Few problems promise to bedevil Americans more in the next half century than old age. By 2025, the country's over-65 population may reach nearly one-fifth of the total, against one-ninth today and one-twelfth in 1950. As people age, they will worry more about the adequacy of retirement incomes. If government and business can't relieve these anxieties, we're inviting a future of frustration and conflict.
Two recent government reports by the President's Commission on Pension Policy and the National Commission on Social Security can't make you sanguine about the prospects. The Social Security commission projects that, under reasonable assumptions, those programs will nearly double in size and cost by the time today's "baby boom" generation hits age 65. And the pension commission predicts that Social Security alone won't be adequate and that the country needs an expensive system of mandatory private pensions.
What makes these reports disappointing is not their gloomy analysis, but their failure to provide much vision. Traditionally a nation of young, we now need new principles about how an older society governs itself. Ideas that sufficed when the elderly represented a tiny fraction of the population don't work any more.
Neither report contributes much toward such rethinking. One basic need is to minimize conflict between workers and nonworkers as the ratio of the traditional labor force (18 to 64) to those over 65 shrinks from today's 3 to 1 toward 2 to 1. Here are three suggestions to quell the conflict and reorder our thinking:
Stop treating the elderly as a special group; reduce the privileges they receive and the restrictions they face. Not only can the country ill afford unneeded charity, but the self-esteem of the elderly also demands more equality of treatment and opportunity.
Specifically, eliminate these special tax concessions: exemption from income tax of Social Security payments, the double personal tax exemption for those over 65 and favorable treatment of home sales for those over 55. In fiscal 1981, these concessions will cost the Treasury an estimated $13 billion, or about 10 percent of Social Security payments. The upper-middle-class elderly would be primarily affected; there's no good reason why a family whose members are over 65 with an income of $20,000 should pay less tax than a similar family whose members are under 65.
At the same time, current restrictions in the Social Security program against work ought to be abandoned. Today, people between 65 and 71 (69 in 1982) can't earn more than $5,500 without losing benefits. Let them work and be taxed.
Don't be so enthusiastic (as both reports are) about raising the "retirement age" from 65 to 68. Pension formulas should give people the greatest possible choice between work and leisure.
Early retirement represents a major advance in our standard of living. Most people -- work-weary as they approach their 60's -- aren't eager to abandon this game. In 1979, only 62 percent of men between 60 and 64 worked compared with 82 percent in 1955. Any a poll by Peter D. Hart Research Associates Inc. found that half the respondents favor earlier retirement (at about age 60).
As the population ages, new work patterns probably will enable older people to mix work and leisure -- just as women now can mix work and child-rearing. The same Hart poll reported that, once retired, people found early retirement "less appealing." What many of them want, as management expert Peter Drucker emphasizes, is longer vacations and new jobs. mUnrealistically high "retirement ages" keep people in jobs they do poorly and despise.
The appeal of raising the retirement age is that it reduces the increases in Social Security's financial burden by about one-seventh. David Rodgers, a member of the Social Security commission, correctly suggests that a better way to do this is to scrap the concept of a "normal" retirement age and substitute a range.
Today's Social Security system, in fact, does this. Retirees get 80 percent of full benefits at age 62, or 100 percent at age 65 and 121 percent at age 72. The curve could be changed to lighten the financial burden and provide greater choice -- perhaps 50 percent of benefits at age 60, then 70 percent at 62, then 90 percent at 65 and 110 percent at 68.
Get inflation down.
This is not as gratuitous as it seems. After their homes, private pensions (321 billion worth in 1978) represent many families' largest assets. But at high inflation rates, the pensions -- which usually aren't indexed to price increases -- quickly lose value. Having private companies compensate for inflation risks one of two evils: Either it raises company cost pressures (and thereby perpetuates inflation) or robs younger workers.
It is, in short, a formula for social disaster. Private pension coverage is already fairly widespread (70 percent of full-time workers over 25), but high inflation rates probably discourage people from increasing private savings. And, ultimately, slightly higher levels of private savings offer the best hope of muting the conflict between working and nonworking populations.
To say that everyone should have an "adequate" retirement income is a pious and meaningless platitude. Not everyone does today, but prosperity and the smallness of the elderly population at least enabled the working population to raise the elderly's incomes. As population proportions shift, this will become increasingly difficult.
Unless people work more in their final years, today's levels of Social Security taxes and pension contributions won't sustain retirement living standards by the early 21st Century. It's not an insoluble problem. Other government spending can be cut back -- and already is. And the likely shrinkage of the child population (also heavily dependent on family and government support) provides room.
We can't foresee the year 2020 any better than Americans in 1940 foresaw 1980. But if we put off thinking about these problems until they hit us, it will be too late.