Most of us in the “baby boomer” generation have heard the dire prediction that our generation, because of its enormous population, will eventually bankrupt Social Security, and perhaps the nation. How, economists ask, can we be taken care of without harming our children and our legacy? Economists such as Alan Greenspan have warned that this outsized group of aging Americans “makes our Social Security and Medicare programs unsustainable in the long run.”
The “gray tsunami,” as Lincoln Caplan calls us seniors in “The Fear Factor,” his article in The American Scholar, has been regarded with trepidation for many years, as a force that will cause all kinds of social and economic changes—mostly negative ones. The effect of all this hand-wringing is that in addition to worrying about how to cope with the many challenges of aging, we are bombarded with the idea that, one way or another, we will be “burdens” to our children, no matter what, in our later years. (We are also bombarded with the lament that Social Security is going bankrupt and will not be there for today’s young workers when they retire. That is a myth.)
What many have failed to consider in their predictions, however, is that the nature of aging itself has changed along with us. Older people, it seems, are less “old” than they used to be. Most of the alarmists are relying on an outdated conception of how Americans age, and thus are raising false fears. Caplan says that these predictions have traditionally been based on the calculation of what’s known as a “dependency ratio”:
Demographers … add the number of Americans who are regarded as not in the workforce (traditionally, those 14 and younger and 65 and older) and divide that total by the number of people who are regarded as in the workforce (those 15 to 64). Then they multiply by 100. An increase in the ratio is understood to mean a growing burden on each person in the workforce to support the economically dependent.
The calculation is often modified to yield what’s known as the “old-age dependency ratio,” comparing the numbers of Americans 65 and older and those of working age. For the past four decades, that ratio has been relatively steady, but between 2010 and 2030, it is projected to shoot up from 13 to 22—an increase of close to 60 percent. The U.S. government takes this ratio and projected jump seriously, as the headline in a 2010 government press release indicated: “Aging Boomers Will Increase Dependency Ratio, Census Bureau Projects.”
However, these calculations are based on the idea that people over 65 are unable to care for themselves. Not only is that false, but many older Americans continue working and thus adding to the health of the economy well past retirement age. Also, there has been a real shift even in the length of time people who become disabled need care. These days, the years between disability and death are shrinking: people live longer, become disabled later, and are dependent for shorter periods of time once they do become ill. This is known as “the compression of morbidity.” If the first illness can be postponed, as is more and more often the case, it tends to occur “for a short period of time before death.” This dramatic increase in life expectancy as a result of improved health has been called by MacArthur Foundation’s Research Network on an Aging Society “one of the greatest cultural and scientific advances in our history.”
Stanford economist John Shoven suggests that we begin measuring age differently. Numerical age in older people does not correspond as closely as it once did with health or longevity: For instance, “in 1900, a man who reached 65 had a remaining life expectancy of about 13 years. In 2000, a man who reached 65 had a life expectancy of about 21 years.”
Despite the evidence, many politicians continue to claim that the population bulge represented by the baby boomers is a reason to worry. Cuts to benefits are being proposed from Social Security as well as from other social programs. Caplan points out that Social Security is one of the most successful programs in our history, having reduced the poverty rate for older Americans from 43.6% to 8.7%. The real worry, he says, is our growing income gap. Because of the huge gains made by wealthy earners in recent years, the system has been overprotective of high-earners: “a major part of the Social Security shortfall is due to the fact that a higher and higher proportion of earnings is escaping Social Security taxation.” We need to go back to taxing 90 percent of earnings (instead of the current effective rate of 83.5%), according to former Commissioner of Social Security Robert M. Ball: “This proposal is not a new policy, but an old one restored.”
Not only is Social Security successful, it is an outstanding example of how generational interdependence works. Those in favor of less government don’t like it, but interdependence is actually essential to the “American Dream.” Elizabeth Warren, when running for Senate in 2011, explained:
“You built a factory out there? Good for you,” she said. “But I want to be clear: you moved your goods to market on the roads the rest of us paid for; you hired workers the rest of us paid to educate; you were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn’t have to worry that marauding bands would come and seize everything at your factory, and hire someone to protect against this, because of the work the rest of us did.” She continued: “Now look, you built a factory and it turned into something terrific, or a great idea? God bless. Keep a big hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along.”
The outlook is not entirely a happy one, however. The program of Social Security was conceived of as part of a “three-legged stool,” and the other two legs—pensions and personal savings—are ever diminishing or even disappearing. Furthermore, this stage of life can be a very different experience, depending on your class, race, gender, and even geography. Researchers at Stanford found that “82% of white women could expect to live until age 70, but only 54% of black men , , , (and) the probability of a white male living until 70 in Massachusetts is close to 80 percent, but for a white male in the southeastern ridge of Appalachia, only 55 percent.” The widening income gap has contributed to increased odds that poorer Americans may once again be looking at a dismal old age. Caplan notes,
[There is a] marked gap in opportunity between this country’s wealthy or comfortable and virtually everyone else (reflecting. . . what the Yale political scientist Jacob Hacker calls the “great risk shift” of the past generation: “the massive long-term transfer of economic risk from broad structures of insurance—whether sponsored by the corporate sector or by government—onto the fragile balance sheets of American families”). It is a much more daunting problem than how to ensure that Social Security is well financed.
The problem we may be handing to our children, Caplan argues, is that we are leaving behind a broken financial system rife with the inequity that these programs were designed to correct. While middle class baby boomers won’t be feeling the effect of this of too acutely, by the time our children are ready to retire they may face an even more chilly economy—but it won’t be because we broke the bank with Social Security.