Boomers Versus the Rest

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State and local governments face parallel, though lesser, pressures. As their workers retire, spending on pensions and health benefits will swell, intensifying the need either to raise taxes or trim local services—schools, police, mass transit. There's a way to cushion the shock: make annual contributions sufficient to pay future benefits. But that's only partially occurred.

Studies suggest that state and local government pensions were about 85 percent funded in 2006, with wide variations. Wisconsin was 100 percent funded, Illinois only 60 percent, reports the Pew Center on the States. But the stock-market decline has been devastating. Through October, it reduced state and local government pensions by $1 trillion, or about a third, estimates the Center for Retirement Research at Boston College. Another problem: promised health-care benefits are largely unfunded. In 2006, these long-term costs totaled $370 billion.

What looms is a huge transfer of income from younger workers to older retirees. Ideally, we would consciously decide how large the transfer should be. But in practice, the choice occurs semiautomatically. Social Security, Medicare and pension benefits are set by law. Unless the laws are changed, the payments go out, and the pressures on taxes and other government programs are inescapable.

Beyond reassuring speeches, Obama hasn't confronted the conflicts. He's been all things to all people. Rhetorically, he's for the children. But he's also for the elderly. In the campaign, he opposed proposals for reducing the future costs of Social Security and Medicare through higher eligibility ages and lower benefits. Obama is in a box of his own making; he cannot fulfill his promises to children without repudiating some promises to the elderly.

As a society, America is in the same box. The conflicts between generations may or may not incite open political warfare, but either by design or default, we will be making decisions about America's future. The old are well organized and highly protective of promised benefits, while the young are politically passionate and unfocused. For the young, the odds look lousy.

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Posted By: capital @ 07/30/2009 6:40:28 AM

Samuelson usually writes good articles, but this one is not the case...

" Doom & gloom " & no proposals...

What does he propose as a remedy ?

What can we do ?
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Posted By: sumthin fishy @ 07/29/2009 10:59:46 AM

children do not vote....therefore they mean less to politicians than the AARP crowd....how wil this be resolved if Social Security and Medicare is deemed "too big to fail" when it actually is only "too underfunded and too often stolen from" to work....this continuing Ponzi scheme is nearing it's "Madoff Point"....the only question is who is left without a chair to sit in when the music stops, other than the recipients who have been robbed....will it be this administration or the next, and who really cares since everyone young and old will be getting a pie in the face on this gag
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Posted By: PoliticoFool @ 07/29/2009 12:53:35 AM

jazzmanjim:
check your reasoning. What's really important is how much SS pay out to a recipient. Assuming that a person retires at 65 and lives to the average age of 74 (assume male), he would need savings to last 9 years. In today's dollars, your estimate of 284 K would probably not suffice for most retirees especially when you consider end of life medical expenses.

Of course, you're counting on an average return of 7%, which I imagine is the historic average return of stock market. Try selling that figure to retirees today who are lucky if they are generating any dsicernable interest income off their nest egg.

I give the Repubs credit for trying to reform Social Security, but no credit for trying to insinuate the stock market is a better deal. It's simply not. In terms of payout or risk, the current system is superior.

To use a Repub saying, you ain't going fix this by putting lipstick on it. The hard truth is that SS will have to be scalled back in some way, either by reducing benefits, raising elegibility age or making people assume more financial risk (by self-funding).