Instead of seeing older workers staying on the job longer as the economy has worsened, the Social Security system is reporting a major surge in early retirement claims that could have implications for the financial security of millions of baby boomers.
Since the current federal fiscal year began Oct. 1, claims have been running 25% ahead of last year, compared with the 15% increase that had been projected as the post-World War II generation reaches eligibility for early retirement, according to Stephen C. Goss, chief actuary for the Social Security Administration.
Tuesday, May 26, 2009
Between now and then, the drain on the rest of government will occur invisibly. The inadequate trust funds will steadily diminish. The government bonds in these trust accounts will be presented to the Treasury for payment. Those payments can be financed in only three ways: bigger deficits, higher taxes or spending cuts.
But without a genuinely forcing event — something requiring a response — presidents and Congresses sidestep the underlying choices. They profess concern, but their proposals are cosmetic, ineffectual or both.
"We must save Social Security for the 21st century," proclaimed Bill Clinton. "The system . . . on its current path, is headed toward bankruptcy," warned George W. Bush. Now, Barack Obama seems to be reverting to this familiar form.
"What we have done is kicked this can down the road," he told the Washington Post. "We are now at the end of the road." Great rhetoric — but that's all. Although no one expects Obama to have a grand blueprint after just four months, he has yet to signal even general support for needed policies: gradual increases in eligibility ages; gradual benefit reductions for wealthier retirees; a fundamental overhaul of Medicare.
Indeed, Obama's plans to expand government-paid health insurance might increase Medicare spending by aggravating medical inflation.
Like General Motors, we continue bad habits because we can — temporarily. Procrastination is a bad policy. The longer changes are postponed, the more wrenching they will be. The hurt for retirees and taxpayers will only grow with time.
Social Security last faced a forcing event in 1983, when a dwindling trust fund prodded Congress to make changes. The lesson: A "crisis" is just what we need.
Saturday, May 23, 2009
It began earlier this month when the Congressional Budget Office projected that for the first time in three decades, there would be no cost-of-living adjustment -- or COLA -- for Social Security recipients in 2010, 2011 and 2012.
These adjustments are designed to keep elderly Social Security recipients from losing purchasing power as prices rise, so it's not surprising that the initial reaction was one of concern.
"The absence of a cost-of-living adjustment ... will be a shock to older Americans already hit by plummeting home values, investment losses and rising health costs," The New York Times wrote earlier this month.
Senior groups were predictably up in arms. An AARP spokesman moaned that "most seniors have never been through a year in which there was no Social Security COLA." Some liberal bloggers accused the Obama administration of betraying seniors. And there's already talk of legislation to address this perceived inequity.
But the outrage is unwarranted. Seniors have never faced a year without a COLA, but that's only because they've never experienced a year without inflation, which is what the Congressional Budget Office says is what's happening now.
The COLA is not supposed to be a "raise" in Social Security benefits, even if seniors often see it that way. Rather, when the consumer price index, or CPI, rises in a givenyear, Social Security benefits are adjusted upward to match that rise in inflation. If done accurately, the purchasing power of Social Security benefits before and after a COLA will be precisely the same.
Under law, Social Security benefits are not allowed to outpace inflation except in one special case: when prices fall. That's because Congress, leery of the political consequences of cutting anyone's benefit check, structured the Social Security Act so that when inflation is negative, COLAs don't go down, but they remain at zero. And when inflation is negative and the COLA is at zero, purchasing power is actually going up. If retirees understood that, they'd hope to never receive another COLA.
That's what's happening now. Rising energy prices drove the CPI sharply upward last year, and as a result, seniors received a large 5.8 percent COLA to compensate in 2009. Since then, however, almost that entire CPI increase was lost as energy prices dropped, and the CPI is projected to remain below 2008 levels through 2012.
In a world in which policy trumped politics, falling prices would lead to negative COLAs just as rising prices lead to positive COLAs. But that's not the world we live in.
And there's another twist: Congress also has ruled that increases in Medicare Part B premiums, which are automatically deducted from retirees' Social Security benefits, cannot result in benefits declining from year to year. If there is no COLA this year, this implies that Medicare Part B premiums cannot increase either, despite the fact that by law these premiums must finance 25 percent of total Part B costs.
Groups such as the AARP are surely aware that a zero COLA actually means higher real benefits and lower Medicare Part B premiums. But the AARP nevertheless warns that seniors "feel like they are falling behind." That's irresponsible -- especially from such a powerful lobbying organization with the ability to change the debate in Washington. If the AARP seeks to be something more than a mere "union for retirees," it must use its considerable influence more carefully.
