By now, many retired baby boomers should be pinching pennies, at best, or battling destitution, at worst. For decades, the media and the experts they quoted warned that 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 (usually with higher taxes on the rich) 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, as if someone flipped a switch, the coverage changed dramatically. Now, not a week goes by without some story declaring that retiring baby boomers constitute one of the richest generations in history. Far from being poor, they’re now dubbed “The Luckiest Generation,” sitting on a staggering $78 trillion in assets that even a dour media can’t ignore. As a group, the boomers have become such a wealth juggernaut that they grew $14 trillion richer during the pandemic, even as millions of everyday workers suffered financially from Covid shutdowns. Rather than expanding benefits for boomers, politicians now propose reducing programs like Social Security payments for the most affluent recipients, hoping to preserve funds for future generations who—the media tell us—are facing a retirement crisis.
This barrage of commentary on boomer wealth generally omits any reference to the long period of warnings about a crisis that never happened. It’s hard to know whether this omission reflects a lack of curiosity or a desire to ignore an inconvenient truth: that the system predicted to fail so spectacularly actually worked for many people, and that the experts crying wolf were largely wrong. The great boomer retirement crisis turned out to be, like the population bomb or the coming ice age, another disaster dud.
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, most notably that of the Studebaker-Packard Corporation in 1963, where workers were left with little of what they had been promised. 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, which promised workers a guaranteed benefit far into the future. The accounting principles of ERISA proved so onerous that companies soon switched from defined-benefit plans into 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 consequently shrank rapidly, from about 46 percent in the 1970s to just 15 percent today. Only 4 percent of private workers now rely entirely on a defined-benefit plan for retirement.
Critics disparaged the move away from defined-benefit plans, arguing that the 401(k)-style plans that took their place wouldn’t be adequate because they lacked the guarantees that defined-benefit systems provided. Putting money in the hands of employees in the form of individual accounts, rather than having it managed by an employer, would be “the end of the American dream,” one commissioner of the Securities and Exchange Commission told the press. “There will be a massive shortfall in funds available for retirement,” he 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 headline over a 1996 piece which warned that “retirement as current retirees know it . . . may be impossible for all but the most affluent.” A poll that year asked people about the boomer retirement crisis, even though it wouldn’t be arriving for years: 53 percent of respondents agreed that it was coming. The din from these doomsayers typically grew louder during times of financial turmoil. In 2008, for instance, the Nexis database of newspaper and wire-service stories recorded more than 1,000 articles about a boomer retirement crisis. By then, experts were telling boomers they would have no choice but to delay retirement by five years, at least. A Government Accountability Office report led some advocates to declare that America needed “universal access” to pension plans—though no one was sure what that meant in a country where every private-sector worker already must join Social Security, and anyone can open a tax-advantaged retirement savings plan for himself.
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. Because government pensions weren’t covered by ERISA, many of these public unions were able to convince—or strongarm—state and local officials into designing plans with looser accounting standards. That made them seem affordable, but this was only a fiction. If anything, 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 percent. 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.
Even when defined-benefit plans remain solvent, they 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, and nothing at worst. 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. One of the dirty little secrets of these plans is that their accounting relies on such inequities to fund the pensions of those who live longer.
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. Some of these fortunes lie in those individual retirement accounts, demonstrating the wisdom of long-term saving and investing—and of the magical powers of even modest rates of compound annual growth. Other boomer wealth comes thanks to the housing bubble, a function of bad government policies that restricted building and hence limited supply, and from bad Fed policy that kept interest rates so low for so long. 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, already plagued with doubt about their financial futures.
Of course, the media won’t let a crisis die easily. That’s why there’s a contrarian strain emerging that 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 people not everyone has accumulated great savings, or that some households—either through poor planning, a lack of effort, or unanticipated setbacks—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 percent of workers believe that they’ll have enough money to live comfortably in retirement. By contrast, 77 percent 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.
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