Social Security's financial problems are a relatively small sliver of the far larger, potentially disastrous, challenges posed by an aging population, most demographers and economists say. A new study by the think tank arm of the McKinsey Global Institute, the economic think tank of McKinsey & Company, suggests that the steady, healthy growth in household wealth experienced in the developed world for decades will slow to a crawl over the next 20 years, draining households of $31 trillion in financial wealth they would have accumulated under current growth trends.
Post reporter Jonathan Weisman was online to discuss the economic implications of the aging U.S. population.
Editor's Note: Washingtonpost.com moderators retain editorial control over Live Online discussions and choose the most relevant questions for guests and hosts; guests and hosts can decline to answer questions.
I am a 44-year-old single Mom with $15,000 in my 401K account, and a two-year-old son who is going to want to go to college. I still work full time. What does this Social Security situation really mean for me? That I won't ever be able to retire?
Jonathan Weisman: Not at all. In 21 years, you'll be 65 and Social Security (unless changed dramatically) would still be at least 20 years, possibly 30 years, away from exhausting its trust fund. Your full benefits would be payable throughout the rest of your life, most likely.
Isn't it right that slowing population growth, coupled with economic development in much of the world, should reduce many of the resource crises projected for the future? Secondly, if reduced population growth means what we already have here in the U.S., I don't see why this is a big problem for future families/households.
Jonathan Weisman: The problem is precisely with slowing population growth. The taxes paid by current workers finance the Social Security, Medicare and other benefits going to current seniors. With fewer people working in the future, fewer people will be paying taxes to more retirees. Faster economic growth would presumably raise wages and tax receipts, but those taxes are trying to keep up with both demographic trends and rising health care costs.
Today's article: Aging Population Poses Global Challenges
Horseheads, New York:
As usual the W.P. paints a picture less that complimentary towards the administration. Your paper has been partisian enough to cause many to question your truthfulness and objectivity. The article on the growing expenses of taking care of the elderly may be true but your paper's reputation throws doubt on anything you say.
Jonathan Weisman: I'm not sure what you mean. The president has been focused on the financial problems of Social Security. We were trying to broaden the scope of the conversation to say Social Security is the tip of the iceberg. How is this harming the administration?
Do you agree that the "good ol days" are over where many people could retire early and have the company pay out great pensions and health insurance? I was hoping to retire early but cannot (like many Americans) afford to maintain health insurance until Medicare kicks in.
Jonathan Weisman: Yes. Guaranteed, company-paid pensions are going the way of the dinosaur, and pressure will start to mount on workers to stay on the job longer, not retire early. In fact, working later in life may be the best way to avoid a real economic and budgetary meltdown in the future.
I believe one of the biggest problems we have as a nation is admitting that our nation is growing older and that programs that were put in place 60 or 70 years ago to address a problem, have not taken this into account. Case in point: the life expectancy when Social Security was put in place was approximately 65. It's over 77 now and yet the age at which people collect benefits, I believe, isn't really keeping that in account (maybe it will go to 68 one day?). The reason for the program was for people to not be living on the streets when they couldn't work - NOT when they CHOSE not to work - same for health care, the elderly are not likely to be able to get affordable health insurance at 80 years of age.
Now, Social Security is seen as a program where the elderly get wealthier than they were while they were working - it's supposed to be a supplement to what you've saved and for when you are unable to work any longer...
Jonathan Weisman: You point to one problem but there are so many more. The cost of health care for everyone -- not just the elderly -- is soaring, and no political party has put forward ideas to sharply slow that growth. Social Security is being paid out to older and older retirees, but Social Security taxes have also risen considerably since the program started with shorter life expectencies.
It seems to me there are a lot of younger men and women (40's and 50's) dying of differing causes now. More women are dying of heart disease, etc. In figuring the graying population, isn't it possible the figures are inflated?
Jonathan Weisman: Economic forecasting is difficult. Demographic forecasting is far less difficult. We know roughly how many retirees will be around in 2065 because we know how many babies were born last year and have a good idea of how many will live that long. Our lives are getting longer, not shorter. You may be noticing more people dying around you, but that is probably because you are getting older as well.
Are the proposed "personal accounts" similar to the 401/457/IRA defined contribution accounts that replaced defined benefit plans? As many personal retirement accounts were hit hard in the stock market "revaluation", is there any provision to provide protection against a similar crash for "personal accounts ?
