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During the past 20 years, the author has watch China move from being a developing country into an industrial superpower
Money Moves, 5/24: Chocomize Co-Founder Fabian Kaempfer talks with Bloomberg’s Deirdre Bolton about the business of customizing chocolate
The president's campaign has a new rule—no cell phones allowed
In honor of remote control inventor Eugene Polley, we recognize other influential but neglected inventors who have felt the sting of stolen glory
Forget Adderall. Traders now pop chia seeds to stay focused and energized
The Italian automaker and others are adding hybrid technology to elite cars
The storied bridge that links San Francisco and Marin County changed the face of California
Schools cultivate ties with startups before they're big successes
Dave McClure's traveling venture capital show scours the world for promising startups
Get Four
|  | FEBRUARY 2, 2004
By Amey Stone Robbing Peter Jr. to Pay Paul Sr. [Page 2 of 2] Even more worrisome, the government seems intent on spending more on other things to keep boomers happy. For example, the new Medicare overhaul, which provides some prescription-drug coverage to seniors, is now estimated to cost at least $530 billion over the next 10 years, up from an estimate of $400 billion when the law was signed last December. Meantime, Bush has promised more tax cuts. In the short term, "the U.S. is big enough and strong enough to handle its debts," says Deak. "The big problem is that deficits work to force interest rates higher eventually." For now China and Japan's massive buying of U.S. Treasury bonds is helping keep rates low. But down the road, that demand will cool, believes Zandi. SHRINKING BENEFITS. When rates rise further to keep foreign investors attracted (in addition to being the inevitable consequence of improved economic growth, hinted at by the Federal Reserve on Jan. 28), Gen X-ers will feel the pinch. Mortgage rates will creep higher, making homes less affordable and hurting the housing market. And it will become harder for consumers to pay their debts. Smith estimates that two-thirds of consumer debt has a variable rate. That means the cost of servicing debt will go up as rates rise. Gen X-ers are already feeling one pinch: More businesses are curtailing benefit programs, partly as a result of the high cost of health-care and retirement benefits for all those boomers. That's happening even though a Jan. 14 survey by the Kaiser Foundation found that 10% of large companies had eliminated subsidized health-care benefits for future retirees in the past year, and 20% said they were likely to end coverage in the next three years. These changes primarily affect new hires, leading to a two-tiered system where future retirees will get fewer benefits than current ones, notes Smith. Making matters worse, corporate retirement plans are getting less generous as underfunding of pensions reaches a historic high. A Dec. 23 study from a Standard & Poor's research arm found that despite strong stock market gains, pension-funding shortfalls worsened in 2003, growing to a record $259 billion, from $212 billion in 2002. The pension problem hints that an even bigger problem may be lurking: Underfunded 401(k) plans. YOUNG HAVE-NOTS. "Not only are there going to be a lot more people retiring, but how many of them have made any preparations beyond relying on Social Security and Medicare?" wonders Deak. Some economists even speculate that as boomers start selling off their assets -- primarily homes and stocks -- to fund their retirements, they'll create gluts that could drive down housing prices and the stock market. Most economists insist that such worries are premature. For now it's enough to fret about mounting federal debt, a huge Social Security funding gap, and worsening retirement-plan shortfalls at the same time the first boomers are getting ready to retire. "The most fundamental conflict is between the haves and have-nots," says Zandi. "But younger workers tend to be in the have-not group." Thus, pressure is mounting on both aging boomers and the Gen X-ers that will follow them. And soon, they may be ready to rumble.
 Stone is a senior writer at BusinessWeek Online and covers the markets as a Street Wise columnist and mutual funds in her Mutual Funds Maven column Get BusinessWeek directly on your desktop with our RSS feeds.  Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. Learn more, go to the BusinessWeekOnline home page  | | |
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