[Congressional Record Volume 141, Number 110 (Monday, July 10, 1995)]
[Extensions of Remarks]
[Pages E1400-E1401]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


                      BABY BOOMERS AND RETIREMENT

                                 ______


                        HON. ANDREW JACOBS, JR.

                               of indiana

                    in the house of representatives

                         Monday, July 10, 1995
  Mr. JACOBS. Mr. Speaker, the following article published in the 
Washington Post on June 27 is not only interesting reading but probably 
indispensable reading for those who bother to see where they are going 
in this life.
Baby Boomers' Retirement Could Be a Bust--Living Standards May Drop as 
                      Social Security Rolls Bulge

                           (By Spencer Rich)

       Beverly Duncan, 45, born early in the baby boom years, has 
     a condo, a Ford Explorer and Lincoln Continental, and a 
     business that she operates with her husband, Richard, for a 
     combined family income of ``$50,000 to $75,000 a year, 
     depending on how good business is.''
       But like many others in the huge generation born between 
     1946 and 1964, the Fort Lauderdale, Fla., woman does not have 
     a juicy retirement plan for the golden years.
       ``We have no pensions, only small IRAs--a few thousand 
     each)and we're just starting a profit sharing plan, but we 
     haven't put anything in yet,'' said Duncan, whose business, 
     Franklin Funcan Inc., sells electronic and other educational 
     learning tools and games to school systems.
       After years of using all the couple's spare money to build 
     up the business, pay for their health insurance and help 
     support and educate her husband's children by a previous 
     marriage, ``I most likely will be high and dry in retirement, 
     with almost nothing but Social Security,'' she said.
       Duncan's case illustrates one scenario in a raging public 
     debate on whether baby boomers, who will reach age 65 from 
     2011 to 2030, are saving enough and earning enough pension 
     credits to live well in retirement. It is a 21st century 
     problem with very immediate political consequences. Both the 
     Republican Congress and the Democratic Clinton administration 
     have proposed broad cuts in the growth of Medicare, the 
     health insurance program for the elderly, to keep it from 
     going bust. A further budget crisis looms over the Social 
     Security system, which faces potential bankruptcy when the 
     baby boom generation joins the rolls.
       If the boomers are not saving for their old age and the 
     federal government reduces benefits to the elderly, then many 
     experts believe the nation will confront an extremely painful 
     choice in the next century: ``dramatically reduced living 
     standards for baby boomer retirees' as they leave jobs and 
     drop to much lower incomes when they retire, as the Committee 
     for Economic Development (CED) puts it, ``or intolerable tax 
     burdens on working Americans'' to help support the 
     disproportionately large retired population represented by 
     the boomers.
       ``America's retirement system is underfunded, 
     overregulated, and soon to be challenged by unprecedented 
     growth in retirement-age population,'' declares a gloomy 
     report by the CED, a nonprofit business research group. 
     ``Private saving for retirement is woefully inadequate, and 
     national saving has declined. Underfunded pension promises in 
     both the private and public retirement programs are a growing 
     and often understated problem.''
       Unless both the general economic and pension pictures 
     improve greatly, said CED vice president William J. Beeman, 
     the income of boomers is likely to drop sharply when they 
     cease working and retire; their retirement income might be as 
     large as that of their retired parents but no better, though 
     every generation expects to do better than its parents in 
     retirement.
       Experts say retirees need an income between 60 percent and 
     80 percent of their preretirement earnings to maintain their 
     living standards.
       Merrill Lynch & Co., the financial services company, is 
     also pessimistic. Its Baby Boom Retirement Index, prepared by 
     B. Douglas Bernheim of Stanford University, calculated that 
     baby boomers now getting $75,000 a year, and expected to 
     receive a typical company-provided pension, would have to 
     triple their current savings rates to accumulate enough money 
     to achieve the same living standard in retirement as they had 
     in their working years.
       ``They are right that future retirees will be in deep 
     trouble,'' said Karen Ferguson, coauthor with Kate Blackwell 
     of a new book called ``Pensions in Crisis.'' But she 
     disagrees on one fundamental point: ``They see the disaster 
     as some years away. For millions of people who are a bit 
     older than the boomers, it's already here.''
       Labor Secretary Robert B. Reich said, ``We need to educate 
     Americans about the importance of taking personal 
     responsibility for their retirement security. Giving workers 
     the financial capability to generate savings for retirement 
     isn't enough unless they understand the fundamental 
     importance of saving for the future. People need to be 
     educated on the need to save as much as they can as early as 
     they can.''
       The reason affluent boomers must have higher savings than 
     they appear to have now to maintain living standards in 
     retirement is that Social Security is not designed to 
     compensate for all income lost when a person retires.
       The very highest benefit a person of 65 who retires in 1995 
     can get now is $14,388 a year. for someone who has been 
     earning $50,000 in the years before retirement, that's barely 
     more than one-quarter of previous income. For one who's been 
     getting $75,000, it's less than one-fifth. So a private 
     pension and substantial income-producing assets are needed to 
     get even close to previous income.
       Cindy Hounsell, a lawyer at the nonprofit Pension Rights 
     Center, which Ferguson heads, noted that ``even if every baby 
     boomer ends up living as well as their parents in retirement, 
     they're still in big trouble. * * * Current retirees are not 
     doing all that well.
       ``Today the median household income among the elderly, the 
     boomers' parents, is $17,751, only about half that of younger 
     households,'' she said.
       But a number of experts are less gloomy about the boomers' 
     prospects, arguing, in part, that all projections made by 
     analysts of income and savings far into the future are 
     necessarily uncertain. The pessimistic conclusions offered by 
     Merrill Lynch's Bernheim, in particular, are controversial, 
     because he does not count the value of housing equity as an 
     asset that can be converted into income, as some other 
     students of the issue do. When those assets are included, the 
     picture looks brighter.
       ``Most baby boomers are likely to enjoy higher real incomes 
     in retirement than their parents currently do,'' the 
     Congressional Budget Office concluded in a September 1993 
     study that took housing assets into account.
       The situation of Marilyn Park, 40, and her husband, David 
     Fritz, 44, of Takoma Park, illustrates the optimistic 
     scenario: that baby boomers are saving for retirement, maybe 
     not quite as much as some people think desirable, but saving. 
     They have a ``small house with a big mortgage,'' two cars and 
     three children who someday will be heading for college, 
     facing the family with ``our own national deficit.''

