Support for Baby-Boom Retirees - Not to Worry
Vatter, Harold G., Walker, John F., Journal of Economic Issues
Discussion of the baby-boom retiree problem has suffered from two serious inadequacies that have made the Social Security problem appear much more ominous than it is. The first inadequacy is an overweening emphasis upon fiscal and related pecuniary aspects to the neglect of output of goods and services. The second is the almost total neglect of projected real income and productivity rises. In fact, the baby-boom retirees can be coped with on the basis of hypothetically reasonable projected magnitudes.
In all the current dire warnings that the future economy cannot provide Social Security support for the upcoming baby-boom retirees, no attention is paid to the main determinant of capacity to support. That determinant is the historically established rise in productivity as expressed in per capita output or output per hour of the employed population.
The analysis here is confined to Social Security (OASDI), excluding Medicare. While this is unfortunate, there are two good reasons for the exclusion. The first is that Social Security is firmly entrenched for the foreseeable future, but Medicare is insecure as a federal institution. The second, related reason is that the current unremitting attack on Medicare makes long-term projections of its future impossible.
It is a commonplace observation in the United States today that there will be no Social Security funds available to support the elderly by sometime in the first third of the next century. Strangely, maintaining Social Security pension support through 2030 involves very little or no strain on society, whereas abolishing Social Security would cause substantial strain.
Social Security is many separate programs for many dependent groups. The number of Social Security beneficiaries substantially exceeds the population aged 65 and over. There are old-age pensions for covered workers, that is, people who have paid Social Security taxes for a specified number of years (usually at least 10 years). They are eligible for a pension after reaching a certain age (usually age 62 or older). There is also support for orphans (to age 18) of decedent Social Security-covered workers. There is support for the widows and widowers of covered workers, for covered workers who become disabled, and for wives/husbands of reared covered workers who are not covered themselves or would get less support than they would from a spouse's pension. Most, but not all, of the retired and their spouses who have no separate coverage and many of the widows and widowers are over the age of 65.
Fortunately, most of these groups have grown more slowly than the retirees and can be expected to continue to do so in the future. The disabled and widows and widowers groups grew faster than the retired from 1960 to 1980 but slower than the retired from 1980 to 1993. All other groups have consistently grown more slowly than the retired. Consequently, part of the retirement hump will be reduced by the orphan, disability, and dependent survivor dearth. Table 1 illustrates the pattern.
The Census Bureau issues many estimates of the future size of the population. The popular "middle series" estimates are used in the projection of the retirement problem. The Census reports that people 65 and older made up 12.7 percent of the population in 1992 and will constitute 20 percent of the population in 2030. The rise is substantial indeed.
Table 1. Numbers and Rates of Growth of Retired Workers and Other Social Security Recipients, 1950-1993 (in Millions) Average Annual Growth Percent 1960 1980 1993 1960-93 Retired workers 8.1 19.6 26.1 3.6 Other recipients 6.8 16.0 16.1 2.7 Children 2. …