SENIOR LIVING: From Strollers to Walkers

By FRANK KENNEY Director, Grant County RSVP Volunteer Program

In less than a century, the United States will move from being “forever young” to being “forever old,” say Messrs Kotlikoff and Burns, authors of “The Coming Generational Storm.” The largest part of the change will happen in the next thirty years as the baby boomers retire. The most dramatic changes, however, will be experienced outside the United States, throughout the entire industrialized world.

Why is this happening? In 1900 life expectancy at birth was 47 years. Only 4.1 percent of the population was 65 or older. Today, life expectancy at birth is about 76 years. Our population has tripled since 1900—from 76 million to 300 million.

But, global population growth is grinding to a halt. From birthrates well over 2.1 children per couple-- the long-term replacement rate for population, birthrates have plummeted around the world. Europe will experience population declines early in this century. In the United States, the decline in births is significant, but we’re maintaining the “replacement rate.”

Unfortunately, the number of children coming of age and joining the workforce won’t be nearly as large. “Basically, all the forces that can enlarge the retired elderly population are in overdrive,” say Messrs Kotlikoff and Burns. “The forces that would expand the younger (and working) population paying Social Security and Medicare are in reverse. The result is a kind of perfect demographic storm.”

The best way to understand the magnitude of the change is to realize that if the percentage of people age 65 and over nearly doubles in the next thirty years, another part of the population will have to shrink proportionately. This shrinkage will be in the working-age population, the people who pay employment taxes. Back in 1950, the number of workers per Social Security beneficiary was 16.5. By 2000 the ratio had fallen to 3.4. In the process, most workers started paying more in employment taxes than they pay in income taxes.

Between now and 2030 we’ll have the last big surge: the retirement of the boomers. Instead of having sixteen workers contribute to the support one senior citizen, we’ll have only two. “That’s a gigantic promise-killing change for Social Security. In only eighty years, the intrinsic cost of supporting retirees will have increased eightfold. In the next 23 years to 2030, the intrinsic cost of supporting retirees will rise another 70 percent, according to Messrs Kotlikoff and Burns.

The aging of America isn’t a temporary event. We are well into a change that is permanent, irreversible, and very long term. Where we had 35.5 million people age 65 and older in 2000, we’ll have 69.4 million in 2030.

The most dramatic way to see how rapidly the nation is aging is to compare the number of seniors—those age 65 and over—to the number of young people. In 2000 there were 82 million people under the age of 20 in the United States. Their numbers dwarfed the 35.5 million seniors. By 2030, however, there will be 88.6 million young people and 69.4 million seniors, approaching parity. In 2080, only fifty years later, the number of seniors, 96.5 million, will finally exceed the number of young people, 95.8 million, say Messrs Kotlikoff and Burns. Of course these are only projections, but are derived from both Social Security Administration and the Census Bureau actuaries. To view the problem in another way, remember that in 1960, most of the dependents were children. In the future, most of the dependents will be adults over 65, who, of course, cost a lot more to support than young children.

Speaking of healthcare costs, since 2000 alone, Medicare benefits per beneficiary have grown 2.56 times faster than the wages of the workers paying for these benefits. Instead of getting control of exploding health care expenditures the Federal Government has presided over the largest expansion of Medicare in decades through its decision to cover a sizeable share of the elderly’s prescription drugs costs. The Congressional Budget Office projects that spending on Medicare per beneficiary, measured in today’s dollars, will grow at an annual rate of 4.6 percent for the next decade, or 57 percent by 2014. The projected growth in Medicaid benefits per beneficiary is only slightly smaller.

“Permitting these programs to grow at these incredible rates even for just a decade will pretty much seal America’s fiscal fate. Every year we raise these benefit levels, we are telling all 77 million baby boomers they will receive those higher benefits when they retire,” say Messrs Kotlikoff and Burns. Each year of excessive benefit growth generates a huge increase in the nations’ implicit entitlement liabilities. Making good on these promises will require massive and politically infeasible tax hikes.

For each dollar earned, our kids will be faced with taxes, net of the benefits they receive, that are nearly twice what we currently pay.

The real danger to the United States is that we get stuck in what economists call a bad steady state—one with ongoing and economically suffocating liabilities, sky-high tax rates, recurrent bouts of high inflation, widespread tax avoidance, capital flight and a brain drain as the nation’s most talented workers seek their fortunes on distant shores.

The only recourse is to chart a new policy course, proposing bold, meaningful, new reforms of Social Security and Medicare, the two big entitlement programs that are driving us broke. The odds of that happening anytime soon, seem very large. Dismal even.

For more information on this topic contact this author at rsvpgrant@zianet.com or 505-388-2523, or read “The Coming Generational Storm” by Laurence Kotlikoff and Scott Burns, published in 2004 by the Massachusetts Institute of Technology.

For more information on Grant County’s Senior Services visit our website at www.grantcountyseniorservices.org.