Anya Kamenetz Generation Debt

You want to retire, right? You're probably also not too keen on having Mom and Dad move back in with you 10 years after you've finally managed to move out of their home.

That's why you should care about the future of Social Security and Medicare. Along with Medicaid -- the health care program for the poor -- these are the largest social welfare programs in the U.S., making them both extremely popular and extremely controversial. Though they're not top-of-mind for most young Americans, they should be.

The status of these programs affects our parents' fortunes -- and therefore whether we'll be taking care of them in the future -- not to mention our generation's own ability to eventually retire.

Yet spending on Social Security, Medicare, and Medicaid programs already accounts for 42 percent of the budget, and they are locked in to grow automatically every year with the cost of living (which is why we call these "entitlement" programs). Worse, these programs are way out of balance from a budget point of view. The long-term shortfall between the tax money allocated for these programs and the benefits we've already promised to pay out to current and future generations amounts to 53 trillion dollars.

That's almost half a million dollars per household in the U.S. We've made promises to our retirees that we can't afford to keep unless we raise taxes, change the benefits, borrow more, or all three.

These expenditures and the associated federal budget debt and interest are making it rather difficult for the nation to invest in education, health care, infrastructure, energy, and many other programs that might benefit younger Americans. And the spending for these programs is gaining speed like a runaway train as the Baby Boomers start to retire.

The answer, for those who care about the future of these programs and the future of the country, is reform -- the sooner, the better.

I was proud to recently take part in an unusual summit on these issues.  A select group of 11 youth leaders from across the political spectrum spent two days hearing expert testimony on social welfare programs. And we collaborated on a declaration stating that quick action is needed to reform them and put our federal government on a sounder fiscal footing, for the sake of both the younger and older generations.

Here were the most important and eye-opening things I learned after hearing the presentations from the likes of Alice Rivlin, the first director of the Congressional Budget Office; David Walker, former Comptroller General of the United States; and various experts from places such as the Brookings Institution, the Urban Institute, and the New America Foundation.

The cost of Medicare and Medicaid is growing much faster than that of Social Security, because the cost of health care is rising at twice the rate of inflation. America already spends 14 percent of our Gross Domestic Product on health care, which is far more than any other industrialized nation, even though we have almost 50 million people who have no health care coverage at all. So reforming Medicare and Medicaid won't work unless the entire health care system is reformed.

Unfortunately, no one has a complete, guaranteed-effective plan for controlling health care costs. Some solutions mentioned at the summit included universal coverage, as is seen in other industrialized nations; better technology, such as standardizing electronic health records; better public-health measures to control chronic diseases such as diabetes and asthma; and better incentives, like paying physicians for overall health outcomes instead of fee-for-service.

Social Security's budget problems are urgent but not insurmountable. A couple of presenters mentioned the idea that representatives from both sides could go into a room and adjust the benefit and tax formulas to bring Social Security back into long-term balance in a single day. Interestingly, this is more or less what happened the last time the program was reformed, back in 1983. Social Security had actually all but run out of the money to send out checks by the time Congress finally took action.

According to the latest Trustees' Report, Social Security could be brought into balance over the next 75 years with either a single immediate increase of the payroll tax -- from the current 12.4 percent to 14.1 percent -- or an immediate 12 percent cut in benefits, or some combination of the two. Each year we delay, the changes get bigger -- and people in their 30s and younger end up paying more and more of the bill.

Another way to cut the costs of the program would be to raise the retirement age to 70 (currently, the earliest possible retirement age for receiving Social Security benefits is 62). Raising the retirement age has intuitive appeal to me and many of my fellow youth leaders. After all, we ourselves expect to work longer.

Interestingly, even the more conservative experts acknowledged that switching benefits to private investment accounts for the young and future generations would do little for the near-term Social Security problem. President Bush, who last proposed this idea, has acknowledged this fact himself.

This conclusion should ring a bell for regular readers of this column. Whether Social Security and Medicare benefits stay in place, are cut, or grow, they were never meant to be your entire cushion for retirement. Several of our experts mentioned the importance of policies to encourage personal saving as a means of supplementing our federal retirement benefits system.

The most important thing you and I can do to ensure our own future financial security is to save, save, save. There are some interesting proposals out there to encourage private saving as a matter of federal policy. The new book "Nudge" contains some fascinating material on how our government could encourage better financial decision-making -- for example, requiring automatic 401(k) enrollment. And the Harvard Business School professor Peter Tufano, whom I had the pleasure of speaking with recently, has done a lot of research on the best ways to encourage people to save.

Young people may have the time to save their way out of retirement insecurity.
Unfortunately, our Baby Boomer parents by and large are not particularly well set up for retirement. They had less access to private pensions than the generation before them, and the current decline in the housing market is eating into their net worth.

So even though I think it is crucial for young people to encourage swift action on Social Security and Medicare reform, we have to keep in mind that we're going to be subsidizing the retirement of the older generation one way or another. Either we pay higher taxes to support their retirement benefits -- or someday we'll be clearing out that bedroom for Mom and Dad.