(FORTUNE Magazine) – A PIG IN A PYTHON is what demographers whimsically call the baby boom, that troublesome lump of 75 million Americans born between 1946 and 1964. Almost one-third of the population today, the boomers have distended American society at every stage of their lives, bursting schoolroom walls in the 1950s and upending the nation's tastes and values in the 1960s and 1970s. The worst is yet to come. As the boomers start to retire, they could trigger a bitter war between the generations. Boomers are likely to demand the same levels of retirement benefits that they pay their parents today through mandatory ''contributions'' to Social Security. When it comes to Medicare, the hospital insurance and medical benefits available to most people over 65, the boomers will probably ask even more, because they are going to live longer, a blessing mixed with expensive health problems. The younger, much less populous generation that is supposed to pay for these goodies -- call them the baby-busters -- probably will refuse to shoulder the burden. If they balk, says Ken Dychtwald, 37, a San Francisco gerontologist, the graying boomers ''could be sent on a five-day camping trip with two days worth of food.'' The two generations, enraged by mutual feelings of being cheated, will go for each other's throats. To avoid this civil war the support system for the elderly ought to be reformed, and the time to start is now, before the battle begins in earnest and while the Social Security trust funds still are flush. Boomers, busters, and the 23 million currently retired all must abandon the traditional view of Social Security. ''The assumption that each working generation will take care of the one that preceded it is finished,'' says Senator David F. Durenberger, 52, a Minnesota Republican and founder of Americans for Generational Equity, or AGE (see box). The old will have to rely increasingly on themselves. At the moment the traditional system is working well enough to mask the coming conflict. The leading edge of the baby boom recently entered its 40s; almost everyone at the trailing edge has left school and joined the labor force. Under FICA -- the Federal Insurance Contributions Act -- workers chip in 14.3% of the first $43,800 of their wages to Social Security (15.02% beginning next year), half of it withheld and half paid directly by their employers. In 1986 those contributions raised $194 billion for monthly Social Security stipends to the retired, the survivors of deceased wage earners, and the disabled, as well as $50 billion for hospital bills covered under Medicare. From income taxes unrelated to the FICA payroll tax, the federal government paid out another $18 billion in Medicare benefits for visits to the doctor, and the elderly contributed $5 billion in Medicare premiums. In all, the government lavished 27% of its 1986 budget on Social Security and Medicare, almost exactly the same as its spending for defense. The biggest part of Social Security is purring along as smoothly as a Rolls- Royce. FICA contributions have so exceeded outlays for the old age, survivors, and disability insurance programs, or OASDI, that the OASDI trust funds, where excess contributions are stored, have burgeoned to $47 billion. As the boomers move into their peak earning years and the number of retired remains relatively small, the funds should keep swelling, to some $1.3 trillion by the year 2000. But another part of the program is rattling like a jalopy. By 1994, according to the projections of government actuaries, the runaway inflation in health care costs will start eating into the $103-billion trust fund that backs up the hospital insurance portion of Medicare. The fund will run out by 2002. To keep making hospital payments, Congress could try raising payroll taxes yet again. But it probably will take the easy way out and shift billions from the robust OASDI trust funds into the decrepit hospital fund. Even without that jolt, the entire Social Security system is headed off a cliff. In 1965 the number of births dropped below four million a year, signaling the beginning of the baby bust. Today 3.3 workers toil to support a single beneficiary. By 2010, when the first wave of boomers nears 65, only 2.9 workers will be around to do the job. Ten years later, workers' contributions won't cover outlays, and the Social Security trust funds will have to make up the difference. The funds will start shrinking drastically after 2030, when the support ratio withers to 1.9 workers per beneficiary. As AGE expressed it in a brochure that some senior citizen groups branded as bigotry, the working American family will become ''indentured servants.'' An immediate way to slow the headlong plunge is to manage the surpluses of the next ten years wisely. As the trust funds grow fatter, Congress will be tempted to use them not just to subsidize existing medical benefits but to expand all payments to retired folk, who vote in proportionately greater numbers than the citizens who support them. Some critics see the thin edge of the wedge in pending legislation to insure the elderly against the costs of catastrophic illness. Though retirees are supposed to pay for the insurance, some Congressmen are already trying to double the size of the program, from $3 billion to about $6 billion. If it keeps mushrooming, the elderly will not be able to afford it, and Congress may dip into Social Security's surpluses. That would be squandering. The nation must husband surpluses for the boomers' big retirement party or see the Social Security system go broke for sure. True, the system has been close to bankruptcy before and yet has been saved. In 1983 the National Commission on Social Security Reform, chaired by Alan Greenspan, nominee for the job of Federal Reserve chairman, helped keep the system solvent by delaying a cost-of-living allowance and increasing payroll taxes. A stronger economy with minuscule inflation completed the rescue. But no rescue is in sight for the long run. Even if Congress keeps its hands off the surpluses, allowing them to compound, the demands of the boomers will throw Social Security into deficit. The level of initial retirement benefits is tied to wages, which are likely to keep compounding at 5.4% a year, as they have since 1947. To give retired boomers the same percentages of their preretirement income that today's elderly receive, and similar medical care, workers of the future will have to turn over as much as 40% of their paychecks.