Jonathan Weisman: There is no Bush plan yet, at least none that has been formally proposed. But when we see it, it is not going to be like a 401(k) that simply replaces a guaranteed pension. You would still be guaranteed some Social Security payment, but the guarantee will be more modest. The administration hopes gains in private investment accounts will make up for some -- if not all -- those cuts in benefits, but analyses by the Social Security actuary and the Congressional Budget Office suggest that retirees deep into this century would almost certainly get less in benefits than they are currently being promised, even with their investment gains.
Which is the greater strain on future budgets----the elderly or Bush's tax cuts?
Jonathan Weisman: Glad you asked. Bush's tax cuts -- stretching into the future -- are costly, arund 2 percent of the economy. That's larger than the projected shortfall in Social Security. But repealing all of the tax cuts would still leae a sizeable gap, about 3 percent of the gross domestic product. A full repeal would help, but it would not solve the collective problems posed by a graying America.
We need to keep this issue in the forefront in all ways possible. Congress and representatives are our only hope. The administration is on a personal mission. Many young people are not aware of long term investments nor do many have that kind of foresight and why should they have to give up this "insurance" social security? Lets face it this administration is self absorbed. Why don't more people see this?
I am glad you are having this discussion today.
Jonathan Weisman: The White House is tackling the issue they believe they have an answer for. The more intractible problems, especially in health care, have yet to be addressed by the president, but they have not been addressed by anyone else either.
I would like to know how Mr. Bush plans overhaul SSA will affect the millions of disabled workers supported by the program. The focus has been on an aging population without any discussion of workers that require benefits before the retirement age.
Jonathan Weisman: About a third of Social Security recipients are not retired. They are widows and widowers, children of deceased, the disabled. We don't yet know how the White House will deal with these recipients, but it is a good guess to think they will not be part of the partial privatization portion of any Social Security overhaul.
They're politically infeasible and therefore only for entertainment purposes, but I'm sure some of the experts you spoke to have ideas on what really has to be done to fix the system. Beyond the usual "raise the retirement age" kinds of proposals, what draconian measures do people really think we're going to need?
Jonathan Weisman: The most common suggestion that seems to have no political legs is means testing, cutting or eliminating benefits of all kinds for affluent seniors.
suwanee river, way down upon:
good day: I've never seen the demographics on this but we have large numbers of soon upcoming retirees. However, the population has never declined and is still growing. Is the generation behind the boomers smaller in number? What about the immigrants - they're not old are they? Or is it like a giant pyramid and requires ever increasing numbers as the number above increases? thanks
Jonathan Weisman: Once the boomer generation dies off, the demographic crunch will improve, but we're not out of the woods. That is because life expectencies will continue to improve, and women are expected to continue to have fewer children. Immigration could and probably will be a major help. Projections on Social Security and Medicare assume stable immigration rates, but that is certainly not set in stone.
What is the discussion of this issue like in Europe, where they face ever greater graying ratios because of lower birthrates?
Jonathan Weisman: A lot of countries, like Sweden, Italy and Germany, have begun tackling the issues already. Germany, for instance, has a new law that automatically adjusts pension benefits and tax levels to match demographic trends unless parliament steps in. Sweden moved partially out of a pay-as-you-go system to one where pension benefits are calculated on retirement based on taxes paid into the system. Other countries, such as France, have very bad demographic problems and have yet to tackle them.
St Louis, MO:
Will people have a choice about whether or not they divert money into "personal accounts?" If you choose not to participate, will you be stuck with lower guaranteed benefits anyway, or what? There was a recent article about Chile's experience in the NYTimes (I think), and it seemed people who had chosen not to participate were getting higher guaranteed benefits than those who had said yes; but it wasn't clear whether or not Chileans still have a choice in the matter or not. Sorry for rambling.
Jonathan Weisman: President Bush has repeatedly said the private accounts would be optional, but those who stay in the existing system would certainly face deep enough cuts in benefits to convince them to move. Otherwise, most people would stay put. Chileans were given a choice at first, but I think new workers must go into the new privatized system.
Is there an economic "tipping point" -- a statistical moment where it's too late to fix the problem before the safety net collapses?
Jonathan Weisman: Not per se. But there probably is a tipping point with tax levels, where tax burdens grow so high that compliance collapses. That's why any solution will almost certainly mean tax increases AND benefit cuts.
Do you agree that the fixing Social Security won't be difficult but that there are real problems in containing healthcare costs?
