Many retirees are having a ball. They receive pensions and Social Security, own their homes, live in the moment, indulge hobbies, travel, and worry only a little about the future. Of course there are some who are struggling, some still working, but on the whole, seniors are doing better than at any time in modern history.
On the other hand, our working children are facing hard times, even though many don’t fully appreciate it.
Senior Entitlements Are Big
Seniors are entitled to Social Security and Medicare, and, when they qualify, they’re eligible for all the non-age-based entitlements as well. Yes, in a sense, they “earned” Social Security and Medicare, but in fact, they “earned” much less than they’re getting. In 2012, Social Security and Medicare accounted for about $1.245 trillion, which was 36% of total federal spending. Will our children “earn” as much? It’s not clear that the economy will be productive enough to pay future retirees as much as today’s seniors.
Some politicians are now advocating that Social Security benefits be expanded for existing seniors, and that the cap on taxable earnings (now at $113,700) be removed. “The situation for seniors is only going to get worse, because the assault on pensions and wages is making it more and more difficult for a worker to save for the future,” said Senator Sherrod Brown (D, OH). His rhetoric seems to conflate current and future beneficiaries and deny that today’s seniors are doing better than other age classes.
In addition to traditional programs, more than half the states have filial support statutes requiring adult children to support indigent parents, though the terms and enforcement are highly variable. In Pennsylvania a recent case held one son liable to a third party (nursing home) for the costs of his mother’s care. As Medicaid standards tighten, nursing homes are increasingly left with unpaid bills, and they are beginning to sue adult children for payment. In the Pennsylvania case, there was no implication that the adult child was somehow at fault.
These developments in elder welfare come largely at the expense of working Americans, whose taxes also support entitlements to nonelderly.
Yet working Americans are not doing well:
- Unemployment is high.
- Workforce participation is low.
- Housing values have shrunk.
- Defined benefit retirement plans (pensions) are disappearing.
- Individual retirement accounts, while increasing in the years after the 2008 meltdown, are nowhere near enough to support future retirees at the standards of living enjoyed by so many seniors today.
- Millions of young people have lost the early years of saving for retirement due to under- or unemployment. The laws of compound interest imply it is practically impossible for young workers to make up those years of lost saving.
- Personal incomes are not rising, and for many, wages and salaries are lower than they were five years ago for similar work.
- Taxes are rising in many areas. Payroll taxes for people earning more than $113,700 may rise to help fund Social Security and the new health care law has already assessed several new taxes, with more to come.
Although some of the burdens outlined above fall on seniors, most fall on working people, that is, people considerably younger than current seniors.
The Wall Street Journal in a recent article describes the often-mentioned shrinking (or burdening) of the American middle class, which, I would argue, is largely our working class. The Journal mentions Aristotle who said societies with vibrant middle classes are stable. Paraphrasing Aristotle, “The wealthy tend to be arrogant and heedless; the economically insecure, resentful and destructive.”
Be Ready to Help
There is perhaps a growing awareness of the problem among workers. A just released study by Financial Finess, a firm dedicated to unbiased financial education, reports that employees are growing more aware of their financial vulnerabilities as they try to plan for their retirements, their children’s educations, and other responsibilities.
Further, among seniors I know, many help their children in major, ongoing ways, often to the detriment of the seniors themselves. Retired parents rescue children from divorce and abuse, support unemployed children who are in their forties and fifties, and raise their grandchildren when their own children/parents go missing from life. Seniors who are doing well—and there are millions—might take stock of the vulnerabilities within their own families and prepare themselves accordingly.
The United States may or may not rise above these difficult times, but no serious forecasters see an imminent revival for working America.