Set down your phone for a minute. This might concern you. If you are reading this on your phone: Scroll slowly.
I spoke with
According to Grossman, we are facing “an intergenerational avalanche.”
This can’t be a surprise to any kid born to a cohort of parents with an atomic era name like “Baby Boom.” And it shouldn’t suddenly upset Millennials who can already see their paychecks slashed for state entitlement programs.
Yet, Grossman has found that we need a wake-up call nonetheless.
What is happening?
Grossman: The root cause stretches over decades. The Baby Boom generation was far larger than both its predecessors and immediate successors. This allowed benefit programs to grow, in nature and amount, without causing undue strain on the economy or resources. The Baby Boom created larger and larger future demands.
Unfortunately, these future liabilities, most of which were assumption-based and underestimated, were not properly accounted for, and insufficiently reserved for and significantly underfunded.
Where are we headed?
Grossman: We are now entering the “realization” period. Several things will happen. First, reserves will dwindle as spending far exceeds receipts. When funds run out of the programs, the government will bleed red ink. Annual deficits will grow and accumulated liabilities will become larger and larger.
The economy will become less efficient and competitive, lowering growth, and making the burden of financing these programs even more onerous.
What can young people expect as unfunded liabilities grow?
Grossman: Young people already find jobs hard to get, are paid lower on a relative basis to prior generations, and have lower expected earning trajectories over their working careers. This is slowing household formation. This also makes it harder to save and invest for the future, which implies that long term returns on assets will be lower—Millennials won’t have the savings to pay for them—which will actually put further stress on a retirement system that relies on high returns for funding.
What can Millennials do to turn this around long-term?
Grossman: For Millennials, the solution I think is most appropriate is to seek lower benefits and to insist that seniors bear a far larger part of the actual cost of the benefits they receive. The biggest issue is that these programs are true political hot potatoes. The biggest voice wins and seniors and Boomers have loud, powerful vocal chords. Millennials need to counter this—the sooner the better.