Jonathan Weisman: Fixing Social Security will be difficult politically, but economically, the gap is not that large. If Democrats and Republicans could wipe their political slates clean, they could reach a compromise. Health care costs are much, much more difficult, and will involve the almost impossible political task of rationing care.
Maybe we could resort to a "Logan's Run" scenario to contain aging-related costs to society. We implant a chip in everyone's hand and when the reach a certain age (65 maybe), they are 'terminated'. What do you think? We wouldn't have to raise taxes or decrease benefits.
Jonathan Weisman: By 2050, there will be enough people over 85 to fill Los Angeles, Chicago and New York City, and enough folks over 100 to fill Washington. That would be a lot of zapping.
I hear some economists with positive forecasts claiming that the increasing productivity of the American worker should continue to grow and that this increased productivity should allow more employees to support our social systems such as health care and social security for non-workers, such as the elderly and children. I hear other economists predict that the growing markets, especially from China and India, will underprice our products creating substantial competition and lowered profits and lower incomes. What are your thoughts: is our future rosy, profitiable, and one with decent incomes, or deary with declining incomes and growing costs of social concerns?
Jonathan Weisman: Productivity will probably continue to rise, mitigating the impact of aging. But there is a fundamental problem: Much of the increase in productivity comes from business investment in new plants and equipment. Those businesses have to borrow that money, but as the world grows older, savings will drain as the elderly spend their nest eggs. The cost of borrowing will grow, investment will be limited, thus limiting productivity gains. China will have a demographic problem that will be worse than ours, thanks the to abrupt changes wrought by the one-child policy. And India has a long way to go to produce the kind of capital to keep the world economy afloat.
It appears, at least the way it was written in your commentary, we "older" Americans are/will be putting a strand on the overall budget for the younger generation. Perhaps we should all be put in a canoe, the way the Alaskians Indians address the old & feeble, and push out into the open seas to fend for ourselves. This way, we won't interfer with the 'growth factor'you described.
Jonathan Weisman: If you are counting yourself as elderly now, you are not the problem. The problem is with people in their 40s and 50s now.
I remember that during the early Reagan years (1982), payroll taxes were increased in order to deal with future shortfalls. I also remember that the date for which the trust fund will be depleted has been periodically pushed back. Do you recall past projected depletion dates? If you do not have them at hand (and there's no reason you should), it would make an interesting article.
Jonathan Weisman: Yes, the trust fund depletion date has been pushed back by 14 years from where it was in the Clinton years. Strong economic growth does help Social Security. But Medicare is another, far scarier story. WIth the resurgence of rising health care costs, that program is growing less healthy.
The Social Security trustees--political appointees all--say that the trust fund will go broke in 2042. They base this projection on an annual growth rate of under 2%, below average historically. At the same time Bush says he will cut the deficit in half. Since there isn't 200 billion that can be cut from the budget, this claim nust be in part based on increased revenue from growth. How does Bush's projected growth rate for the economy for deficit reduction purposes compare with the trustees' projected growth rate for Social Security purposes?
Jonathan Weisman: The administration in the short run is being more generous on economic growth than the trustees. But the White House has limited its projections for the budget to only five years in the future. The Trustees expect the dramtic slowing of economic growth to come well past that window.
The tax cuts were only returning money to back to the people - this administration has yet to meet a spending bill they don't like. They are only now starting to say that they've been spending too much money - the feds should STOP spending our money so much...
Anyway, 12+% for social security is WAY too high a tax. we really DO need to raise the retirement age by at least 10 years. If you can work, why aren't you? why are you relying on the govt/other people to take care of you? if you can retire, more power to you, but you shouldn't expect younger workers to sacrifice for you if you are able to work...
Jonathan Weisman: The problem with your analysis is that non-defense, non-homeland security spending at the discretion of Congress (as opposed to entitlements like Social Security and Medicare) amounts to 17% to 18% of the federal budget. The White House could eliminate all ederal spending on education, medical research, transportation, space exploration, housing, and agriculture and still face a budget deficit. In that sense, you and the president are barking up the wrong tree when you talk of controlling spending.
I view the mandatory 12.8 percent combined contribution as delaying my retirement by a minimum of 10 years. If I had that 12.8 percent as a tangible asset (or even the 6.4 percent that's my blood, sweat, and tears), perhaps I could retire earlier and healthier to enjoy life. Instead, I am condemned to work longer and longer. That is the tradeoff that people don't see.
