The nest-egg myth

As the debate over the federal deficit heats up, Americans are going to hear a great deal about “greedy geezers” who are supposedly bankrupting the nation with Social Security and Medicare. Politicians will no doubt be more circumspect than former Wyoming Sen. Alan Simpson, who, as the Republican co-chairman of the federal deficit commission, described Social Security as a “milk cow with 310 million tits.”

The myth underlying these attacks (including Simpson’s misogynist bovine metaphor) is that most old people don’t need their entitlements — that they are affluent pickpockets fleecing younger Americans.

This image of prosperous geezers and crones is just not accurate. The notion of an aging population well prepared to take care of itself — not only in its relatively healthy 60s and 70s, classified by sociologists as the “young old,” but throughout the “old old” 80s and 90s — is a delusion that threatens to undo 75 years of social progress that began when President Franklin D. Roosevelt signed the Social Security Act in 1935.

No generation stands to lose more from this fantasy than baby boomers, whose oldest members turn 65 this year. Because of financial losses in what will surely be known to history as the Crash of 2008, many boomers — especially older ones with less time to recover — may enter retirement in a worse financial position than their parents. According to a report by the Center for Economic and Policy Research, a liberal Washington think tank, households headed by boomers between the ages of 55 and 65 lost about half of their wealth between 2004 and 2009 as a result of the real estate collapse and the shrinkage of 401(k) retirement accounts. Americans at the lower end of the socioeconomic scale were the hardest hit, because for most lower- and middle-income families, their homes were their only assets.

Furthermore, only half of working Americans — the wealthier half with employers that match contributions — even have tax-sheltered retirement accounts. The average value of these accounts, by the way, was only about $45,500 before the crash — hardly a lavish retirement nest egg for boomers expected to live beyond 85 in unprecedented numbers. In just 20 years, the over-85 population is expected to number more than 8.5 million.

The archetype of the greedy geezer is based partly on a misconception about today’s oldest Americans: the World War II generation. The frequently repeated statistic that 75% of all assets are owned by people over 65 is utterly misleading, because those assets are held in a minority of very rich hands. Nearly half of older Americans receive no income — none — from assets such as stocks and savings accounts. Of those who do, half receive less than $2,000 a year.

Three-fourths of those over 65, according to a report by the nonpartisan Congressional Research Service, have annual incomes, including Social Security, of less than $34,000. Furthermore, household income drops precipitously with every decade, and most of the poor in their 80s and 90s are women, who — unless their husbands possessed vast wealth — are very likely to become poorer when they are widowed.

It has long been assumed that boomer women will be in a better economic position than their mothers, because more of them held paying jobs. But that assumption may be a fallacy, given the disappearance of traditional fixed pensions during the last three decades and the interrupted job history of many working mothers, which reduces Social Security income.

One major obstacle to realistic government and individual planning is incessant propaganda, much of it dispensed by boomers themselves, claiming that we are on the threshold of a “new old age” radically different from old age in previous generations. This spirit was embodied by a panel on aging, titled “90 Is the New 50,” at the 2008 World Science Festival held in New York City.

In the “forever young” fantasy, boomers will be immune to the worst vicissitudes of old age thanks to medical breakthroughs and their own clean-living habits. The truth: Half of Americans who live beyond 85 will suffer from dementia, of which Alzheimer’s is the leading cause, and half will spend time in a nursing home before they die. One can always hope, as I do, for medical breakthroughs to treat the worst scourges of old age — especially Alzheimer’s — but they are more likely to arrive in time for the children or grandchildren of the boomers than for adults already in their 50s and 60s.

Furthermore, hope is not a plan of action. The saving of Social Security and Medicare for the boomer generation — and generations to follow — will require nothing less than a reworking of the intergenerational contract on which these programs were based. We now have a system (regardless of the ultimate fate of the decidedly modest healthcare reform law in the courts) in which people under 65 spend ever-increasing sums on private health insurance and only the old enjoy government-financed care. At the height of the debate in 2009, a national poll showed that two-thirds of Americans over 65 opposed universal healthcare — except for themselves.

This does sound like greedy geezers talking, but I suspect that it was fear speaking — the fear that better healthcare for younger Americans would mean worse care for the old. What’s wrong is not that the old have too much access to healthcare but that the young have too little.

The post-1935 intergenerational social contract, which depends on the willingness of young workers to pay for the dependent old, may crumble in the next 20 years unless the healthcare needs of young Americans are also addressed. Reworking the contract, and the programs that depend on it, will require aging boomers to recognize the financial stresses of younger workers, and the young to tell mean-spirited public figures like Simpson that Social Security is not a luxury but a permanent responsibility for all Americans of all generations.

Finally, a decent old age requires more than healthcare. Both higher taxes and more personal saving will be needed to support longer lives, however unacceptable that dual reality may be to political purveyors of unreason. If we are not going to kill Granny, we must support many more boomer Grannies. Or we can numb our brains with the delusion that 90 really will become the new 50 and that boomers will be able to work (and shop) till they drop.

Then we can just do nothing until time runs out and the reduction of poverty among the old — one of the great accomplishments of America’s 20th century — is undone by our feckless fantasies.

Susan Jacoby is the author of “Never Say Die: The Myth and Marketing of the New Old Age.”