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Growing Group of Seniors to Impact Social Security

May 25, 2005 at 12:00 AM EDT
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GWEN IFILL: Now, the graying of America and other countries. As the government continues to debate Social Security, there is no debate over these facts: The population over 65 will grow, and fast, for decades to come. Right now, the fastest growing age group in America is people over 85. Ray Suarez looks at what this all means.

RAY SUAREZ: What are the economic, policy and cultural implications of the graying of America and the world? For that we turn to: Nicholas Eberstadt, a scholar at the American Enterprise Institute; Marc Freedman, president and CEO of Civic Ventures, a nonprofit organization that works to expand the contributions of older Americans to society; and Courtney Coile, an associate professor of economics at Wellesley College. She’s also editor of the National Bureau of Economics Research Bulletin on Aging and Health.

And, Professor Coile, maybe we could start with you. There’s been so much attention paid in recent weeks as to the way that society is going to be differently composed in the coming years. Certainly, part of the Social Security battle has concentrated on that. Give us some numbers, some reference points so we can understand just what kind of demographic wave is about to break.

COURTNEY COILE: Sure, well, Social Security is a great place to start. As far as the simple demographics, one of the easiest ways to understand how much grayer we’re going to be is to realize that by the year 2030, the United States is going to be more gray than Florida is now. So we’re certainty looking at a large increase in our older population.

And I wanted to start with Social Security in particular because it is an issue that’s so much in the news. The way that the Social Security program is financed, as you probably know, it’s a pay-as- you-go system, meaning that today’s tax revenues are not saved to pay for workers’ own retirements but are used immediately to finance the benefits of their parents and grandparents.

And the reason that’s important is because the ratio of the workers to beneficiaries becomes very important in such a system. When there are fewer workers to support each beneficiary, it becomes difficult to pay the benefits that have been promised under current law.

For the past 30 years, the ratio of workers to beneficiaries has been relatively — has been actually completely flat: 3.3 workers to support every one beneficiary. Over the next 30 years, though, that ratio is going to fall to only two workers to support each beneficiary, and that’s going to put a lot of stress on the system. That’s really one of the primary causes of the financial crisis in Social Security you hear so much about.

RAY SUAREZ: Did younger generations stop having as many children? Is that contributing to a smaller youth cohort at the time when the baby boom is going to be a very large group of elderly?

COURTNEY COILE: Right, good question. So there’s actually three factors driving that drop in the worker-to-beneficiary ratio from three point three down to two. One of them, which you mentioned, is falling birth rates. The aging — or rather the fact that the baby boomers are going to be reaching retirement age is a second factor that’s important.

The first boomers will start claiming Social Security benefits in 2008. And then every year thereafter, more and more boomers will go on the rolls. But if it was only the aging of the boomers, then that ratio I mentioned would only take a temporary dip and then would come back up. And it’s going to stay flat at two for quite some time. That’s what’s projected, at any rate.

And that reflects the importance of a third factor, which is increasing life expectancies. Just since Social Security was enacted back in 1935, life expectancy at age 65 has increased by five years.

So we’re living longer, and we’re claiming Social Security benefits for many more years than was envisioned when the program started. And that trend is expected to continue. So it’s really those three factors together: Falling birth rates; the bubble of the baby boom population; and rising life expectancies, that are putting stress on Social Security and other public programs.

RAY SUAREZ: Well, Marc Freedman, if those numbers come true in the 2040s, 2050s, 2060s, besides the mere fact that America will be an older society, how will that necessarily mean that America will be a different kind of place to live in?

MARC FREEDMAN: Well, as Professor Coile points out, the numbers are changing dramatically, but so is the nature of later life in this country. We’ve got tens of millions of people who are coming up to a period where they’re neither young nor old.

They can look out ahead to a period of health and well-being, in most cases as long as midlife in duration, and they might want to pause for a while, but then they’re embarking on what really is the creation of a new stage of life. That’s something of historic significance. We do that about once a century his country.

In the early part of the century, we had millions of people who were neither children nor adults, and we invented adolescence, which is proof of the significance, once you invent these things, you have to live with them. And this segment of the population is, I think in many ways, transforming the old dream, which was the freedom from work, to one which is closer to the freedom to work. They’re launching not only a new stage of life, but a new stage of work.

RAY SUAREZ: Well, is the change under way, Nick Eberstadt, very different from what we’re seeing in other wealthy developed democracies across world?

NICHOLAS EBERSTADT: It’s different in the United States in that our pace of aging is slower. And the arithmetic of population aging, paradoxically enough, works like this: Aging isn’t driven so much by improvements in life expectancy — drops in mortality — as it is by birth rates. And our fertility level — U.S. fertility level being more or less at the replacement rate — is considerably higher than the fertility levels in almost any other developed OECD society.

And in addition, of course, we also have large inflows of rather youthful immigrants into our country. What that means is that while we are aging, our pace of aging is rather slower than any place else in the OECD. And, in fact, in twenty or thirty years, the United States is probably going to be a more youthful society than a lot of low-income places, places like China, places like Russia, that are going to have to deal with an aging burden on dramatically lower income levels.