Jonathan Weisman: But if you had that money back, the impact would be on a current retiree, who is receiving your taxes in benefits, not on you.
I know that I should be worrying about having enough retirement savings, but I am also concerned about managing those savings so that they last until I am gone. I have relatives that have lived into their late 80s and spent down all of their assets.
Jonathan Weisman: That is a big fear. Even if you have a healthy nest egg, you have to draw it down slowly. I hesitate to offer financial advice.
Fort Wayne, IN:
How can Social Security be in crisis? A budget deficit in 35 to 50 years. What is this administration going to do about the 2 trillion dollar deficit in it's second term. As to SSI, I proposed that we eliminate the employer share of social security and replace it with a VAT when I ran for Congress in '82. Jobs are eliminated due to automation, and outsourcing out of the country. The sociatal cost of these government driven changes should be born by the beneficiaries of those policies. Tax and trade winners should pay for the cost of their gains.
Jonathan Weisman: A VAT may be the answer to all of this.
I tend to be an optimist about the sorts of problems you describe: I'd expect that economic systems in the developed countries will continue to evolve and maintain household wealth. Europe is pretty inefficient yet it is doing ok, as you mention.
Won't increasing the number of participants (adding Russia, India, China...) in global financial systems mean increased asset values, just like shifting all Social Security spending into the US stock market would push prices up?
Jonathan Weisman: McKinsey and Company specifically looked at China and India to see if their economic growth could provide the savings and capital to keep our economy moving forward. Their conclusion was that China faces a demographic crunch of its own worse than ours, and India just has too far to go to rescue us in the short term.
SS while facing some difficulty, is clearly not in crisis. Despite the fact that projected costs of medicare/medicaid as well as the tax cuts if extended dwarf the SS shortfalls, SS privatization is the big issue being discussed. Since we're supposedly trying to care about our long term fiscal outlook, why are we paying the most attention to the smaller of the problems?
Jonathan Weisman: Because that's the issue the politicians believe they have a politically palatable answer for. The Medicare issue is just too hard for them to tackle, although they know it is the far bigger problem.
Takoma Park, MD:
I hear it said that despite their historical record, stocks
aren't a good investment for those retiring in 20 or 30
years because baby boomers will be drawing down their
accounts at that time, swamping the supply and therefore
lowering the value of stocks. Also, Krugman recently
argued that stock prices simply can't continue to rise as
they have historically. What do you think?
Jonathan Weisman: I tend to agree that if the economy is growing at the crawl the Social Security Administration expects, it is a stretch to think the stock market will be performing at historic rates. But investors are global. They can put their money in countries that do not face the same demographic problems, mainly South America, Southeast Asia and Africa. Problem is, Bush wants investments constrained to safe vehicles, and it's hard to imagine sanctioning the investment of Social Security taxes in developing countries.
Great analysis. It strikes me that the "aging" crisis largely is a "health care" crisis. Would tackling the health insurance for all Americans solve much of the problem? The more I read about Social Security the more I discover it's the healthiest program around.
Jonathan Weisman: If the federal government is willing to clamp down on health care costs, than a single-payer system could help. But there would be enormous political pressure to cover the latest drugs and treatment. Then we'd be in even worse shape.
San Juan, Puerto Rico:
As a Federal employee, i am under the FERS retirement program. CSRS Retirement went out the door in 1986 under the Reagan Administration. As a FERS employee i will get 30% less retirement than the CSRS retiree. However i have 80,000 now diverted into my Thrift savings plan. So it evens out. The reason i mention this is because the higher paid retirees, like me, will get so little social security That Bush's plan would actually benefit me. The lower scale paid persons will have a more difficult time since they would not have the flexibility of a high payback at 62 on what was saved and depend greatly on the lower Social Security income. Just an observation, i heard they want to model Social Security after the FERS proram.
Jonathan Weisman: The White House often refers to the Thrift Savings Plan as a model. We have yet to see how they would structure it to help lower-income workers, but they insist it can be done.
I have to ask, why can other industrialized nations provide healthcare, housing and such for their seniors and for that matter all their citizens for the most part and this nation cannot or will not? What is basic cause of this and to say, "Best health care in world" may be true, but as we all know it is not "best in world for most" so what is the real reason and economics of it?
Jonathan Weisman: We have the best health care system money can buy and the most inefficient. Most developed countries ration care by government fiat. We ration it by money, age and access.
I already have a 401k. What's the difference between the Bush plan and what I'm already doing (saving for my own retirement plus Social Security)?
