Let The Boomers Build Their Nest Eggs
Much blather is being written about the "generational" wars and how the twentysomething set will be taxed to the sky to pay for the retirement of free-spending boomers who refuse to save. The conventional wisdom is that the nation faces a crisis as private pensions prove inadequate and Social Security goes bankrupt.
Don't bet on it. The hand-wringing is based on two economic assumptions: that America's low productivity rate will continue and that the country's anemic savings rate will stay the same. But what if these assumptions are wrong?
Take productivity. It is up and by a lot. Technology is providing the tools, and global trade is applying the whip of competition. While productivity rose at less than a 1% rate for much of the '70s and '80s, it is now expanding by 1.5% a year. That extra productivity could generate enough growth and wealth to support plenty of boomer geezers.
O.K., but what about the boomer's miserable record of savings? The personal savings rate has plummeted from about 7% in the 1960s through the 1980s to 4.5% in the 1990s. However, aging boomers are quickly moving into their 40s and 50s, years when people tend to save more. Boomers are already pouring tens of billions into mutual funds and their 401(k) defined-contribution pension plans.
They would put more away if Washington would stop being so schizophrenic about savings. The government can't make up its mind whether it wants to encourage retirement savings or generate more revenue. First, it encouraged individual retirement accounts, then it killed them for most people. It promoted 401(k)s, but recently it tightened the rules.
Expanding IRAs and the amount of pretax income people can stuff into 401(k)s would be a real boost for boomers building nest eggs. But that, of course, means Washington would have to cut spending to make up for lost revenue.
It should do just that. With productivity apparently rising for the long haul and the boomers entering their saving years, a cut in spending by Washington could lock in prosperity and security for all generations in the decades ahead.