Baby Boomers

The baby boom generation—the roughly 76 million people born between 1946 and 1964—has been reshaping American society for ve decades. From jamming the nation’s schools in the 1950s and 1960s, to crowding labor markets and housing markets in the 1970s and 1980s, to affecting consumption patterns almost continuously, boomers have altered economic patterns and institutions at each stage of their lives. Now that the leading edge of the generation has turned 50, the impending collision between the boomers and the nation’s retirement system is naturally catching the eye of policymakers and the boomers themselves.

Retirement income security in the United States has traditionally been based on the so-called three-legged stool: Social Security, private pensions, and other personal saving. Since World War II the system has served the elderly well: the poverty rate among elderly households fell from 35 percent in 1959 to 11 percent in 1995.

But the future is uncertain. Partly because of the demographic bulge created by the baby boomers, Social Security faces a long-term imbalance. The solution, even if it involves privatization, must in some way cut benefits or raise taxes. The private pension system has changed dramatically in ways that give workers increased discretion over participation, contribution, and investment decisions and easier access to pension funds before retirement—thus raising questions about how well future pensions can help finance retirement. Personal saving, also problematic, has remained anemic for over a decade. Net personal saving other than pensions has virtually disappeared.

These developments would be enough to raise concern about retirement preparations under the best of circumstances. But the prospect of a huge generation edging unprepared toward retirement raises worrisome questions about the living standards of the baby boomers in retirement, the concomitant pressure on government policies, and the stability of the nation’s retirement system.