Tuesday, August 18, 2015

More Basic Facts Concerning Intergenerational Fairness, Social Security and Our Shameful Politics

In an earlier post today, we discussed the immorality of requiring tomorrow's fewer American workers to support greater numbers of today's workers and tomorrow's Social Security beneficiaries.

It's immoral, at least in my opinion, because each generation should be willing to pay its own way.

This known intergenerational affordability issue isn't a political one. It's one of simple fairness.

We're Living Longer, and Other Reasons to Worry About Americans' Retirement Outlook offers some specifics:

"Americans are increasingly unprepared for retirement.

That’s a key finding in a new paper from the Hamilton Project at the Brookings Institution that examines 10 facts about contemporary retirement finances.

We won’t outline all 10 here, but the key is this: Americans are living longer. The average American woman who reaches age 65 this year has a better than one-in-three chance of seeing her 90th birthday, up from a one-in-four chance 50 years ago. . . . With roughly half of all Americans who turned 65 in 2014 projected to need expensive long-term care and with new strains on pension systems and Social Security, it remains to be seen how tomorrow’s seniors will make ends meet.

Below are a few highlights of the report.

Anxious Outlook

Only about half of adults who aren’t yet retired expect to have enough money to live comfortably once they stop working . . . .

The End of Defined-Benefit Pensions

A few decades ago, when many employers still offered traditional pensions, a household’s savings were perhaps a less important indicator of its readiness for retirement. Today, however, with the slow demise of defined-benefit retirement plans guaranteeing a stream of income, Americans are more reliant on their own savings.

Since 1978 . . . the share of savings made up by defined-benefit plans and individual retirement accounts has changed dramatically. Last year, people relied on public and private defined-benefit pension plans for 34% of their savings, roughly half the level in 1978. By contrast, their reliance on individual retirement accounts or 401(k) plans soared from 20% to 58%, placing more of the investment risk on households.
Fewer Workers Supporting More Retirees

At the same time, Social Security is going to come under pressure as the baby-boomer generation retires with fewer working-age adults to take its place. . . .

Since 2010 . . . current Social Security tax revenue has not been enough to pay out all scheduled benefits . . . .

In 1960, there were nine workers supporting every retiree. In 2013, there were only 4.3 and the ratio is expected to fall even further in the decades ahead.
That decline will strain Social Security’s finances and put pressure on Congress.

“Because individuals are living longer but generally retire and start claiming benefits at a similar age as previous generations did, a greater share of federal resources has shifted toward supporting the elderly, with the share of the federal budget spent on Social Security rising from 13.4% in 1962 to 23.5% in 2014.”"

Summing Up

The Social Security funding problem isn't a political one.

It's an intergenerational one involving simple fairness.

We're getting older, living longer and fewer Americans are entering the workforce compared to those exiting.

And in addition to Social Security, the affordability issues surrounding Medicare, Medicaid and ObamaCare make the intergenerational morality issues even more problematical.

But the politicians we continue to elect are unwilling and perhaps even afraid to talk about all this openly and honestly.

That's a real shame.

Thanks. Bob.

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