Introduction
Retirement of baby boomers is inevitable. To analyze the government’s strategies concerning retirement and social security of the same, it is important to note some key factors. The people born immediately after World War II (baby boomers) were many; unfortunately, they have not been giving birth to enough children that could match the population of that time; therefore, demographic change is inevitable. The number of tax paying employees has been declining since 2008 when the first crop of baby boomers entered retirement.
The decline is attributed to the simple reason that baby boomers did not bring forth enough children to maintain constant population. This implicates that, without proper management, social security will shrink and finally collapse because tax-paying population cannot sustain retirement benefits for retired and retiring baby boomers. So, what is the government doing about this lurking crisis?
Government Plans
According to Gale (2007), “80 million Americans born from 1946 to 1964 could qualify for Social Security and Medicare during the next 22 years.” Out of this 80 millions, 3.2 millions entered retirement in 2008 at age 62, the early retirement age. Even though some have dubbed this, “the single greatest economic challenge of our era” (Bernheim, 2000, p. 288), government has strategies in place to counter these challenges.
Actually, one of the biggest, though unknown challenges is the fact that many baby boomers are not having enough private savings; hence, they would be forced to depend entirely of social security fund. Nevertheless, the much publicized ‘enough’ private savings is not quantifiable because this is a personal issue.
After the government realized that, more than a quarter of baby boomers had not saved enough, it embarked on a campaign to encourage baby boomers not to retire at 62 but prolong that, a little bit long. “Because people who retire at 62 can expect to live another 20 years, each year they postpone retirement reduces their need for retirement savings by about 5 percent” (Gale, 2007, 5).
Extending retirement by a single year increases one’s social security benefits by a significant margin and government is currently campaigning for this extension. Moreover, working for a longer time presents one with the opportunity of saving more, hence reducing the amount that he or she will need from the social security scheme.
For instance, taking the case of Casey-Kirschling, at 62 years this year, if she starts drawing money from the social security trust fund next year, “she will get $240 less per month than she would have if she waited four years” (Butrica, Howard, Iams & Karen, 2010). This makes sense and this is the reason the government is campaigning for baby boomers to extend their retirement time.
Congress has been working tirelessly to ensure that baby boomers retirement does not plunge the country into economic crisis. In 2003, Congress increased healthcare budget by $768 annually; however, in 2005, “lawmakers nicked Medicaid’s projected cost by $5 billion over five years, but the Congressional Budget Office still projects the program to grow by about 8% a year” (Butrica, Howard, Iams & Karen, 2010). This is commendable and it would work; at least for some time.
The other strategy, though a risky one is that of basing government “pension plans on the assumption that stocks will return an astounding 9.5% yearly growth on average, and that bonds will pay about 5.75%” (Kotlikoff, & Auerbach, 2009).
The risky part of this notwithstanding, this strategy would work out very well and let baby boomers retire in peace. The other option that the government has is to increase tax rates and cut down the rates of benefits that retirees would get from the social security trust fund. However, this would face opposition from many quarters.
Social Security Trust Fund
The government initialized Social security system to enable utilization of tax money in a bid top provide retirement benefits to retirees and baby boomers make a good number of these retirees. Among the taxes accumulated under the social security program, are taxes on salaries, wages, and Medicare.
According to Pearson (2007), “out of every dollar collected, 85 cents are deposited into social security trust fund while the remaining 15 cents are utilized to pay the benefits to disabled people and their families.” Even though this strategy is not sufficient, it would work and save baby boomers from financial woes.
Generally, Social security trust fund benefits are entitled to retirees, their spouses or any dependants and this is commendable. Moreover, the social security system is dynamic and retirees can choose how to get their benefits. For instance, the government, through the social security trust fund pays full benefits to those retiring at or after 65.
This is a strategy on its own, for baby boomers would be compensated upon their retirement. The amount they will get may be relatively small to what is expected; however, the fact is the sustenance of the social security trust fund is helping greatly in strategizing on baby boomers retirement.
On the other hand, government has restructured the social security trust fund system to allow retirees to take early retirement. This of course contradicts the ongoing campaign to encourage people to extent their retirement. However, because not everyone is willing to extent his/her retirement, the social security fund allows those who are willing to take early retirement to do so at a cost.
Those willing to retire early receive “permanently reduced retirement benefits if they opt for early retirement” (Pearson, 2007). This strategy helps to save more money that would otherwise been paid to these early retirees if they retired at the appropriate time.
To create a balance between early retirees and late retirees, government is giving incentives to those willing to prolong their retirement age. In this case, those who “defer receiving the retirement benefits until the age of 70; they collect higher benefits after that” (Pearson, 2007).
This strategy also works; logically, if someone prolongs his or her working age to 70, the tax-paying workforce will be high and this deals with the fears of imbalanced tax-paying employees compared to those depending wholly on the social security trust fund. Moreover, it implies that, apart from withdrawing from the trust fund, people working past their retirement age contribute to it and this may work for the government.
Finally, there is a $100 billion surplus annually for the next ten years directed towards the social security trust fund. Moreover, the medical reforms that the Obama administration is pushing may work for the best of baby boomers. With medical services becoming more available, baby boomers retirees do not have to worry; even if they have little money left for medical expenses, this would match the reduced costs of health care services.
Conclusion
Baby boomers expected and inevitable retirement has caused ripples in different quarters as a crisis looms over their retirement benefits. Nevertheless, the government has ensured that proper mechanisms are in place to counter any crisis. The dynamic nature of the social security trust fund caters the needs of baby boomers’ retirement.
The government is campaigning for extension of retirement age, as this would boost the capacity of the social security trust fund to pay retirees. The $100 billion annual surplus towards the trust fund is a landmark as it ameliorates the trust’s capacity to compensate retirees. On the other hand, the Obama administration is pushing for medical reforms and this would help ‘cash strapped’ retirees.
References List
Bernheim, B. (2000). How Much Should Americans Be Saving for Retirement? American Economic Review, 90(2); 288-292.
Butrica, A., Howard, M., Iams, K., & Karen E. (2010). It’s All Relative: Understanding the Retirement Prospects of Baby Boomers. Chestnut Hill: Boston College Center for Retirement Research.
Gale, G. (2007). The Aging of America: Will the Baby Boom Be Ready for Retirement? Brookings Review, 15(3); 4-9.
Kotlikoff, L., Auerbach, J. (2009). U.S. Fiscal and Savings Crises and Their Impact for Baby Boomers. Washington: Employee Benefit Research Institute.
Person, C. (2007). Social Security & Government Retirement Benefits. Web.