And like the institutions before it, retirement likely will need to change to accommodate the bulge.
We've all heard the grim predictions: With fewer workers entering the workforce and the baby boomers winding up their productive years, there won't be enough money coming in to offset the outflow in Social Security. Public pension systems are underfunded and with the aftereffects of the recession, funds are flirting with insolvency. In the private sector, companies increasingly have abandoned defined benefits plans in favor of defined contributions, leaving the decision-making on investments to employees ill-equipped to make those decisions.
It's enough to begin counting on lottery winnings to fund retirement.
A estimated 76 million boomers were born in the United States between 1946 and 1960. The boom, of course, was followed by the bust, aka generation X. The subsequent generation -- the echo boom or millennials -- was larger but still nowhere near the size of the boom itself.
The latest report by Social Security's trustees issued in August found outgo this year will exceed revenues for the first time since 1983 with a $41 billion shortfall, largely the result of the recession.
"The long-run financial challenges facing Social Security and those that remain for Medicare should be addressed soon. If action is taken sooner rather than later, more options will be available and more time will be available to phase in changes so that those affected have adequate time to prepare," the trustees said.
Jeff Brown, a senior economist with the President's Council of Economic Advisers during the Bush administration (2001-02) and a former member of the bipartisan Social Security Advisory Board, said it's time to rethink the entire retirement system.
Brown, now a professor of finance at the University of Illinois at Urbana-Champaign, said we all know how to fix Social Security: make people work longer, and reduce average benefits or make people contribute more.
"But politically, it is not clear that our elected officials have the will to make the necessary changes," he said.
"It is important to remember, however, that Social Security is only one piece of the puzzle. We have a fundamental problem in that at any given point in time only about half of the workers in the U.S. are actively participating in a retirement plan from their current employer. That's a big problem, and one that requires a policy response to fix."
Currently, annual earnings above $106,800 are not subject to Social Security taxes. Among the proposed fixes is making 90 percent of earnings subject to the tax. But Brown said, even if the cap were eliminated altogether (an effective 12.4 percentage point increase in marginal tax rates on high earners) and nothing else changed, such action would only cure about half the long-term problem. Raising the retirement age gradually to 70 from the current 66 would eliminate about a third of the problem.
"We need a systematic rethinking about how we approach retirement income security in the U.S.," Brown said, but he's not optimistic. "I doubt that we will do a 'soup-to-nuts' overhaul."
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