Cloudy Future For Retirees

About 77 million children were born between 1946 and 1964. At Woodstock years later, some danced and others skinny-dipped.

But in four short years, those kids, who are now adults, will start collecting Social Security.

It may seem like it's hyperbolic to say there is a huge storm coming. But, CBS News Correspondent Joie Chen explains, the facts are really irrefutable.

Economist Lawrence Kotlikoff says "Baby Boomers" will hit the Social Security system the way a giant wave hit the boat Andrea Gale in the movie "The Perfect Storm."

"The entire country is getting older," says Kotlikoff. "In 30 years, we're going to have 100 percent more old people, and only 18 percent more young people to pay their benefits."

Chairman of Boston University's Economics Department, Kotlikoff co-authored "The Coming Generational Storm."

"In 30 years, the entire country is going to be older than Florida is today," explains Kotlikoff. "In 50 years, we're going to have enough people over 100 to fill up Washington, D.C. We'll have enough people over 85 to fill up New York City, Los Angeles, Chicago, Houston and a couple of major other cities. We're talking about very, very old."

To understand the coming generational storm ,one can look at Ida May Fuller. She had the very first Social Security check ever issued -- $22.54 in 1940. It was a good deal. She lived to be 100, and Fuller collected $22,000 dollars more in benefits than she paid in taxes.

But in 1940, there were 42 workers paying into the system for every Ida May Fuller -- every retiree -- taking money out. Not any more!

By 1950, there were only 16. Today, there are barely three. And in 2030, when most "Boomers" are retired, it will be down to two.

Also, retirees are living longer. In 1940, life expectancy was in the 60s. Today, it's in the 70s and soon will be approaching 80.

Add it all up and the United States has a problem. In 14 years, Social Security will begin running at a deficit. By 2042, the shortage will cause an automatic 27 percent cut in benefits. In about 70 years, Social Security could be short $24 trillion.

"Unless we readily handle these problems now, we're looking at the possibility of a lot of very poor old people," says economist Lawrence Kotlikoff. "A lot of people are going to show up in old age thinking they're going to live pretty well on their Social Security system benefits, on their Medicare benefits, and their Medicaid benefits. But when they see those benefits slashed, they're going to go from comfortable to uncomfortable. From out of poverty to, potentially, in poverty."

Looking to the future, Federal Reserve Board's Alan Greenspan said in a report, "Our problem essentially is we have been making commitments without focusing on our capability of meeting them."

Hart McIntyre says, "It's something you put money into, and you look at your check every week and you go: 'Hey, I'm putting money into this. It's mine. When do I ever get it back? Am I going to get it back?'"

Hart and Phyllis McIntyre are both in their late 40s -- the heart of the "Baby Boom." They live in Parkland, Fla. He owns a small company. She's a schoolteacher. They have three children. And, they're saving on their own for retirement.

"We look at Social Security as something that will be sort of icing on the cake," says Hart McIntyre. "To depend on Social Security, we don't think that will meet the lifestyle we want to live as we move into retirement."

To pay for those Social Security checks, Chairman Greenspan has two ideas: raise the retirement age or cut the annual cost-of-living adjustment.

We're in the midst of raising the age [of retirement] from 65 to 67," says David Certner, director of Federal Affairs for the AARP.

Certner says the decision to raise the retirement age to 67 for everyone born after 1959 was made in 1983 by a commission chaired by Alan Greenspan. The director says America shouldn't go back to the same well for more money.

"A lot of people just don't have the physical or health ability to continue to work," says Certner. "It's a lot different if you're working in a nice office behind a computer or you're really out doing … real hard labor."

Certner also says any cut in benefits could push a lot of seniors into poverty.

"Unfortunately today we have about one out of three retirees who basically have most or all of their income coming from Social Security," says Certner. "That will get you above the poverty level, but not much more."

What are the options? One is to raise the amount workers pay in to the system.

Back in 1940, workers paid 1 percent of their salaries into Social Security, up to $3,000.

