|Title:||United States median net worth by age of householder in dollars and percent change for 1984, 1995, 2002, and 2009|
Start of full article - but without data
Median Net Worth by Age of Householder (2010 dollars)
AGE 1984 1995 2002 2009 CHANGE (1984-2009)
All $XX,XXX $XX,XXX $XX,XXX $XX,XXX XX% XX and Younger XX,XXX XX,XXX X,XXX X,XXX -XX XX to XX XX,XXX XX,XXX XX,XXX XX,XXX -XX XX to XX XXX,XXX XX,XXX XX,XXX XXX,XXX -XX XX to XX XXX,XXX XXX,XXX XXX,XXX XXX,XXX XX XX and Older XXX,XXX XXX,XXX XXX,XXX XXX,XXX XX
Sources: Pew Research Center, U.S. Census Bureau
IN 1964 A YOUNG Bob Dylan released "The Times They Are a-Changin'," an anthem that defined what would shortly become known as "the generation gap." With a mix of sympathy and sneer--"Come mothers and fathers / Throughout the land / And don't criticize / What you can't understand / Your sons and your daughters / Are beyond your command / Your old road is / Rapidly agin'"--Dylan described an unbridgeable gulf in values, styles, and aspirations between the rising baby boomers, born between XXXX and 1964, and their elders, who had managed to survive the depredations of the Great Depression, World War II, and the swiveling hips of Elvis Presley.
Flash forward half a century, and the boomers who once sang along with Dylan have become the reactionary elders, clinging to their power and perks at the literal expense of everyone younger. There's a new generation gap opening up, one that threatens to tear apart the country every bit as much as past confrontations over war, free love, drugs, and sitar music. This fight is about old-age entitlements and whether the Me Generation will do what's right for the country and stop sucking up more and more money from their children and grandchildren.
Social Security and Medicare, which provide retirement and health insurance benefits for senior Americans, generally without regard to need, are funded by taxes on the relatively meager wages of younger Americans who will never enjoy anything close to the same benefits. From any serious fiscal or moral viewpoint, and particularly for the sake of helping those truly in need, Social Security and Medicare should be ended.
The demographic math is irrefutable: Entitlements are killing the safety net. They should be replaced with social welfare programs that cover all citizens, regardless of age, but only those who are too poor or incapacitated to take care of themselves. Focusing on those truly in need instead of automatically shoveling out larger and larger amounts to well-off senior citizens is the best way to avert looming fiscal catastrophe and restore some morality to an indefensible system.
Gourmet Cat Food
The entitlement state, whatever its intentions and past successes, is like a starter home that has been expanded and renovated so many times that it has no architectural coherence or structural integrity. The country has grown much wealthier and much grayer since the starter home was built. Whether the Patient Protection and Affordable Care Act (a.k.a. ObamaCare) supersedes Medicare or simply adds to its costs, publicly funded spending on retirement and elder care will skyrocket as baby boomers start retiring en masse.
But why should we spend increasing amounts of money--as a proportion of GDP, in absolute dollars, or as a percentage of government spending--on a group of people simply because of their age? To hear elected officials and representatives of the American Association of Retired Persons (AARP) tell it, Social Security and Medicare are the only reasons older Americans don't have to eat cat food or choose between prescription drugs and heating their homes.
"Without Social Security," Vice President Joe Biden asserted to a Florida crowd in March, "nearly half of American seniors ... would be struggling in poverty." Biden was merely channeling Lyndon Johnson's remarks at the original press event announcing the passage of Medicare. "No longer will older Americans be denied the healing miracle of modern medicine," LBJ said as he handed former President Harry Truman the very first Medicare card (Truman had "planted the seeds of compassion" during his unsuccessful attempt while president to create nationalized health care).
Johnson was equally quick to pitch the benefits of entitlements to the younger generation, whose anger over Vietnam would stop him from running for re-election in 1968: "No longer will young families see their own incomes, and their own hopes, eaten away simply because they are carrying out their deep moral obligations to their parents, and to their uncles, and their aunts." Getting kids off the hook remains an alleged selling point to this day. "Retirement is multigenerational," Biden said in his speech. "It matters to your children if you have a decent retirement. Every one of you--it matters to your children. Because if you don't, your children feel obliged to step up."
In a 1999 address to the National Education Association's Women's Equality Summit, then-First Lady Hillary Clinton was even more explicit in celebrating her own generation's freedom from the burdens of traditional caretaking responsibilities. "Were it not for Social Security, many of us would be supporting our parents," intoned the author of It Takes a Village.
"We would take them in; we would do what we needed to do to try to provide the resources they required to stay above poverty, to live as comfortably as we could afford. And that would cause a lot of difficult decisions in our lives, wouldn't it?"
