A recent survey from the President's Commission on Pension Policy reports that nearly two-thirds of Americans are worried that their retirement incomes won't be adequate. That's hardly the stuff of big headlines, and much of the national media ignored the survey. But if you want to understand the politics and the economy of the next half-century, it's important news. America is getting older, and much of our well-being and sense of self-respect depends on how gracefully we mature. A nation unable to care for its elderly invites upon itself a wounding sense of frustration and failure.
Nowhere will the strains of change be greater than on the public and private pension systems. Study groups and scurrying all over Washington trying to figure out how to adopt Social Security and private retirement programs. In some ways, this is another energy crisis. Decisions made today will be highly technical, not widely understood and slow in showing their effects. Yet the results will shape the public's confidence in itself. And its national leadership.
The transistion seems easier to some than to others. The best demographis projections -- subject to consideration error, of course -- indicate that by the early part of the 21st Century, the ratio of working population (17 to 65) to elderly (over 65) will diminish from today's 4 to 1 to 25 to 1. But the same projections also foresee a dwindling of the size of the youth population. If you consider those under 17 and over 65 as dependent on the working population, then one shift roughly offsets the others. The message, in this view, is: Don't exaggerate the burden on workers.
But the kernel of truth in this arithmetic risks dangerous oversimplification. Caring for children is old hat. The large elderly population is a relatively new phenomenon -- the population of modern medicine and a prosperous economy. Families bear most of the costs of children and the responsibilities for them. But families have withdrawn heavily -- though not exclusively -- from total responsibility for the eldely.
Aging -- and its costs -- largely have become a collective matter, with vital decisions being made by political and commercial institutions. We are backing our way into an unknown political and social jungle. The psychology of youth and old age differ so fundamentally that we repress the contrasts. We invest our hopes in our children. Whatever respect, comfort and freedom we deserve in our final years, we still are waiting for death.
All this implies profound adjustments and tensions over the next half-century, in thinking as much as anything else. Although the most dramatic population shifts are still 35 to 40 years away, when the children of the Baby Boom begin to retire, strains already have begun to surface.
Until now, the public and private pension system has depended on an unwritten contract between generations: Today's workers will supply the funds to support their elders in retirement. But the system presumed a continuing large base of workers in relation to retirees. Social Security always has been pay as you go, and most private pensions never have been funded fully (that is, contributions made on behalf of workers don't fully support promised benefits.)
As population ratios, shift, tax rates and pension payments must rise or benefits must be shaved. Inflation, which erodes pension values, further inflames the conflict. Sensing that their own benefits may be in jeopardy, today's workers may resist helping today's retirees. Higher Social Security taxes already have provoked considerable unhappiness. That most contributions to private pensions are made by employers doesn't defuse the conflict. Companies usually consider labor costs, including pensions, as a lump sum. In recent contracts, both auto and steel unions have had to make slight concessions in wage gains for current workers to provide inflation adjustment for existing retirees.
The obvious way to diminish these pressures is to have people work longer. That may be in store for the Baby Boom children. A. Haeworth Robertson, former chief actuary of the Social Security Administration, says bluntly: [People] are going to have to retire later than today's retiring generation . . . They should be told now, not later." But, if they are told now, will they still be willing to pay for today's early retirees? Nearly three-fourths of new Social Security beneficiaries are younger than 65.
Many of today's workers are bound to wonder whether they can expect to do as well as their elders. No one should deny the hugh strides that have occurred. In 1976, about half of retiring couples had incomes in excess of $80,000. That's worth more than it seems, because most retirees don't incur many work-related expenses. Social Security payments aren't taxed, and the elderly enjoy a double income tax exemption. Most specialists on aging think that retirees can maintain living standards on between 60 percnet and 80 percent of preretirement income.
The poverty and near-poverty that still exist among the old are concentrated heavily among blacks and single women. Their continued vulnerability compounds the general problem of maintaining public confidence in the pension system. All the groups that study this issue ultimately must answer the same question: How much responsibility should the government assume (mainly through Social Security) and how much should be assigned to private pensions and savings?
Those who urged a larger role for Social Security argue that only government can provide universal coverage, adjust adequately for inflation and provide a sense of certainty. This is overpromise. As Robertson points out, Social Security benefits are only what Congress -- at any point in time -- says they are. Faced with hugh potential increases in tax rates (as much as between 30 percent and 50 percent) early in the next century, Congress easily could cut benefits.
The main defect of relying too heavily on Social Security's uncertain promise is that private savings, either by individuals or through pensions, may be diminished. Ultimately, the nation's ability to support a larger elderly population depends on our overall economic vitality. In a stagnant economy, tensions between workers and retirees are bound to be awesome. Private savings generally support real investment; Social Security is simply a taxing plan.
But private pensions also have the glaring defects of spotty coverage and uncertain adjustment for inflation. Trying to legislate for the next generation is a tricky business at best. At worst, it could be another energy debacle.