Over the years, the tax has gone up. Each worker now pays 6.2 percent, up to about $89,000. Employers pay an additional 6.2 percent for each worker. AARP favors raising that -- arguing the hit would be felt mostly by the most well-off.

That idea does not sit well with Phyllis McInytyre: "I think, probably in general, people would say, 'Why should I put more in if I'm not even guaranteed I'm going get what I have now.'

"The more and more you change Social Security to increase taxes on one class of people, and provide greater benefits to another class of people when those payments and benefits are not linked, it does, at its core, change to a welfare program and not a public pension program."

Derrick Max agrees.

"There's a lack of moral consideration for the worker by talking, 'just raise taxes,'" says Max. "I think the same lack of moral consideration for the retiree is to say 'Just live on $200 or less.'"

Max is the executive Alliance for Worker Retirement Security, a group funded mostly by the National Association of Manufacturers -- big business.

He supports letting workers invest part of their Social Security taxes. In short, let the market and not the government get the extra money for the "Boomers."

"We have to say if we're going to choose private accounts, you have to put X percent of your income into that account, and you can't touch it until you retire," says Max.

President Bush favors that approach.

"In the 2000 campaign, I articulated a point of view that we ought to have personal saving accounts for younger workers that would make sure those younger workers receive benefits equal to or greater than that which is expected," Bush announced in a past speech.

AARP thinks that's a bad idea.

"You're just going to be substituting a risk-related system for a guaranteed system," Certner says.

Like many "Baby Boomers" with 401Ks and IRAs, the McIntyres like the idea.

"I'd rather have the option of taking money and putting it into other types of investments rather than putting it into Social Security," says McIntyre. "We're taxed enough as it is. We're taxed too much."

Some analysts actually suggest radically changing the entire Social Security system.

"The Social Security system has become the middle-aged retirement system," says Eugene Stuerle, a former Deputy Assistant Secretary at the Treasury.

Stuerle points out that Social Security was begun during the Depression to help the elderly, half of whom were living in poverty.

"We've largely succeeded in giving fairly good health and many years of retirement to an elderly population," Stuerle says. "It now turns out that we have other needs of society, such as children who are generally poorer than the elderly population."

He's right. More than 16 percent of those under 18 currently live in poverty, compared to about 10 percent of the elderly.

"The issue is not whether we get Social Security benefits," says Stuerle. "It's the level of benefits we're entitled to."

If you retired in 1970, you could expect about $300,000 in lifetime retirement benefits, including Medicare. In the year 2000, it was $650,000. By 2030, it will be more than a million dollars.

Currently, children are the poor parts of our population. And so the question arises, shouldn't Americans be putting more money to children and perhaps a little less to the elderly?

A story about older Americans takes on a different perspective when it's looked at from the eyes of those who will have to pay for the Boomers -- today's kids.

There are fewer of them because the Boomers had fewer children. Time spent climbing the corporate ladder, along with high rates of divorce, cut down the time to have that second or third baby. Lawrence Kotlikoff, the Jeremiah who worried about who was going to support future of retirees, says some government economists predict if you add in Medicare, the coming shortage is even worse.

"And you ask, 'How much money today would you need in order to cover what's coming?' The answer, according to these economists, is that you need $51 trillion," says Kotlikoff.

That's four times the current gross national product.

"If we current adults don't accept a higher tax liability or accept lower expenditures on our behalf, we're going to try to dump the entire problem into the laps of our kids," says Kotlikoff. "That's not really possible for the kids to handle, because it would require doubling their lifetime taxes, compared to what we're facing."

No one suggests the checks of current or soon-to-be retirees are in jeopardy. So, David Certner of AARP says he doesn't expect it to be a burning issue in the presidential election.

"It's a political year. People don't want to deliver bad news to people," says Certner. "There is no consensus right now about what is to be done for Social Security."

But there is the knowledge, the longer we wait, the worse it will be. To paraphrase an old television commercial: "You can pay me now, or you can pay me later."

"This is, fiscally speaking, the equivalent of our fighting World War II," says Kotlikoff. "I don't think people quite get that, but that's the fact."
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