Jonathan Weisman: The president will be cutting benefits to bring them in line with the current 12.4% Social Security tax. The private account is more of a sweetener than an integral part of the plan to ring costs down.
Great set up we have. First the Admin hands out a tax giveaway to the upscale boomer, which bankrupts the govt. and puts everyone's SS in danger. So they propose a privitization plan which will only beneft the verys ame upscale boomers, based on capitalizing the transition costs onto the next few generations.
Must be nice to be an upscale boomer. It also must be nice to be this Admin, and get a pass in the media for blatantly lying.
Jonathan Weisman: I don't think I've been lying. Have you any good examples of my lies?
There seems to be awareness outside the
Administration about the need to address health care
and other costs so that young people are not left
with an unreasonable bill. I haven't seen much discussion tied into this about
the substantial bill left to young people re the
environment because today's adults do not welcome
carbon taxes. If we are going to talk about a few trillion here and
there, ought the costs of climate change be
Jonathan Weisman: Sorry, the environment is not my issue today.
The SS trust fund has lent its surplus to the Federal government, which has used much of that loan to pay for tax cuts that disproportionately go to the rich. The loan, to be paid back when the SS fund needs the money would go largely to middle and lower class americans as SS benefits. Is this privatization plan, which will likely include benefit cuts, an attempt for the rich to default on their debt to the middle/lower class? And if not deliberate, could that be the de facto outcome?
Jonathan Weisman: There is a lot of anger that President Bush is asking for sacrifice on Social Security while resolutely opposing any repeal of his tax cuts. The tax cuts, indeed, will cost the Treasury more than the shortfall in Social Security, if they are made permanent, as Bush wants. But their repeal alone is not enough to close the gap in health care funding.
Income disparity (e.g. the percent of income earned by the top 20%) has been growing in this country for about the last 25 years. Could retirement benefits be right-sized if income in the middle of the spectrum was raised at the expense of top incomes?
Jonathan Weisman: Means testing would almost certainly help, but it is largely opposed on the political left and the right. The left worries that turning Social Security into a welfare program would undermine its political support, and the right doesn't like welfare programs.
When today's seniors were kids, their parents voted themselves money and eventually out of the Great Depression. Do they have a misguided notion of what resources government has to provide for them?
Jonathan Weisman: It is true that today's retirees tend to get a lot more out of the system than they paid in, since payroll taxes were so much lower when they were in their prime work years.
Wouldn't it be a better plan to allow a higher maximum for IRA's outside of social security( to supplement retirement income) rather than syphoning part of the
current social security funds? Also, although social security may need to be adjusted, HOW does the president's current plan address the solution?
Jonathan Weisman: Very few people max out their 401(k)s and IRAs now, and Congress just raised the maximum. Studies suggest that savings would improve greatly is 401(k) deductions were automatic, not elective. In other words, you'd have to opt out of your plan, not opt in.
Obviously there is no one answer to a complicated situation. But instead of acting like a longer, healthier life is such a drain, why aren't more companies/industries tapping into it? Realize there's a wealth of experience there and use it. Make things more flexible - part time jobs that confer maybe partial benefits while retaining partial benefits from SS. Stop kicking healthy people out the door at 65. Keep people on as consultants. The gov't should encourage productivity by not taking away all benefits if a paycheck is earned - prorate appropriately. Give small business loans for retirees who want to try something new. At the same time, recognizing that health problems do occur as you get older, allow those who need to retire for health reasons do so, but maintain incentives to stay productive for those who can. It breaks my heart to see bright, successful people twiddling their thumbs and feeling useless because of ageism and fear to try anything new and lose their benefits as well as risk their savings.
Jonathan Weisman: That is a very good point, and I think in the near future, companies will have no choice but to hire or retain the elderly. The problem comes in difficult jobs like construction or manufacturing, or even airline pilots who now must retire at 60 on the notion that their reflexes will slow after that.
Assuming that groups like the AARP see this issue as their stand at the Alamo, what organized groups, if any, stand on the opposite side of the issue, not counting Libertarian think tanks and the like?
Jonathan Weisman: Business groups like the Business Roundtable, the National Association of Manufacturers and the U.S. Chamber of Commerce are ponying up millions of dollars on the president's behalf. Believe me, this is a clash of titans.
I'm very sorry to end this chat now, with questions still pending. But alas, time's up. Thanks everyone for participating.