Inflation protection for retirees is important, but it's just as important not to increase Social Security benefits and reduce Medicare premiums when it's not necessary -- and when these programs are, as the federal government regularly informs us, vastly underfunded.
If Congress were to succumb to political pressure and provide a COLA when none is needed, it would only compound the problem
Unfortunately, the Medicare and Social Security trust funds won't be exhausted until 2017 and 2037, respectively, by the latest projections. Although these bankruptcy dates are advanced from last year's estimates (2019 for Medicare and 2041 for Social Security), they're still fairly distant. Between now and then, the drain on the rest of government will occur invisibly. The inadequate trust funds will steadily diminish. The government bonds in these trust accounts will be presented to the Treas-ury for payment. Those payments can be financed in only three ways: bigger deficits, higher taxes or spending cuts.
But without a forcing event—something requiring a response—presidents and Congresses sidestep the underlying choices. They profess concern, but their proposals are cosmetic, ineffectual or both. "We must save Social Security for the 21st century," proclaimed Bill Clinton. "The system … on its current path is headed toward bankruptcy," warned George W. Bush. Now Barack Obama seems to be following suit.
"What we have done is kicked this can down the road," he told The Washington Post. "We are now at the end of the road and are not in a position to kick it any further." Great rhetoric—but that's all. Although no one expects Obama to have a grand blueprint after just four months, he has yet to signal even general support for needed policies: gradual increases in eligibility ages; gradual benefit reductions for wealthier retirees; a fundamental overhaul of Medicare. Indeed, Obama's plans to expand government-paid health insurance might increase Medicare spending by aggravating medical inflation.
Like General Motors and Chrysler, we continue self-defeating habits because we can—temporarily. These are not easy issues. But procrastination is a bad policy. The longer changes are postponed, the more wrenching they will be. The hurt for retirees and taxpayers alike will only grow with time. Social Security last faced a forcing event in 1983, when a dwindling trust fund prodded Congress to make changes. The counterintuitive lesson: a "crisis" is just what we need.
U.S. Treasury Secretary Timothy Geithner said Thursday that the Obama administration and Congress will be working together to reduce the nation’s deficits once the recovery is underway.
“The President has made clear that he will not seek any major revenue increases until 2011 when the recovery should be firmly in place,” Geithner said in prepared opening remarks to lawmakers today during a hearing with the House Committee on Appropriations.
“He has, however, been equally clear that once recovery is underway, we must get our fiscal house in order or risk having government borrowing crowd out productive private investment,” he added. “Treasury and the White House will work with Congress to make the tax changes that are necessary to reduce deficits and to do so in a manner that is fair to all Americans.”
I guess they just decided to not count the massive spending bill earlier this year...or health care reform...or continued bank bailouts....
It's been an awful week for the dollar, which sank to its lowest level of the year Friday, and with markets now focused on a trillion-dollar-plus U.S. deficit, the greenback's sharp slide is not over yet.
Unlike in the recent past, when investors terrified of a global financial meltdown sought safety in Treasury bills and other dollar assets, the greenback is now being driven by its own fundamentals, and all of them look fairly bleak.
Massive spending and unorthodox monetary policies over the last year have the United States looking down the barrel of a $1.75 trillion deficit. That reality took on a new relevance this week when Standard & Poor's said it may cut Britain's AAA credit rating because of soaring public debt, prompting fears that the United States could be next.
For years, the world has wanted Americans to consume less and to save more. They are getting their wish. The U.S. savings rate, near zero less than a year ago, has soared to nearly 5 percent of income and could go higher. Total personal savings jumped from $20 billion in the first quarter of 2008 to a whopping $453 billion during the same period of 2009. The real danger is if the savings rate goes to 7 or 8 percent. If that happens, economic recovery could be seriously delayed.
When financial markets are working efficiently, saving is a good thing. At this point, however, with major U.S. industries at risk of complete meltdown, Americans desperately need to consume. Yet households are in a totally defensive mode because the meltdown to date has destroyed $14 trillion of their wealth. They have been saving like never before.
Friday, May 22, 2009
America could be the next major economy to be slapped with a debt alert after Standard & Poor's issued an unprecedented warning to Britain yesterday.
The US national debt is expected to hit critical levels even sooner than Britain's, suggesting it is also at risk of being placed on 'negative' watch by the credit rating agency.
Standard & Poor's yesterday threatened to remove Britain's coveted AAA status for the first time since it began assessing the public finances in 1978. America has enjoyed a gold-plated rating since the 1940s.