IT IS IMPOSSIBLE to believe they will be so generous, especially because the two generations will be separated by racial differences as well. The aged population will be largely white. In states like California and Texas, though, much of the work force will be nonwhite, mainly Hispanic. They are sure to resent paying ever more dollars to grandparents who do not look like their grandparents. ''The elderly will be seen as an Anglo problem, pediatric health as a Mexican problem,'' says David Hayes-Bautista, a professor of medicine at the University of California at Los Angeles. Solutions that avoid forcing the old to pay more are politically tempting, but they seem unworkable in practice. Philip Longman, 31, author of Born To Pay, a study of the boomers' dilemma, suggests that the government swell the size of the future labor force by encouraging families to have more children. People without children, for example, could be taxed to finance day care centers; it will be other people's children, after all, who will take care of childless retirees. But low birth rates seem an inexorable product of affluent societies. France, which has demographic problems similar to those of the U.S., has for years used tax incentives to encourage big families but so far with little success. Another tactic for beefing up the number of Social Security contributors is to raise immigration quotas. The U.S. could easily boost its labor force by, say, tripling the number of immigrants it admits every year, from 550,000 or so, to 1.7 million. But a flood of immigrants is exactly what organized labor thought it had stemmed with the immigration law that went into effect last May. Congress would be loath to undo its handiwork by radically raising quotas. Since the supply of contributors is not likely to rise, the demand for Social Security benefits must fall. That will not necessarily lead to hardships that violate the American sense of social justice. The key is a four-point program that would redefine what old is, encourage people to pay more for their own retirement, spread the burden of support among the elderly, and avoid inflating health care costs even more. -- Workers should stay on the job until 70. Better health care and working conditions are keeping people younger. Most employers are forbidden to impose a mandatory retirement age. Yet the country still is stuck with 65 as the official beginning of old age, the time at which a worker can retire on full Social Security pay and qualify for Medicare. Despite their fitness for the workplace, Americans are quitting young. . Nearly half of all men between 61 and 64 are retired. Corporations encourage early leave-taking these days because they want to trim their payrolls. The Social Security system gives companies and employees an incentive to part company. By retiring at 62 a worker can collect monthly benefits equal to 80% of those he would have received if he had waited until 65. With that kind of deal, most people have little reason for continuing to work. Thanks to the Social Security reform commission, the age at which a worker can qualify for full retirement benefits will inch up in the next century. Someone who turns 25 this year cannot get full benefits until he is 67. That's the right idea, but the pace is too slow. The scheduled rises in the qualifying age mean that the officially old will constitute 18% of the population in 2030, vs. 12% today. THE GOVERNMENT should make 70 the eligibility age for the first of the boomers, today's 41-year-olds. That way only 15% of the population would qualify for full benefits in 2030, easing the burden on working stiffs. Eliminating early retirement, shrinking early retirement benefits, or raising the early retirement age also would help. -- Workers should get bigger tax breaks for funding their own retirement. A typical worker who retired last year at 65 will, by one measure, strike a bonanza. By collecting $583 a month he will in four years recover everything he paid out. But the young worker starting out may be lucky just to get his money back. Republican presidential hopeful Pierre ''Pete'' du Pont is pushing an intricate plan to supplement retirement income. For every $1 a worker pays in FICA tax, he would be able to put another $1, up to a total of $2,500 a year, into a financial security account and earn a tax credit for his investment. FSA trustees would invest in corporate securities, government bonds, and such. Assuming a 4% rate of return, the FSA account would provide nearly four times the retirement income Social Security offers. ''All other solutions are just tinkering,'' says du Pont. ''We're going to the core of the problem.'' But he's boring too deep. The credits would cost the Treasury $20 billion or more a year by du Pont's estimate, an intolerable loss in an era of towering deficits. A more modest scheme would be to restore tax deductions for all workers who put money into individual retirement accounts. The Tax Reform Act of 1986 took the country half a step in the wrong direction. Workers who earn more than $35,000 a year and are covered by corporate pension plans are no longer allowed to deduct IRA contributions. Congress should reverse