Throughout history, the generations have had their differences. And the family dinner table has often been the arena in which these differences surfaced. Today's generations are doing their share to maintain this tradition, but a new topic has emerged to ruin the meal—Social Security.
It's easy to see how this debate could turn rancorous if you take a look at Social Security along generational lines. Current retirees, many of whom lived through the Great Depression, can't imagine how they would have survived without it. Indeed, Social Security has been one of our country's most successful programs, almost single-handedly raising the elderly from poverty. To no one's surprise, retirees don't want the program tinkered with.
One generation down, babyboomers are wondering whether the Social Security trust fund will run dry just as they're ready to retire. Such uncertainty is causing many of them to throw their arms up in confusion: How reliant should they be on Social Security to bolster their retirement savings? Should they be planning to work longer?
Workers just entering the labor force, meanwhile, are wondering whether Social Security will be around at all when they're ready to retire. If not, why should they pay into the system now?
The cause of all this generational discord is the realization that, in the United States and in virtually every industrialized nation of the world, populations are aging rapidly, living longer and leaving the work force earlier. At the same time, new workers are not entering the labor force fast enough, and worker productivity is not rising fast enough, to support the growing legions of retirees.
If we are realistic about such trends, we will arrive at the same conclusion that the U.S. Advisory Council on Social Security recently came to: Without reform, our system will not support us very far into the 21st century.
Most of the reform proposals being debated involve some combination of higher taxes and reduced benefits, with lengthy phase-in periods for each. Whichever proposal one favors, the important thing is that we act relatively soon. We may have enough cash in the Social Security trust fund to last until 2029, but we are headed for a free fall after that.
By taking steps to fix the system now, we will reduce the eventual costs of Social Security reform and provide those currently in the workforce with more time to adjust their financial retirement plans. In addition, we will reduce the risk that runaway government deficits might undermine future economic growth and stability.
Who knows? If we do it right, we may also be able to transform the family dinner table into a place where civilized conversation rules. Or maybe not.
Keep up with what’s new and noteworthy at the St. Louis Fed. Sign up now to have this free monthly e-newsletter emailed to you.
Fed in Print: An index of the economic research conducted by the Fed.