The entitlement crisis existed long before the current recession. Consider Social Security: In 1950 there were 16 workers for every person receiving Social Security benefits; in 2015 there will be only three workers for each beneficiary; by 2030 the ratio will be down to an estimated 2.2 to 1.
Perhaps the greatest misconception regarding Social Security is that a trust fund exists. There is no locked box! Since 1939 a federal law has required Social Security to "invest" its extra money in Treasury bonds. In other words, the government lends the money to itself. The extra money then becomes part of other tax revenues and is spent on programs such as education, foreign aid and defense.
Voters in California on Tuesday slapped down a slew of tax hikes and borrowing measures that Gov. Arnold Schwarzenegger said were needed to solve the state's fiscal dilemma.
Four out of five measures dealing with higher taxes had failed by nearly 2-to-1, and the fifth was trailing badly. The only measure to pass was one that banned pay raises for elected officials in deficit years.
The federal agency that guarantees corporate pensions was $33.5 billion in the red at the end of March, triple its deficit six months earlier, the agency's head told a Senate committee yesterday.
The recession threatens to add to the strain on the Pension Benefit Guaranty Corp. by pushing more companies into bankruptcy and leaving the struggling agency responsible for their pensions. For example, the agency faces a potential tidal wave of claims from Chrysler and General Motors, whose pension plans are underfunded by an estimated $29 billion, the Government Accountability Office said.
If the PBGC's condition continues to deteriorate, the government could come under pressure to shore it up with taxpayer funds, the GAO said in testimony to the Senate's Special Committee on Aging."The committee has grave concerns about the agency's viability,"
Now we are concerned about the solvency of Social Security and Medicare (K.C. Star, “Recession Pushes Funds Even Closer to Insolvency, 5/13), yet these are about the only federal programs that still pay for themselves. The 2.9 percent of wages and salaries for Medicare, however, cannot keep up with double-digit inflation in medical costs.
Even though employers pay half of the 15.3 percent in retirement payroll taxes, over 70 percent of taxpayers pay more to Social Security and Medicare than income taxes. High-income taxpayers pay nothing to Social Security on earned income over $102,000, nothing on municipal bonds, and a maximum of 15 percent on capital gains and dividends.
Wednesday, May 20, 2009
The deficit at the federal agency that guarantees pensions for 44 million Americans tripled in the last six months to a record high, reaching $33.5 billion, largely as a result of surging bankruptcies among companies whose pensions it expects it will soon need to take over.
The agency, the Pension Benefit Guaranty Corporation, faced a shortfall of just $11 billion as of October. The combined effect of lower interest rates, losses on its investment portfolio and rising numbers of companies filing for bankruptcy produced the jump in its projected deficit, officials said Wednesday.
Monday, May 18, 2009
The Obama administration's budget chief said on Sunday there are signs that the free-fall in the economy seems to have halted.
"There are some glimmers of sun shining through the trees, but we're not out of the woods yet," White House budget director Peter Orszag said on CNN's State of the Union.
U.S. economic data have shown evidence that the recession's worst phase may be over, with April consumer prices unchanged and industrial output declining at a slower pace than in March.
Federal Reserve Chairman Ben Bernanke has also suggested that the recession should end this year as long as there is no reemergence of the credit crunch.
Orszag said as the economy starts to recover the deficit will come down quickly. The White House recently forecast a higher budget deficit of $1.84 trillion, or 12.9 percent of gross domestic product, for the fiscal year ending September 30.
"The economy remains weak (so) we will continue to have these elevated deficits so, again, we're going to have more to say about this in a couple of months," Orszag said.
Sunday, May 17, 2009
Last July, when the federal deficit swelled to a then-record $490 billion, Speaker Nancy Pelosi (D., Calif.) criticized President Bush for having "mortgaged our future."
But with a Democrat in the White House now, Pelosi and her colleagues are overspending as if they're determined to make the Bush-era deficits look like pocket change.
The good news is that President Obama is apparently deeply concerned about our level of deficit spending and the reliance on foreign governments.
Bloomberg: “We can’t keep on just borrowing from China,” Obama said at a town-hall meeting in Rio Rancho, New Mexico, outside Albuquerque. “We have to pay interest on that debt, and that means we are mortgaging our children’s future with more and more debt.”
Holders of U.S. debt will eventually “get tired” of buying it, causing interest rates on everything from auto loans to home mortgages to increase, Obama said. “It will have a dampening effect on our economy.”