[[Page E 1401]]

       Fritz, a computer software engineer who has moved several 
     times from job to job, makes ``over $50,000.'' He has not 
     worked in any one place long enough to earn more than a 
     minimal traditional pension, but has been putting up to 
     $10,000 a year into on-the-job retirement savings or 401(k) 
     plans, to which his employer also contributes and which he 
     can transfer into his own tax-deferred retirement savings 
     account each time he leaves a job. Park, a lawyer, stays home 
     to take care of the children, but works part time and makes 
     maybe $10,000 to $15,000 in a good year. Eventually she will 
     go back to work full time and they will save more, so 
     probably, she said hopefully, ``we'll do all right in 
     retirement.''
       Hopeful assessments such as the one presented by CBO assume 
     that people like Park and Fritz will get all the Social 
     Security benefits projected in existing law.
       ``We think it extremely unlikely'' benefit levels can be 
     maintained, said CED's Beeman. Social Security faces 
     insolvency starting in 2030. At that point the big generation 
     of boomers will be a heavy burden on Social Security and the 
     health care system. But there is only a relatively small 
     generation following the boomers that will be in the work 
     force and will have to pay the taxes to fund Social Security.
       Beeman and many others believe it is highly unlikely the 
     government will simply raise taxes to make up the entire 
     shortfall. The retirement of boomers also will create greater 
     burdens on Medicare and Medicaid, the federal-state health 
     program that pays for much nursing home care. The combined 
     total would be too much for those working to finance simply 
     through taxes. So prospects are that there will be at least 
     some further dampening of benefits.
       There is considerable uncertainty as to how many boomer 
     households will get pensions on top of possibly reduced 
     Social Security benefits, and the size of those pensions.
       In addition, there has been a shift by employers from 
     pensions in which the employer puts in all the money and pays 
     benefits at retirement based on a fixed, advance formula 
     (defined benefits) to pensions in which the employee (on a 
     soft of do-it-yourself basis) puts in most of the money. In 
     this latter kind of pension, such as a 401(k) plan, employees 
     often can get access to their money before retirement age, 
     although that usually involves paying a penalty.
       According to some projections, three-quarters of the boomer 
     households conceivably could end up with these plans, which 
     is far higher than the number of people receiving pensions 
     today. However, many workers are cashing out their 401(k) 
     money long before they reach retirement.
       Finally, another reason for concern about boomer prospects 
     in retirement is that in the long run, the prosperity of the 
     nation in general depends in large part on high national 
     savings rates that provide investment funds for new plant and 
     equipment. Personal household savings have declined as the 
     overall savings rate has declined. All kinds of savings now 
     average less than 2 percent of gross domestic product, down 
     from 4 percent in the 1980s and 8 percent in previous 
     decades, the CED report said.
       ``Low savings rates could undermine adequate growth of the 
     economy and hurt not only the boomers when they retire but 
     everyone else,'' said Sylvester Schieber, vice president of 
     Watson Wyatt Worldwide, a benefits consulting firm.
       In addition, Schieber said, the current generation of 
     retirees benefited from three developments not likely to be 
     repeated for the boomers: very high economic growth in the 
     first two decades after World War II; very big increases in 
     Social Security benefit rates from 1968 to 1972; and a huge 
     boom in the value of housing.
       ``The present generation of baby boomers is not likely to 
     get that kind of a pop,'' he said.
     

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