Do the Old Really Eat the Young?

Payouts to the elderly—whether in corporate pensions or government programs such as Social Security or Medicare—are always politically treacherous things.

In the developed world, the proportion of the population over 65 has been steadily increasing. This, in turn, means that providing them with a comfortable retirement is becoming more and more expensive for the young. But how big a problem is this?

Teresa Ghilarducci of the New America Foundation argues in a provocative new paper that, in fact, “the old do not eat the young.”

[EXPAND More]Contrary to popular belief, she writes, “there is little hard empirical evidence for the claim that pension systems are designed to transfer funds from relatively powerless younger workers to older, more politically astute, elderly.” Therefore, no one should rush to change existing arrangements. “Cutting pensions will not make Americans work longer,” writes Ghilarducci. “It will just make them poorer when they get old.”

Peter Drucker took a decidedly different view. For him, the math was fairly simple. “In 1935, when Social Security was first enacted, there were nine Americans at work for every American over 65,” he wrote in Toward the Next Economics. “By 1977, the ratio had shifted to four-to-one. . . . The pension burden, whether carried by government or by the employer, is becoming increasingly the first charge on the economy, ahead of capital formation, ahead of maintaining and building plants and equipment, and ahead of creating new jobs.”

As we’ve discussed, Drucker thought that, in the end, this would leave the younger generation with “not . . . enough pension money to go round when they themselves reach traditional retirement age.”

Meanwhile, Drucker also expected that the situation would trigger an increase in the retirement age itself. “By 2030 at the latest, the age at which full retirement benefits start will have risen to the mid-70s in all developed countries,” he predicted in Managing in the Next Society.

On the brighter side, tomorrow’s older population might not be so sad about that. “The major force toward an extension of working life will not be economics,” Drucker wrote in Managing in Turbulent Times. “It will be the need of older people who are physically and mentally ‘young’ to keep busy, to have something to do, to get out of the house and to be productive.”

What do you think: Are the old really eating the young? Or is this intergenerational conflict exaggerated?  [/EXPAND]