The War That WasntFor the past two decades or so, some experts have warned that generational warfare will explode as the Boomers, Xers, and Millennials fight over a limited pool of resources. But we dont see it that way.
The generational warfare scenario goes something like this: As the Boomers begin to retire, they simultaneously stop generating economic output and continue consuming resources ? largely in the form of "transfer payments" from Xers and Millennials. With only three workers to support each retiree, Social Security taxes must either be increased or benefits curtailed.
At the same time, the increasing population of the older generation taxes the Medicare system to its limits, requiring either rationing of healthcare or dramatically higher taxes. Those Boomers who stay in the workforce are likely to be resented because they will occupy the most preferred positions. These business veterans will effectively block the career advancement of many ambitious Xers and even Millennials.
While extrapolating past patterns into the future lends some credence to these fears, this line of reasoning is too simplistic. These doomsayers remind the Trends editors of Karl Marx, whose 19th century assumptions implied the collapse of capitalism and the rise of communism. Instead, the reality has been the collapse of communism and the global triumph of capitalism.
What neither the "generational warfare pundits" nor the Marxists understood was the non-linear transformational power of human ingenuity and technology. If were afraid to take bold steps to reform programs like Social Security, Medicare, and retirement itself, the pessimists could still be right, but many factors are converging to provide effective ways to resolve these problems before they reach critical mass.
Lets start with Social Security. The key to the solvency of this program, as well as to the broader health of the economy, is to keep the Boomers working. As we discussed in Trend #3, this is entirely realistic.
The growth of the economy, coupled with the lack of new workers entering the markets, will create a huge demand for older workers. New healthcare solutions are keeping these workers healthy and alert.Retraining, as we discussed in Trend #5, is keeping them productive. And the fact that many studies show that they haven’t been saving as much as they should have makes it difficult for most of them to fund an adequate retirement.
For example, the Christian Science Monitor1 recently reported that 51 percent of American working families did not have a private retirement savings account, such as a 401(k) or Individual Retirement Account. And nearly 60 percent of employees with 401(k) plans cash out their accounts when they switch jobs, rather than leaving their savings intact for retirement.
As a result, U.S. families headed by a worker 55 to 64 years old had a median retirement account balance of just $55,000 in 2001. As a study by the Congressional Research Service points out, if the average worker converted this balance to an annuity at age 65, the monthly payment would be just $408 a month. This is nowhere near the income that Baby Boomers are used to living on, and it won’t give them the freedom to buy all of the new goods and services that Boomers crave.
Therefore, we expect most Americans to remain active in the workforce into their 70s. This will take some of the burden off of Social Security, but it will also provide another huge benefit: It will dramatically increase the number of people projected to be paying into the program over the next two decades.
Private investment accounts, added to Social Security, will strengthen the program and make the burden much lighter for younger people, but they are not absolutely crucial to salvaging Social Security. This will diffuse one of the key flashpoints in the projected “intergenerational war.”
And furthermore, young people do not see Social Security as a program that only benefits their parents or grandparents. In response to a recent survey by Peter Hart Research,2 67 percent of young people said that Social Security could help future generations if Congress strengthened the program’s finances, while only 29 percent said that Social Security could not work and should be replaced.
But what about Medicare? Aren’t Xers and Millennials going to have to pay more into the system to take care of the Boomers and their parents? Aren’t the older people going to face healthcare rationing and come to resent the limits placed on them by the younger generations?
Not necessarily. As we explained in the context of Trend #2, we believe that the prompt and deliberate application of common sense and technology can curtail the rapid rise in medical costs. Coupled with the “compression of morbidity” trend that’s producing a generation of healthier, more vibrant seniors, this will enable us to keep the Medicare program going strong into the foreseeable future.
The recent addition of a drug benefit to the program, while not perfect, was a clear step in the right direction. Disease management, palliative care, and selective off-shoring, as well as reducing waste, fraud, and abuse, all add up to a better quality of life for seniors at a lower cost.
If these trends continue to develop ? and we confidently expect that they will ? one of the most serious problems facing this nation over the next two decades will be averted. Once again, the gloom and doom forecasts of generational strife will prove to be overblown.
However, it’s still reasonable to wonder, “If the Boomers keep working, won’t there be incredible friction between them and the Xers who would like to replace them?”
Admittedly, this is an area of some concern. However, as discussed in the context of Trend #4, many seniors will be looking for a new challenge, a more meaningful purpose, or a slower pace in a second career. While a few will want to remain at the center of the rat race, many will opt for part-time and consulting positions that offer good pay and perhaps some benefits, but still permit them to take long vacations or pursue hobbies.
As such, these older workers will become peripheral to the organization, even as they continue to add value. That means that Xers will still have opportunities to move up, but perhaps not to the same degree as Boomers or Millennials. Once again, while it’s possible that some degree of friction will occur, it’s likely to be nothing like the hostility anticipated by some pundits.
All in all, the Trends editors expect to see a warm and convivial relationship between Boomers and Millennials, as well as a tolerant one between those two generations and the Xers. Obviously, this depends on putting in place the incentives required to deal with these three major areas of potential conflict. However, given the seriousness of the problems, the time horizon available to solve them, and the degree of knowledge we have available, we remain highly optimistic.
References List :
1. Christian Science Monitor, January 5, 2004, "Why Retirement Plans Are Falling Short," by David R. Francis. ⓒ Copyright 2004 by Christian Science Publishing Society. All rights reserved. 2. To access the Peter Hart Research Social Security survey, visit their website at: www.2030.org/pdf/report1.pdf
