Ten Steps to Reforming Baby Boomer Retirement
Thursday, March 23, 2006
by John C. Goodman, Devon Herrick, Matt Moore
Table of Contents
- Executive Summary
- Step 1. Improving Traditional Pension Plans
- Step 2. Improving 401(k) Plans
- Step 3. Expanding IRAs
- Step 4. Removing Penalties on Work
- Step 5. Repeal the Social Security Benefits Tax
- Step 6. Using the Roth Method of Taxation
- Step 7. Making Health Insurance Portable
- Step 8. Tax Relief for Post-Retirement Health Insurance
- Step 9. Creating Health Savings Accounts for Seniors
- Step 10. Paying for Long-Term Care
- About the Authors
This year, the first of the 77 million baby boomers - Americans born between 1946 and 1965 - will reach age 60. In two years they will become eligible for early retirement benefits from Social Security, and in five years they will become eligible for Medicare. As the boomers retire, they will stop contributing to America's elderly entitlement programs, their own corporate pension plans and their personal savings accounts; they will begin withdrawing money instead.
The problems of Social Security and Medicare have been examined in great detail by NCPA scholars.1 In addition, Medicaid (for the poor) now spends more than Medicare, and as the ranks of the elderly swell, the cost of this program will also soar. Over the next 30 years, we will have to either cut boomers' benefits in half or double every payroll and income tax rate.
"We are unprepared for the retirement of the Baby Boom generation."
Unfortunately, the problems facing future retirees do not end there. Federal, state and local governments have promised their own employees pension and retiree medical benefits totaling more than $5 trillion and many of these promises are unfunded.2 America's largest corporations have made unfunded pension promises totaling $450 billion3 and an additional $340 billion of unfunded promises for post-retirement health care.4 More than half of U.S. workers are now enrolled in 401(k) plans, widely viewed as the alternative to traditional employer-sponsored pensions. Yet the amounts they are contributing and the investment strategies they are following cannot begin to match the retirement incomes from traditional pension plans.
In addition to desperately needed reforms in Social Security, Medicare and Medicaid, many other changes are required to allow boomers to save more money, invest properly and plan adequately for their retirement years. We address 10 of those reforms below.