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Dear Baby Boomers,
Please don’t retire yet.
This year, the oldest members of your generation are 73 years old, and the youngest are 55. Some are already eligible for Social Security retirement benefits. Many are retiring.
The ability to retire is a relatively recent human invention. For most of recorded history, people didn’t live long enough for physical impairments to stop them from working. They worked until they died, literally.
Since 1935, with the passage of the Social Security Act, the American government has supported the aspiration of the elderly to leave the workforce and enjoy the greener pastures of retirement, even if they’re still able to work.
Unfortunately, retirement comes with a cost. If you receive the benefits that you were promised, they will come at the expense of the future of our state and country.
In the late 1800s, Otto von Bismarck used the promise of retirement to lure workers away from socialist agitators. In 1881, as Chancellor of Germany, he proposed a government funded pension beginning at age 70. During World War I, that age was reduced to 65.
This was the retirement age selected by the United States when the Social Security system was established in 1935. At the time, life expectancy for American men was 58, and few workers would live long on their pensions.
The German system was similarly miserly. In the 1800s, few people could expect to live beyond age 65 to collect benefits. And the steadily expanding populations in Germany and the United States meant that young workers could support the lifestyles of those old enough to retire.
But the math that sustained early iterations of Social Security no longer checks out for Americans, and it’s even worse for residents of Hawaii who must support the Employee Retirement System.
According to the American Heritage Dictionary, a Ponzi Scheme is “a fraud disguised as an investment opportunity, in which initial investors and the perpetrators of the fraud are paid out of funds raised from later investors, and the later investors lose all funds invested.”
Social Security is not a Ponzi Scheme, but it is structured in a similar way. Benefits are paid out to retirees using the money collected from payroll taxes each year.
The viability of the system depends on maintaining a high ratio of workers to retirees. It also depends on retirees conforming to actuarial projections.
Because of slowing population growth and longer lifespans, these assumptions don’t hold anymore.
It is now the case that for each retiree, there are fewer than three active workers to support them. And half of those active workers don’t have a college education.
This is in part because Baby Boomers had fewer children than previous generations. Small family size means that Boomers are less able to rely on direct support from their children and more likely to depend on government assistance. It also means there are fewer young workers to support those Boomers in retirement.
In addition, Boomers are outliving expectations, thanks to developments in medical technology.
These developments threaten the viability of the system.
According to its trustees, Social Security’s cash reserves are currently $2.9 trillion. However, at its current rate of depletion, the Old-Age and Survivors Insurance Trust Fund will only be able to pay full benefits until 2034. At that point, reforms will be necessary, or benefits will be cut.
There are simple changes to Social Security which could make it viable in the long-term. We could adjust the retirement age, increase the percentage of deductions in the payroll tax, or tax the benefits.
Unfortunately, the generation that stands to lose the most from reform is the most vocal segment of the voting age population.
The 116th Congress is dominated by Boomers. According to the Congressional Research Service, “the average age of Members of the House at the beginning of the 116th Congress was 57.6 years; of Senators, 62.9 years.” The leadership of both houses is even older.
But Washington is not the only source of dysfunction. We have our own pension crisis at home in Hawaii.
The Employee Retirement System supports public employees in Hawaii, and it’s underfunded by $13.4 billion.
This unfunded liability has grown for a few reasons. First, local population growth has leveled off. Second, market returns have tumbled. Third, employees were not asked to contribute enough during their careers to adequately fund their retirements.
It’s not uncommon to find ERS-supported retirees who collect retirement benefits nearly as long as they were employed.
If someone started working for the state at age 30, they could retire at age 65 and collect both their ERS benefits and Social Security benefits. This would be fine if those workers died shortly thereafter, but many are living into their 80s, and some are living even longer.
Former State Director of Budget and Finance, Wes Machida, has noted that teachers and professors are living longer than any other employee group. Female teachers, for instance, have a median life expectancy older than 90.
As public employees retire, the state no longer receives their contributions to the ERS and EUTF. Worse, the state loses the income taxes they were paying while employed.
Eventually, obligations to retirees may crowd out other government services. To prevent this, some have proposed a pension tax. But so far, this is a political nonstarter.
Former Gov. Neil Abercrombie could not pass a pension tax through the Legislature. And it’s possible that his attempt to tax pensions contributed to his loss to David Ige in the Democratic primary of 2014.
Baby Boomers seem unlikely to support reform because they’re often dependent on pension and Social Security benefits. This dependence is compounded because Baby Boomers are more likely to be in debt than previous generations. They also have saved less for retirement.
This lack of savings is due in part to panic selling during the recession of 2008. Some Baby Boomers were reluctant to enter the market during the recovery, so they missed out on the economic growth of the last decade.
This places many Baby Boomers in a vulnerable position, and this must be taken into consideration when enacting reforms.
Ultimately, I am not sure that any political solution can satisfy all parties. Thus, I am asking Baby Boomers directly: If you are able to work, please keep working. Especially if you’re a public employee in the state of Hawaii.
If you retire early and live long, the costs will fall on the future. And if you vote to block reforms to Social Security and the ERS, you’ll be locking in a system that transfers wealth from younger generations to older generations.
This isn’t about casting blame. Clearly, no individual is responsible for declining birth rates and longer life spans. Rather, this is about your legacy.
John F. Kennedy was born into the Greatest Generation and grew up during the Great Depression. His experience of World War II informed his understanding of duty and obligation.
To paraphrase Kennedy, you should “ask not what your children can do for you – ask what you can do for your children.”
What can you do? Keep working, please.
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