For the third straight year the U.S. deficit will exceed $1 trillion, with an incredible 58 percent of federal spending going to entitlement programs in fiscal year 2010. Of that, Social Security ate up $707 billion, or 20 percent; Medicare and Medicaid took $742 billion, or 22 percent; and unemployment insurance and other entitlements finished it off at $553 billion, or 16 percent.
But with the aging population in this country having become the structural driver of the deficit crisis, it’s high time we look at what the future will hold for younger generations – who will be caught between obligations toward their parents and aspirations for their own future. A recent study from Siena College Research Institute and eRollver dramatically highlights this dilemma, given the profound shifts occurring in our country, both socially and economically.
According to the Siena Survey, Generation X is not saving for retirement. This generation is financially illiterate, and they have little hope of maintaining their current lifestyle as they age. Gen-Xers grew up in an America where their elders (today’s boomers) had private and public instruments for retirement. GenXers might reasonably enough have assumed that pensions, Social Security and Medicare would be there for them as they aged. But this new survey demonstrates that a new generation of adults who know they’re unprepared for retirement have no idea what to do about it.
The Siena study shows that less than 30 percent have an organized plan for retirement, and only 15 percent of those surveyed have incomes greater than their expenses. In addition, 40 percent report that they’re worse off financially now than they were a year ago; less than 50 percent have a 401(k), and fewer than 20 percent regularly see a financial advisor. And we now know that there is precious little confidence the public systems of their parents will come to their rescue: A whopping 71 percent think it is “likely” that Social Security will go bankrupt in the next two decades, and almost half believe that their “quality of life in retirement will be worse than that of those that retired 15 to 20 years ago.”
Won’t this get even worse into mid-century, as we all live longer, comprising an ever greater share of the traditional work-retirement equation? As today’s boomers kick in for Social Security, Medicare and other entitlements, it is Generation X that will be asked to foot the bill. The working age population must support unfunded entitlement programs; yet they’ll be too preoccupied paying for the retirement of their parents’ generation than saving for their own.
Unless, of course, two profound shifts begin to happen. The first would be a genuine redesign of the entitlements instruments, which were created during a different demographic reality. And second: Boomers must continue to be part of this country’s economic life. Our challenge is to turn the nation’s deficit wake-up call into a driver for longer term structural reforms.