Retirement Wars

Retirement Wars
By David N. Bass on 11.10.11 @ 6:08AM

The growing "wealth gap" between old and young could get ugly as it dawns on the latter that they won't have anything to retire on.

Will Baby Boomers be the last generation to enjoy the modern concept of a leisure-filled retirement? It's a worthy question to ponder in light of a new Pew Research Center report showing a growing wealth gap between young and old in the United States.

Using government data over the last 25 years, Pew found that households headed by those over 65 have made "dramatic gains" in economic well-being, while those headed by younger adults have fallen steadily behind.

In 2009, elderly households possessed 42 percent more median net worth than their same-age counterparts had in 1984. Young adults veered in the opposite direction: Households headed by those under the age of 35 had 68 percent less wealth in 2009 than those in their same age range had in 1984.

Put simply, the age-based wealth gap was 10:1 in 1984. A quarter-century later, it's 47:1.

It's obvious why older Americans typically have a higher net worth -- extra years of earning -- but the rising gap illustrates a growing problem, one worsened by the Great Recession: Many Americans in their golden years are enjoying a retirement that, most likely, will be extinct by the time today's younger workers reach their 60s.

That reality is setting the stage for a generational war over retirement, and a large part of the equation is Social Security. The political fault lines on the issue already are real.

A recent poll conducted by Pew found a generational rift on the nation's most popular social welfare program. Boomers and members of the "Silent Generation" (born during the Great Depression and World War II) have warmer feelings toward Social Security than younger generations. That's not surprising: The Silent Generation is eligible to receive the benefits, and early Boomers are now collecting them, too.

Generation X (born in the mid-1960s through the late 1970s) and Generation Y (born in the 1980s and 1990s, also called Millennials) are more supportive of seeing the program overhauled:

Most Millennials (56%) and Gen Xers (66%) say Social Security needs major changes or a complete overhaul. By contrast, most in the Silent generation (62%) say the system works pretty well and needs only minor changes. Boomers, many of whom are on the cusp of receiving Social Security themselves, are more divided -- 45% say they think only minor changes are in order, while 50% say major changes need to be made.

An overwhelming number of Millennials, 86 percent, support an overhaul that would allow them to invest their Social Security taxes into a private retirement account. That's similar to U.S. Rep. Paul Ryan's budget plan -- allowing workers under 55 to contribute a third of their Social Security taxes into a personal retirement account managed by the federal government.

Millennials also are more realistic about Social Security's insolvency. "More than seven-in-ten (72%) Millennials do not expect Social Security to be their main source of retirement income," Pew found. "In fact, 42% of Millennials think they will get no retirement income from Social Security at all."

Beyond generational differences, part of the looming difficulty is this: Generation Y might acknowledge fiscal realities, but they aren't doing anything about it from a personal responsibility standpoint. A retirement survey by Scottrade found that 55 percent of Millennials reported having not started saving for retirement, and 64 percent said they didn't even think about retirement.

That raises an uncomfortable specter: Today's young people will be worse off when they reach retirement age than Boomers, by far. It's true that many Boomers haven't adequately prepared for retirement, but at least most of that generation will benefit from Social Security payouts, and also a greater number of pension plans.

For Generation Y and, to a lesser extent, Generation X, the picture is bleak. Young people aren't saving -- oftentimes not even participating in their employers' matching program, because they need the extra cash to meet expenses. In addition, they won't have Social Security's paltry payout. Nor will they have access to the same number of pensions, as the shift continues away from a defined-benefit to a defined-contribution model of savings.

By the time Generation Y begins to retire, life expectancy in the United States will have increased, by some estimates to as much as 94 years for women and 86 years for men. The United States system already can't withstand retirees living, on average, into their late 70s. Tack on another 15 years, and the scenario becomes even worse.

The harsh reality is that retirement, at least as practiced by Americans over the last half-century, will no longer exist for future generations. Just as the idea of remaining at one employer for a workers' entire career is no longer feasible, so, too, retirement by the age of 65 will become unfeasible.

The social and political ramifications will be significant as Generation X and Millennials begin to take the reins of power. Anger will rise among young workers who see their tax dollars supplementing an older generation's retirement lifestyle, one that's no longer attainable for the young.

When it's time for the retirement bubble to burst, look for the younger generations to do the popping.
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