan, Sweden has a strong economy that has kept revenue for health care and retirement plans high. Sweden, as most other Scandinavian countries, also has its budget fairly well balanced. "By creating the capacity to absorb future increases in expenditures, they are clearly ahead of Europe," Kraemer says. 
.United Kingdom. 
The U.K. was the first country to modernize its national pension plan from one that gave fixed benefits to one in which benefits are based on contributions. 
The changes began in the 1980s, when the U.K. linked benefits to inflation, rather than to wage growth. The overhaul, carried out under Prime Minister Margaret Thatcher, also gradually raised the age at which women could get pensions to 65 by 2010. The nation had already done that for men. 
"Until recently, the U.K. has been the best off among high-income economies," says David Ingram, chief international economist at Economy.com. 
But the U.K.'s annual budget deficit is now 3.2% of GDP, compared with 2.8% in the USA. Political pressure for change is building, but the nation has taken no new major steps lately. "They haven't been in the red long enough," Ingram says.
.Germany. 
In 2001, Germany reduced some state pensions and gave individuals tax incentives for creating private pension plans. "So far, it hasn't worked," says Pablo Antolin of the OECD's economics department.
Adding to Germany's problems: Its budget deficits are closing in on 3% of GDP, the maximum allowable in the European Union, and a sign that a country is headed for fiscal problems. Total government debt could pass 300% of GDP by 2050 unless the country makes further changes. 
.Japan. 
Faced with a plummeting population and massive government debt, Japan has tough choices. One bright spot: Japan's retirement benefits have never been as generous as those in the USA, and the country has one of the world's highest rates of personal savings. "Even though the Japanese may not be able to rely on a government pension, they do have substantial nest eggs," Economy.com's Ingram says. 

But Japan comes out at the bottom of Standard & Poor's calculations on debt and deficits, in large part because future demographics are so grim: The Japanese population should begin declining this year. By 2050, spending on the aged should reach 25% of Japanese GDP, well below Sweden's. But its total debt will reach a staggering - and unsustainable - 400% of GDP as early as 2030, S&P says. Currently, Japan's government debt is 150% of GDP, vs. 63% for the USA. 

Economists point to Chile as a model for pension reform. That country scrapped its national pension plan in the 1990s for a plan that tied benefits to workers' contributions. But few countries offer such solutions. 

The main problem: People don't like changes in health care or pension programs if they result in reduced benefits or higher taxes.

"We all will have to face the same reality," Ingram says. "We don't have the resources to fund promised benefits."