itself. Doing so would cost the Treasury about $5 billion a year. To boost IRA saving, the government must also confess the truth: It will pay today's workers much leaner retirement benefits than today's elderly get. -- Rich retirees should subsidize poor ones. ''People like me don't deserve Social Security,'' insists Donald MacNaughton, 70, who as a former chairman of Prudential Insurance Co. receives a pension of $180,000 a year. A selfless thought, to be sure, but dropping the wealthy from the rolls would be a dud on Capitol Hill. The protectors of Social Security maintain that the only way to ensure broad support for the program is to give the mighty as well as the humble a stake in it. The solution is to let rich and poor alike collect Social Security but tax benefits as fully as wage and investment income. At present many of the 2.2 million or so elderly with incomes above $25,000 pay taxes on up to half their Social Security benefits. Alan Greenspan suggests taxing the full amount of benefits like any other income. The catastrophic illness insurance Congress is fashioning also calls for the elderly rich to help the elderly poor. The fatter cats, with income of $75,000 or more a year, will get the same benefits as the impoverished but will probably pay around $44 a month. Old people with annual incomes below $15,000 are likely to pay little or nothing. With a deductible of $1,000 or $2,000, depending on which version of the bill is enacted, the new insurance will pay for hospital stays that last beyond the 59 days that Medicare covers in full. -- Don't pay for nursing home care with more payroll taxes. Medicare pays nothing for nursing home treatment, which costs $22,000 a year on average. Many retired people in nursing homes are forced to empty their pockets and sell their assets until they are down to several thousand dollars and a house, which qualifies them to apply for Medicaid, the program that helps the poor of all ages. It's a cruel solution to a problem that will only grow with the longer lives and greater numbers of the retired. LOBBYISTS FOR senior citizens hope to use the 1988 elections to push through federal insurance for nursing home care. Alice Rivlin and Joshua Wiener, senior fellows at the Brookings Institution, say it would take an horrendous FICA tax of 2.8% to underwrite a first-rate nursing home payment system. That indeed is the wrong way to do it. Subsidies that do not require the beneficiaries to pay at least some of the cost inflate demand for care. And a new FICA tax would add to the burden of the baby-boomers, who should be socking the money away for their own golden years. One option is private insurance. Most insurers have been skittish, but this summer Prudential will begin offering members of the American Association of Retired Persons a policy that will pay them, after 90 days of care, $50 a day for a nursing home stay of up to three years and $25 a day for care at home. Premiums would range from $30.50 to $115.75 a month. Rivlin and Wiener predict that private insurance for nursing home care will boom in the next few years and eventually cover a third of the elderly. The other two-thirds face a tougher choice. If they want to avoid selling their assets while they are alive, they and their heirs may have to go along with broader, higher inheritance taxes. The net worth of those over 65 amounts to about $2 trillion, according to a 1984 Census Bureau survey, and 5% or so is passed on to heirs every year. Representative Jim Moody, 51, a Democrat from Milwaukee and co-chairman of AGE, sees those assets as a logical way to pay for nursing home care: ''It's not fair to spend society's money to preserve assets for someone's children.'' None of these steps will ease the pain of dealing with the last big bulge that the baby-boomers make. Today the U.S. spends 11% of GNP on health, more than most other industrial nations. That share will come to 15% by 2000, thanks to the rising cost of high-tech medical care. The biggest jump will come after 2026, when the first boomers reach 80. At that age, they become the ''old old,'' who require the most intensive treatment. Should society pay without question for costly medical machines and procedures to keep the old old alive? ''Taking care of the elderly is an endless open frontier,'' says Daniel Callahan, director of the Hastings Center in Briarcliff Manor, New York, which studies medical ethics. ''Maybe we shouldn't spend any more on health. Our roads are in terrible shape, and so are our secondary schools.'' Callahan and others argue that society should ration its spending among the generations, which would mean spending less to prolong the lives of the elderly. The issues that divide the generations are literally matters of life and death. The hard choices must be made eventually. The question is, which generation will make them.

CHART: NOT AVAILABLE CREDIT: ROSS MACDONALD CAPTION: As baby-boomers ease into their rocking chairs during the next century, they can count on fewer workers to prop them up. Without dramatic changes, the Social Security system will collapse. DESCRIPTION: Decreasing number of workers per Social Security recipient, 1955, 1975-2000, 2030.