Filed under: Other issues, Bad news, Personal finance, Politics
USA Today reports that at age 62, America’s first baby boomer opted into Social Security today. The question for America is whether the 80 million people born between 1946 and 1964 will bankrupt Social Security by the time all of them are receiving their payments.
The caseload for so-called entitlements — Social Security and Medicare — is going to explode in the next 23 years. By 2030, Social Security’s caseload will be 84 million people, up from 50 million today. Medicare will go from 44 million beneficiaries to 79 million. That will leave about two workers paying payroll taxes for every retiree. The tab is estimated at $50 trillion in future obligations over the next 75 years. Social Security will rise from 4% to 6% of the GDP, and Medicare will go from 3% to 11%.
The options are not good. Fixing Social Security solely with higher taxes or cuts in spending would mean a 16% increase in the payroll tax or a 13% cut in benefits. Medicare’s needs would be far greater: a 122% payroll tax hike or a 51% reduction in spending, just for hospital care. Unfortunately, the longer we wait to fix the problem, the more it will cost.
However, if history is any guide, we’ll wait until a crisis before we find the will to act. And that crisis will fall on the shoulders of the baby boomers’ children and grandchildren — not much of a legacy.
Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.
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