This rhetoric about entitlements freeing the young ignores the fact that they are hit with the cost of supporting their elders in every paycheck. Furthermore, when repurposing lines first uttered a half-century ago, today's politicians are also ignoring some very good news: The oldest among us are in remarkably good shape compared to graybeards of previous generations.
Using consumption data, economists Bruce Meyer of the University of Chicago and James x. Sullivan of the University of Notre Dame have shown that people XX and older have much lower poverty rates than most other demographic groups and that these rates have fallen sharply over the past XX years. Writing for the New York Times website in November 2011, Meyer reminded us that "even over the past XX years, those XX and older with the lowest income are now living in bigger houses that are much more likely to be air conditioned and have appliances like a dishwasher and clothes dryer." Eighty-three percent of elderly households own a home, and XX percent own a car.
Seniors have more stuff and more wealth. According to 2010 combined data from XX federal agencies on population trends, economics, and health issues, seniors' average net worth as of 2007 had increased almost XX percent during the previous XX years. The same sort of improvement has not spread to all age groups. In fact, the data show that younger Americans are losing ground.
In 1984, reports the Pew Research Center, households headed by people XX or older had XX times the wealth of households headed by people under XX. By 2005--before the Great Recession hit--the gap had increased to XX times, and by 2009 it was XX times. In 2010, II percent of households headed by people XX or older were officially under the poverty line. For households headed by someone under XX years of age, the figure was XX percent. The last time younger households were less likely to be poor than elderly ones was back in 1983. Conditions for older Americans have improved remarkably since Social Security and Medicare were established.
That older households are wealthier than younger ones is not surprising, and it is no cause for concern in itself. Elderly Americans have had a lifetime to amass savings and assets and to earn money from interest and investments. By the time they reach XX, most Americans also have lower living expenses. The kids are out of the house, and the house is more likely to be paid off (or to cost less due to inflation). In their new book The Clash of Generations, economists Lawrence Kotlikoff and Scott Burns show the cost of living for households of different sizes and ages varies dramatically. The cost of living for a married couple with children ages X to XX is at least twice the cost for a retired couple. And these numbers underestimate the gap between retirees and married parents since they don't include expenses such as saving for college, orthodontic treatment, and vacation time.
This is not to say that some seniors aren't seriously struggling. But to assert that younger Americans benefit from having the government take money from their current wages and give it to their parents obfuscates obvious points about where that largess comes from--and whether it will exist when today's XX-, XX-, or XX-year-olds retire.
Given their failure to successfully pass a run-of-the-mill annual budget for the last three years, it's not surprising that Congress and the president lack the courage to confront the apocalyptic structural problems o fold-age entitlement programs. Social Security and Medicare together represented about XX percent of total federal outlays in fiscal year 2011, according the Congressional Budget Office. In 2020, absent the sort of changes routinely dismissed by members of both parties as grotesquely inhumane and politically impossible, that figure will jump to XX percent. Based on current trends, the two old-age entitlements will account for half of all federal outlays by XXXX.
Social Security's various trust funds, according to its own trustees, will be depleted of all reserves by XXXX and won't be able to take in anywhere near enough cash to pay its obligations. Medicare's major trust fund, which covers hospital benefits, is scheduled to run dry in 2024. In addition, both programs already contribute to the deficit due to massive borrowing that will only get bigger and more expensive. Contrary to common belief, the various trust funds for Social Security and Medicare aren't filled with gold coins or even the money collected from taxpayers over the years. Instead, they are filled with IOUs or promises by the government to pay back whatever has been taken. By law, the trillions of dollars in taxes collected above what was needed to pay for benefits has been invested since the 'XXs in interest-bearing government securities. Of course, the federal government doesn't have that money anymore because it's been spent on defense, stimulus, education, green jobs, and more. Yet the trust funds are not purely an accounting fiction, as is widely claimed; they are actual assets that the government has borrowed against and, as such, represent liabilities.
These programs, then, are the very definition of unsustainable. They pay out more than they take in and cannot exist without constant tweaks, fixes, and adjustments--all of which point toward a future of higher taxes for workers and smaller or nonexistent benefits for retirees.
Yet when leading politicians deign to mention Social Security and Medicare, it's never to seriously confront their disastrous trajectories, but rather to guarantee the programs' survival while impugning the barbarous motives of their electoral rivals. Presumptive GOP presidential candidate Mitt Romney--routinely assailed by Democrats as a heartless plutocrat who will turn old people out in the streets--stresses that Medicare is sacrosanct and blasts President Barack Obama for "taking a series of steps that end Medicare as we know it."
