For decades, the media and the experts they quoted warned that Baby Boomers weren’t saving enough for a comfortable retirement.
Thousands of stories expounded on the inadequacy of private-sector retirement plans and of the government policies regulating them. Policymakers urged expanding public welfare programs to meet the impending disaster: a massive generation retiring without an adequate safety net.
Otherwise, the bleak future for many Boomers, one headline predicted, would be “Work, Work, Work and Die.”
And then the coverage changed dramatically. Now, not a week goes by without some story declaring that retiring Boomers constitute one of the richest generations in history.
They’re now dubbed “The Luckiest Generation,” sitting on a staggering $78 trillion in assets that even a dour media can’t ignore.
But future generations — the media tell us — are facing a retirement crisis.
The inconvenient truth: The system predicted to fail so spectacularly actually worked for many people; the experts crying wolf were largely wrong.
The seeds of the retirement crisis that never came were sown in the 1960s, with the termination of several big private-sector-defined pension plans. Cries for reform led eventually to passage of the federal Employee Retirement Income Security Act of 1974, or ERISA, which set out minimum accounting standards that companies had to follow in funding defined-benefit systems.
The accounting principles of ERISA proved so onerous that companies soon switched to 401(k)-style defined-contribution accounts. In these accounts, employers agreed to contribute to tax-advantaged accounts that workers could use to invest and grow their money, but the employer made no guarantee of a retirement income.
The share of private-sector workers covered by defined-benefit plans shrank rapidly, from about 46% in the 1970s to just 15% today. Only 4% of private workers now rely entirely on a defined-benefit plan for retirement.
Critics argued that the 401(k)-style plans wouldn’t be adequate because they lacked the guarantees that defined-benefit systems provided. “There will be a massive shortfall in funds available for retirement,” one commissioner of the Securities and Exchange Commission predicted.
Over time, the warnings grew louder and shriller. One 1993 story declared that Boomers were saving at only one-third the rate they needed to achieve a comfortable retirement.
“Children of ’60s Face Insecurity,” blared a 1996 headline. A poll that year asked people about the Boomer retirement crisis, even though it wouldn’t be arriving for years: 53% agreed it was coming.
In 2008, the Nexis database of newspaper and wire-service stories recorded more than 1,000 articles about a Boomer retirement crisis. Experts were telling Boomers they’d have no choice but to delay retirement by five years, at least.
Interest groups like public-employee unions used this kind of turmoil, and the extreme predictions that it provoked, to lobby against giving up their own defined-benefit plans. Many of these unions were able to convince state and local officials into designing plans with looser accounting standards.
Yet the persistence of government defined-benefit plans — which cover about two-thirds of state and local workers — has proved the wisdom of shifting away from them in the private sector.
These plans quickly became severely underfunded and have forced taxpayers to ante up tens of billions of dollars just to keep them afloat. In the past 20 years, state and local contributions to pensions have soared more than fivefold — to $221.4 billion, from $39.2 billion, an average annual increase of more than 9%.
Even so, the plans remain underfunded by more than $1 trillion by their own accounting standards, and by more than $6 trillion using more credible standards.
And defined-benefit often shortchange workers. Because the benefits end when a worker dies, the families of employees who die before they retire often wind up with severely reduced benefits, at best.
Workers who spend years in a defined-benefit plan but change jobs before retirement also typically receive comparatively smaller benefits for the time that they’ve put in.
By contrast, the Boomer generation that has supposedly been saving too little for its retirement now has so much wealth that its members won’t even be able to spend it all. And it doesn’t go away when they die.
So now, when Boomers pass on, far from being impoverished, they will be responsible for the “Greatest Wealth Transfer in History,” sending trillions of dollars to anxiety-racked Millennials and Gen Z members.
Of course, the media won’t let a crisis die easily. An emerging contrarian strain argues there’s still a catastrophe embedded in Boomer retirements. A recent article, “Here’s Why the Richest Generation Is Struggling,” informs us that not every Boomer has saved enough to go richly into that good night.
It’s hardly news, though, that in a generation of 73 million, some have fallen short. No matter. Advocacy groups promote such stories to the media to argue for ever greater government commitments to the social safety net, even for the wealthiest generation.
Perhaps that’s one reason why, even as the triumph of Boomers in retirement becomes clear, the unease of those still working remains strong.
A recent Gallup poll found that only 43% of workers believe that they’ll have enough money to live comfortably in retirement. By contrast, 77% of retirees in the same poll said that they are living comfortably.
That’s nothing new. For 20 years, according to Gallup, people’s expectations of the life they’ll live in retirement have significantly trailed the reality experienced by those who are retired.
Apparently, not even the trillions that the richest generation will leave to its heirs are enough to quell those anxieties.
Adapted from City Journal, where Steven Malanga is a senior editor.
This story originally appeared on NYPost
