A Generational Divide? Why is the younger generation reluctant to fund Boomer retirement?

In Running on Empty, Peter G. Peterson excoriates the "we-first" attitude of retiring baby boomers. Having read Peterson's take on boomer retirement, one is left with the impression that boomers are selfishly intent on bankrupting future generations and driving America into permanent decline to boot. Happily, Peterson concludes, there is a solution: higher taxes and reduced benefits. This is what Peterson calls "real leadership."

Breaking promises and raising taxes may seem like "leadership" to some, but in fact it is just another effort to excuse and facilitate irresponsible spending by future administrations. The common refrain of every liberal commentator on Social Security, and even of those like Peterson who claim to be non-partisan, is that there is simply not enough revenue to meet future retirement obligations (which Laurence Kotlikoff and Scott Burns in The Coming Generational Storm estimate now stand at $51 trillion). There is just not enough accumulated in the Trust Fund to fund the retirement of 77 million boomers. But if government had run the Trust Fund in a responsible manner, there would have been.

The core of the problem is the investment performance of the Social Security Trust Fund. As the Office of Management and Budget stressed in its FY2000 report, the "special" bond obligations held by the Social Security Trust Fund "do not consist of real economic assets." They are not marketable bonds, nor do they pay market rates. They represent nothing more than political promises to fund future retirees based on future revenues. In that sense, no matter what the reported rate of return of Trust Fund "bonds," and the recent rate of return has been abominable, the Trust Fund has earned nothing whatsoever in actual interest. Even the Fund's principle rests on nothing more than the words of politicians like Al Gore, with his fantasy of a Trust Fund "lock box."

As Peterson himself admits, even the Fund's reported performance has been disappointing, to say the least. During the era of the greatest bull market for both stocks and bonds in American history, the Fund's real return has ranged between 1.6% and 0%. For many retirees, its future return may well be negative. In other words, retirees who have loaned the government their retirement savings over a period of 40 years or more will receive less in benefits than they paid in.

Compared with returns in the private market, those returns are dreadful. Not to single out one fund, but the Vanguard Wellesley Income Fund, a popular option among retirees, has returned 10.23% since 1970. Had investors entrusted only $100,000 to the Wellesley Fund in 1970, in place of the estimated $250,000 in 2011 dollars that each boomer will have contributed over a lifetime to the Trust Fund, that investment would now total nearly $5,000,000. Instead of merely getting back what they paid in, or less, boomer retirees would have been driving Bentleys and flying off for spa vacations in Anguilla.

The problem, in other words, is not that boomers expect too much from their government-sponsored retirement: it is that they expect too little. Had contributions been partially privatized in 2005, as many conservatives urged, prospective retirees would already be far ahead. The five-year return on the Wellesley Income Fund's Admiral Shares has been 7.12%. Compounded at that rate, the nominal value of contributions will more than double every decade.

Liberals continue to respond to calls for privatization with the usual politically motivated scare tactics. The immediate response of the Democratic Party to Rep. Paul Ryan's budget plan, with its call for a real start to entitlement reform, was to demagogue the issue. Within hours of release of the Ryan Plan, the DNC and its front organizations were robo-calling seniors, convincing them that Republicans were planning to take away their Medicare and Social Security.

An equally cynical and divisive politics underlies the left's efforts to convince younger voters that they are having to pay for "greedy" boomer retirees. As Obama has already made clear, Democrats hope to energize younger voters ahead of the 2012 election. One way to do so is by stirring up envy and resentment among GenXers and Millennials over the seemingly excessive benefits that boomers are set to claim.

It is true, of course, that younger generations will be called on to fund those benefits: that fact is inherent in the structure of Social Security and Medicare as they have existed since the beginning. What is new is the sense of younger voters that they should not have to meet their obligations -- based partly on the conviction that they are unlikely ever to collect benefits themselves.

Sadly, even though the left is responsible for failure to address the Trust Fund's mounting obligations, it is the left that is also attempting to play on these fears. With Democrats blocking every attempt to reform the entitlement system, it is certain that the Trust Fund will "run out of money" (not that it holds any to begin with), whether in 2037 for Social Security or 2024 for Medicare, as now projected, or even sooner. So the fears of younger generations are justified: their reluctance to fund boomer retirement is entirely rational, given the bleak prospects ahead. What is less understandable is their refusal to blame the left for these prospects.

