"Meet the Generations": Baby Boomers
Meet John, a 56-year-old fictional Baby Boomer "profiled" in the fourth installment of our "Meet the Generations" blog series, inspired by our latest paper "America's Fiscal Choices at a Crossroad: The Human Side of the Fiscal Crisis.
Because he will continue to work longer, John’s life will still be shaped by issues related to his job and income prospects. The older he gets, however, the more important macro-fiscal issues relating to his savings, pension, and health care will become. As he approaches retirement, he will increasingly struggle to maintain his standard of living while trying to build his savings. (John didn’t save enough earlier.) He is also supporting his elderly parents. (They did not save enough either.) With all of these financial pressures, John will have to work much longer than he thought in order to build the kind of future he had envisioned.
How will our leaders' fiscal choices affect John?
Fiscal Gridlock (Scenario One). If our political leaders do not change course, John will suffer through a fiscal crisis or a crisis with fiscal dimensions sometime in his life. While the timing or tipping point cannot be predicted with certainty, experts agree that at some point our creditors will refuse to finance national borrowing that is growing a lot faster than our national income. It is very possible that the crisis will occur at a time when John is quite vulnerable – when he is approaching retirement but has not quite saved enough to retire. (Experts think that the risk of a crisis has already risen.) John may be laid off suddenly as businesses go bankrupt or try to survive by shedding highly paid senior employees like him to reduce costs. This probably means he will have to draw on public safety nets more than he expected and will not be able to save what he needs to support himself and his parents in retirement.
Even if a full-blown crisis does not occur, pressures from our massive borrowing on interest rates as the economy strengthens will slow growth and investment. John’s income and savings attempts will be hurt in a weaker job market with lower growth. John’s living standards – and those of his parents - will be sharply reduced. Rising poverty for John and other Boomers as they become senior citizens will be a serious concern.
Fiscal Recovery Plan (Scenario Two). John will have higher living standards if our policymakers take sensible fiscal action sooner rather than later. Importantly, putting a fiscal recovery plan in place soon will mean that John and other Baby Boomers will likely avoid the sharp disruption and immediate economic devastation to jobs and income that usually accompany a fiscal crisis.
But, more basically, John will also be better off over time as policymakers reduce national borrowing pressures on the economy. Once initial belt-tightening effects from a fiscal recovery plan recede (probably tough on some of the oldest non-retiree Boomers), improved fundamental economic conditions will increase John’s well-being (and his family’s). If our fiscal house is put in order, interest rates will be lower than otherwise, which will mean faster growth, stronger employment and greater income prospects for John and his fellow Baby Boomers. Then, as he looks to retire, he will be able to plan more effectively if adjustments to programs like Social Security and Medicare have been made before he is in his 70s or early 80s.
John and his family (and everyone else) will also benefit from increased fiscal space, one of the key by-products of fiscal adjustment: if U.S. fiscal imbalances are reduced enough, we will have the fiscal flexibility to respond to emergencies (including natural disasters, and economic, financial or national security shocks from elsewhere) without increasing creditor risk from having too much debt.