Social Security was created in XXXX as a way of supporting Americans in their old age. The first checks were cut in XXXX. The program is widely regarded as the signature achievement of the New Deal. Conservatives such as Barry Goldwater and Ronald Reagan groused about Social Security throughout the 1950s and early 'XXs. During his famous 1964 nominating speech for Goldwater, Reagan asked, "Can't we introduce voluntary features that would permit a citizen to do better on his own? ... We are against forcing all citizens, regardless of need, into a compulsory government program."
Yet by the 1980s, President Reagan called preserving "the integrity of the Social Security system" the "highest priority of my administration." In an era of bitter partisanship and division, "one point that has won universal agreement," Reagan declared, was that the entitlement "must be preserved." He tweaked the system by increasing payroll taxes and slightly increasing the age at which benefits would kick in for people currently paying into the system. He left the benefits of current retirees untouched.
Medicare, which subsidizes health care for the elderly, joined Social Security in 1966 as the nation's other entitlement specifically for seniors. Both programs have changed substantially over the decades, covering ever more types of people and conditions and expanding in cost and scope beyond the wildest imagination of their initial backers. When Medicare started, its supporters estimated that the program would cost $XX billion in inflation-adjusted dollars in 1990. The actual inflation-adjusted price tag came to $XXX billion.
The two programs share a technical problem: There is no way to reliably pay for them as they currently exist. The taxes--and the people who will generate those taxes--aren't there now, and there is no reason to believe they will magically appear anytime during the next half-century. Social Security is already in cash-flow deficit, meaning current taxes are not enough to cover current payouts. Each month the accounting surplus built up over years past, held as government securities, is drained a bit more. The payroll taxes earmarked for Medicare (X.XX percent of wages collected on both the employee and employer side), together with the premiums and state transfers, never fully covered the program's costs even before the massive, unfunded expansion to cover prescription drugs enacted in 2003 under President George W. Bush.
But as serious as the two programs' fiscal flaws may be, the more basic problem is ethical. When Reagan negotiated what he called "a new lease on life" for Social Security in the early 1980s, he said the reforms would guarantee nothing less than the "present and future well-being of every man, woman, and child in America, and generations yet unborn." That's not only gross political overstatement. It fudged all questions about whether living children and "generations yet unborn" should during their leanest years as workers be forced to pay for a system that Reagan himself had assailed just two decades earlier.
The Myth of Mandatory Spending
Social Security and Medicare are part of what's called "mandatory spending," or federal spending that is automatically continued under current law without the need for annual reauthorization. Social Security, Medicare, and Medicaid, which provides health insurance for the poor, comprise by far the largest portion of mandatory spending in the budget; other items in the mandatory category include federal retirement funds, food stamps, veterans' benefits, and the earned income and child tax credits. The other major category in the federal budget, known as "discretionary spending," incudes items such as homeland security, most military spending, farm subsidies, and aid to schools. Discretionary spending is what gets haggled over in annual budget negotiations. In 2011, mandatory spending accounted for XX percent of total outlays while discretionary spending accounted for about XX percent. The remaining X percent of outlays is mostly net interest.
But the terms mandatory and discretionary are misleading at best and mendacious at worst, as all spending is open to negotiation, to increases and cuts. If President Obama is at all serious when he repeatedly describes the government's fiscal trajectory as "unsustainable," addressing old-age entitlements must be part of any attempt to reduce expenditures.
In 2011, according to the Congressional Budget Office, the country spent $XXX billion on Social Security, the single largest spending item of the year. The Social Security Administration says it will give checks to over XX million Americans in 2012. While recipients include some dependent children and disabled workers, the largest bloc (XX million) is retirees. Retirees receive an average of $X,XXX per month, with a maximum benefit of $X,XXX.
Medicare is health insurance for all people who are XX years or older, along with a subset of younger people who suffer from dialysis-requiring kidney failure and a few other disabilities. The program costs $XXX billion a year and serves around XX million people. Medicare benefits break down into four distinct parts.
Part A, "hospital insurance," covers in-patient stays in medical facilities (including nursing homes and some home care) and generally does not require any sort of premium payment from beneficiaries. Part B is "medical insurance," designed to replace coverage that seniors used to get through their jobs. Recipients pay a premium that ranges from $XX a month for individuals with adjusted gross incomes under $XX,XXX (XX percent of all recipients) to $XXX for those pulling in $XXX,XXX or more. Part C is a voluntary program, also known as Medicare Advantage, in which beneficiaries enroll with government-certified private insurers who in exchange for a flat monthly fee from the feds provide the same coverage as Parts A and B, typically throwing in extras not covered by standard Medicare, such as vision, hearing, and dental programs. Depending on various factors (such as whether the operator runs a health maintenance organization or a preferred provider organization, whether the insured wants drug coverage or no deductibles, etc.), Medicare Advantage may charge fees on top of the basic premium. Finally, Medicare Part D, which took effect in 2006 under legislation passed as part of the Medicare Modernization Act in 2003, covers prescription drugs. Premiums for drug coverage, which has a mandated annual deductible of $XXX, start around $XX a month and vary based on the patient's income, needs, and preferences regarding deductibles vs. co-payments.