RAY SUAREZ: Well, how is the profile different? How are the particular cases different in some of those countries you mentioned, countries that are going to get older without even being rich?

NICHOLAS EBERSTADT: Well, China and Russia both afford rather dramatic examples. Because of China’s population-control program and its sub-replacement fertility, China’s age profile is really hurtling towards grayness at this point. China’s median age, the age at which the 50th percentile person is half over, half younger, is going to be close to 40 years by 2025.

The United States is projected to have a slightly lower median age in 2025 than China will have at that time. And a lot of the aging that’s taking place in China is not taking place in resplendent spots like Shanghai or industrialized Beijing. It’s taking place in spots in the rural countryside that are still desperately poor and are going to be very poor in 2025 under any imaginable scenario.

Russia has got an alternative situation. Russia has an aging population with the burden of very unhealthy aging. As has already been mentioned, improvements in health mean our older population is going to be more capable– more capable, among other things, of economic contributions in later ages of life.

In Russia today, a 20-year-old has less than even odds of making it to 65, and the scenario does not look that much better a decade or so out. And that just suggests the enormous burden of disease and productively-reducing disabilities that the Russian population faces, in addition to this urging– this aging burden.

RAY SUAREZ: Professor Coile, does that inevitably mean that the politics of dividing the pie is going to become more generation conscious, more age conscious?

COURTNEY COILE: I think so. I’ve already described how Social Security is a pay-as-you- go system, and that creates frictions when one generation is paying for the benefits of another generation. I think we can see the same issue, potentially, with Medicare. Medicare also works that way, that current workers pay most of the freight of benefits for today’s Medicare beneficiaries. Medicare beneficiaries do pay a little bit towards their Medicare Part B, the doctors’ visits parts of Medicare.

But the costs for Medicare are projected to rise even more quickly than those for Social Security. Not only do you have the demographics going on, but you also have rapidly increasing health care costs and a new prescription drug benefit that we’ve just added to Medicare. Just to give you a sense, the Medicare Trust Fund is due to go bankrupt two decades sooner than the Social Security Trust Fund and the increases in Medicare spending over the next 75 years are projected to be five times greater than those in Social Security.

If you look out to 2075, and you put Social Security and Medicare together, we’re projected to be spending one-fifth of our national income on those two programs. I don’t think that’s a sustainable outcome. And so you may, indeed, see conflict between the generations where those people who have paid into these programs and expect to receive them naturally will want them to continue. Workers may balk at the additional tax revenues that will be needed to maintain these programs at their current levels.

RAY SUAREZ: Marc Freedman, so far we’ve talked about these demographic trends as being burdens, costs, difficulties, challenges. Are there any benefits that come from reexamining those years that you were talking about between the 50 and 75 and maybe looking at them as a benefit as well as a cost?

MARC FREEDMAN: It seems like the only thing that liberals and conservatives and Democrats and Republicans seem to be able to agree about in recent years is that the aging of America is the worst thing that ever happened to us. It’s this long gray wave of greedy geezers is going to take America to the cleaners, bankrupting posterity, and I don’t want to be a Pollyanna because there are, obviously, as we’ve heard, serious and significant problems that need to be addressed.

But in a way, the only way we’re going to be able to ride out these challenges is to take advantage of the great opportunity present in the aging society, that in many ways this is not only the healthiest, best-educated, longest-lived population in the nation’s history, but one which is looking for engagement for a new role, to live a life that still matters.

And I think there are opportunities to bring that impulse together with some of the significant human resource shortages in society, not only in the private sector but in areas like education, health care, the social services, where there’s much concern about where we’re going to find the human beings to do those things that only human beings can do.

RAY SUAREZ: Well, Nicholas Eberstadt, when you look around the world, are there countries that are ahead of us in this trend that are showing the United States possibly the way to cope with some of these changes or some things not to do?

NICHOLAS EBERSTADT: I’m afraid we’ve got more negative examples than positive examples on the horizon. We can take a look at OECD Europe, and by and large, western affluent Europe, which is aging more rapidly than us, is akin to the proverbial deer caught in the spotlight.

Policy-makers know that the arrangements are unsustainable, but they are doing precious little to change them and make their arrangements more workable. The same is true in Japan. On the other side of the ledger, looking at the poor countries, the government of China is well aware of their impending aging problem.

But they’ve done very little except talk about rearranging arrangements for a national pension system. I mean, whatever one may say about the difficulties of aging and the economic burdens that an aging society may bring, the United States seems to have it a lot better and a lot easier than most of the countries rich or poor that we that we could compare ourselves to over the next generation.

RAY SUAREZ: Nicholas Eberstadt, Professor Coile, Marc Freedman, guests, thank you all.

NICHOLAS EBERSTADT: Thanks a lot.

MARC FREEDMAN: Thank you.

COURTNEY COILE: Thank you.