Envy and resentment are fertile emotional grounds for political campaigns, and one should expect Obama's re-election team to exploit it to the hilt. By playing off the interests of the young against the old, Obama hopes to energize those same voters who assured his election in 2008. In this divisive strategy, Obama plays on a common myth that retiring baby boomers are set to receive more than is fair. If that myth were true, shouldn't boomers be willing to accept a reduction in benefits?

President Obama and his allies at organizations like AARP have been busy selling this myth. They have done so in connection with proposals to means test benefits and with calls to shift the Social Security benefit calculation from wage inflation to CPI. Again and again, these proposals are accompanied by the insinuation that it is immoral for boomers to "burden future generations," as if Social Security's pay-as-you-go structure had not been burdening future generations from the start.

In fact, there is nothing "moral" at all about this argument. As he has done throughout his career, Obama is engaging in the cheapest form of political demagoguery. Suggesting that retirees "sacrifice a little bit," as Obama did at a May 18 fundraiser in Boston and as he has done repeatedly in the last few months, is nothing less than contemptible, given the retirement savings that boomers have already sacrificed to government mismanagement.

For conservatives, it is crucial that the truth about the nation's entitlement obligations be communicated to the public ahead of the 2012 election. Boomers need to know that they are not responsible for the impending shortfall, and younger voters need to understand that the burden falling on them is not the fault of their elders. It is the fault of a government that raids the nation's retirement fund to pay for ever greater spending on unconstitutional programs.

Jeffrey Folks is the author of many books and articles on American culture.

Oddly enough, the way out of this problem may very well be *lowered* taxes and *increased* benefits. But how can this be possible?

Simply put, if you can get *some* people out of the system, by offering them a better deal, it strongly reduces the pressure on the system for those that remain inside.

Which people to try to get out of the system is obvious: those who don’t really need the money, and those still earning lots of money.

Now, in past, it has been foolishly and unfairly proposed that these people should be “means tested” to take away from them what they are owed. It was no great surprise that they said “Not only no, but heck no!” to this idea.

But there is another way. Instead of stealing from them, make them a better deal. That is, if they *refuse* the SS money, then they get slightly *more* money in tax deductions on their other earned and capital gains income.

Totally voluntary. And sure, there are a lot of people slated to get SS who really do need that monthly stipend, so they continue on as before. But those who are not dependent on SS will do better by not taking their owed SS, and saving more money then they would be paid.

So while the people on SS don’t get ripped off in the deal, is the government going to get hosed?

Actually not. The Democrats are right now pushing for taxes way beyond the Laffer curve. This means they care more about *hurting* the wealthy than tax revenues. But by making this deal on SS, it will not only lower taxes enough to get taxes above the Laffer curve, but it will likely *raise* government tax revenue.

So nobody, not even the government, gets shafted in the deal.

But this handles only those receiving government benefits. What about those who are still paying in to the system? No problem. To start with, redirect the SS part of their FICA taxes into their IRAs. And not just for the current year, but for a second year.

In this way, not only migrate them out of the SS system entirely, but have them building their IRAs at twice the normal speed.

Granted, a system like this would take a lot of tweaking, but the end result would be a big influx of new tax revenues for the government, SS restored to order and balance in the short term, but nobody would get cheated out of their money.

Article premise:
“A Generational Divide? Why is the younger generation reluctant to fund Boomer retirement?”

Twenty-five years from now, it will no longer be a “generational divide”, but will have become an ethnic/racial/cultural divide, as the demographics of the country literally “change colors”.

The emerging Hispanic/LaRaza plurality/majority (at least in numerous states) will say, “why should our tax dollars go to help those old gringos? They never did anything to help us, and in truth, wanted to send us back...”

As the saying goes, you reap what you sow.

The Euros are going to reap exactly what they’ve “sown” since the 1960’s (and “immigration reform”). The ethnic group (Euros) that so willingly touted the themes of “diversity” and “multiculturalism” are going to be tossed to the trash by those very cultures they sought to empower at the expense of their own.

But I can’t say that I blame the Hispanics, nor any other nonwhite ethnic group or race. They are doing what’s “natural” in this world — that is to say, promoting and advancing their own group interests and identities. In days of old, particularly in Europe, doing this was called “nationalism” (and how else could traditional “nations” have been created and nurtured?) I daresay that protecting and advancing one’s own culture and national heritage — even at the expense of others — is the heart of conservatism and traditionalism.

Nope. There is only one “ethnic group” that deserves the blame for the direction America is going.

Can you recognize which one that is?

Just sayin’....

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