When Social Security first started cutting checks, America was still in the throes of the Great Depression. Retirement was a rare and wonderful thing, as most people worked pretty much until the day they died (the average life expectancy at birth was XX.X years in XXXX; XX.X years in 1950s; and XX.X years in 2009). When Medicare was created, seniors were more likely than the average American to be poor. Although neither of those things is true anymore, spending as a percentage of federal outlays on both programs continues to grow and shows no signs of slowing down.
Because it is on automatic pilot, spending on entitlements can grow without political consequence or fiscal conscience. Between 1975 and 2000, spending on all entitlements grew at an average annual rate of X.XX percent, while annual GDP growth was X.XX percent. Then the ratio really started to deteriorate: Between 2000 and 2010, entitlement spending grew X.X percent a year while the economy managed just X.XX percent. The Great Recession has added a bit to that disparity (Medicaid rolls tend to swell during downturns), but it's far from the whole story. The aging of the population and the expansion of Medicare to include prescription drug coverage--at a cost of $XXX billion from 2006 through the end of 2011--are the major reasons entitlements grow faster than the economy. And given that the oldest baby boomers are turning just XX this year, we haven't seen anything yet.
Social Security and Medicare are paid for through a combination of specifically earmarked payroll taxes, general tax revenue, and borrowing. Under the Federal Insurance Contributions Act (FICA), most workers pay X.X percent of their earned income in taxes earmarked for Social Security payouts to current beneficiaries (a rate that has been temporarily reduced to X.X percent as a means of "stimulating" the economy). Employers kick in another X.X percent to the same fund. Over the years, the amount of gross wages subject to the Social Security tax has been adjusted upward; in 2012 it maxes out at $XXX,XXX. FICA alSO levies a tax of X.X percent (split equally between employee and employer) to cover a portion of Medicare. The Medicare tax is not subject to a regular compensation limit and is applied to every dollar of wages.
Theoretically, total contributions to Social Security are designed to cover the full cost of the program. That is, the usual amount of XX.X percent in payroll taxes paid by workers and employers should provide enough revenue to pay for current and future outlays. Historically, Social Security has had far more people paying into the system than drawing funds from it, so the program amassed a surplus in its trust funds that since 1983 has been automatically invested in a mix of short-term and long-term government securities. But those favorable demographics have changed dramatically.
In XXXX there were XXX workers for each beneficiary. Today there are few than three. Last fall Mitt Romney, whom the Obama administration accuses of wanting to "dismantle" old-age entitlements, attacked Texas Gov. Rick Perry during a Republican presidential debate for calling Social Security "a Ponzi scheme," a scam in which current investors are paid profits from new investors, not out of actual returns. "The term Ponzi scheme is over the top, unnecessary, and frightening to many people," Romney said. That may all be true, but it doesn't change the reality that current workers are indeed paying for current retirees, not for their future selves, which means that as the number of contributors falls, payouts cannot continue at the same rate. The only options are to reduce benefits, increase contributions, or some combination of both.
While life spans have increased and birth rates have decreased, Social Security's revenue has not been able to keep pace. In 2010 Social Security entered into a permanent cash-flow deficit, meaning annual payroll tax revenue is no longer sufficient to cover annual benefits. (The last time this occurred was in the early 1980s, when Congress responded by gradually raising payroll taxes and the eligibility age.) For now, benefits therefore must be partially covered by interest income from the assets in the trust funds. After 2021, Social Security will have to cash in the trust fund assets--currently around $X.X trillion--to pay full benefits until the trust fund is exhausted.
In 2011, according to the most recent report from the Social Security trustees, released in April, Social Security raised $XXX billion from payroll taxes and general revenue while paying out $XXX billion in retirement benefits. The $XX billion shortfall was covered by money in the plan's various trust funds. The Trustees' Report projects that at current tax rates and benefits levels the trust funds will be completely exhausted by XXXX. That's three years earlier than the projections made in 2011 and seven years earlier than projections from 2006. The day of financial reckoning is approaching with accelerating speed. And that situation hasn't been helped by the temporary two-percentage-point cut in payroll taxes Congress enacted in December 2010 to let Americans keep more of their money during the economic downturn, since Congress refused to offset the reduced revenue with benefit cuts.