The bad news is that Obama's solution most likely revolves around higher taxes, a strategy that's not only likely to depress growth, but one that probably won't close the gap as much as the government thinks it will.
To put it another way, the total unfunded indebtedness of Social Security and Medicare comes to $106.4 trillion. That is how much larger the nation's capital stock would have to be today, all of it owned by the Social Security and Medicare trust funds, to generate enough income to pay all the benefits that have been promised over and above future payroll taxes. But the nation's total private net worth is only $51.5 trillion, according to the Federal Reserve. In effect, we have promised the elderly benefits equal to more than twice the nation's total wealth on top of the payroll tax.
Incredible article...a must read for anyone interested in this subject.
Barack Obama came to office with a theory. He believed that the country was in desperate need of new investments in education, energy and many other areas. He also saw that the nation faced a long-term fiscal crisis caused by rising health care and entitlement costs. His theory was that he could spend now and save later. He could fund his agenda with debt now and then solve the long-term fiscal crisis by controlling health care and entitlement costs later on.
Right now, his spending plans are concrete and certain. But his health care savings, which make those spending plans affordable, are distant, amorphous and uncertain. Without serious health cost cuts, this burst of activism will hasten fiscal suicide.
Thursday, May 14, 2009
But, based on some rather simple math, this will actually happen next year ($11.25 trillion + $3.10 trillion = $14.35 trillion). That would put the National Debt at 100% of GDP for the first time since WWII.In Fiscal Year 2008, the U. S. Government spent $451 Billion of our money on interest payments to the holders of the National Debt. This year, with the debt even higher, the government will spend even more than $451 billion servicing our debt.28% of our total debt (and more than half our publicly held debt) is held by foreigners or foreign governments, the highest percentage since the 19th CenturyThe interest expense paid on the National Debt is the fourth largest expense in the federal budget. Only Medicare-Medicaid ($739b), Social Security ($700b), and Defense ($657b) are higher.Interest payments on the debt do not benefit taxpayers in any way. We get us nothing in return.
Is the Important Year to Consider 2037, 2016, or 2009?
The year when Social Security begins to spend more than it takes in, 2016, is by far the most important year. From that point on, Social Security will require large and growing amounts of general revenue money in order to pay all of its promised benefits. Even though this money will technically come from cashing in the special issue bonds in the trust fund, the money to repay those bonds will come from other tax collections or borrowing. The billions that go to Social Security each year will make it harder to find money for other government programs or require large and growing tax increases.
A second important year is 2009–this year. Starting now, the annual Social Security surpluses that Congress has been borrowing and spending on other programs will begin to shrink. In fact, because the recession has both reduced Social Security payroll tax revenues and increased its benefit payments, Congress will have to either find other sources to replace the money that it borrows from Social Security or shrink spending. This year, the surplus will be only about $18 billion, and although it is predicted to grow slightly as the economy recovers, no longer can Social Security surpluses be used to mask the real size of the deficit and finance other spending.
Compared to these two dates, 2037–the year that the Social Security trust fund runs out of its special issue bonds–has little importance.
Wednesday, May 13, 2009
The United States posted its first April deficit in 26 years, a record $20.91 billion shortfall as a deep recession caused revenues to collapse in the year's biggest tax collection month, the U.S. Treasury said on Tuesday.
The deficit, the first for April since a $3.3 billion gap in 1983 as the country emerged from a deep recession, was largely in line with forecasts from Wall Street economists polled by Reuters.
It brought the deficit for the first seven months of fiscal 2009 to a record $802.29 billion after a major positive accounting adjustment for the government's bailout investments.
Everyone knew this day would come. And virtually every economist and actuary who had run the numbers could tell you, within a few years' certainty, the system was going bankrupt.
But all this seemed to happen in the distant future. Last year, both political parties virtually ignored the topic during their presidential campaigns. It became a non-issue issue.
Well, thanks to a profligate federal government, which will double the national debt to $11.5 trillion in just four years, and a recession that has weakened federal tax revenues, we can no longer ignore the problem. The day of reckoning is at hand.
The Social Security Board of Trustees reported Tuesday that costs will exceed revenues in 2016 — a full year sooner than expected just last year. And total assets — including more than 70 years of "surpluses" built up in the "trust fund" — will be completely gone by 2037 — four years earlier than in last year's report.
Tuesday, May 12, 2009
President Barack Obama's newly raised 2009 and 2010 deficit projections show the need to fight spending plans that will swell the "already unsustainable" US debt, a top Republican said Monday.
"It's clear that there is much more that we can do to protect our children and grandchildren from the unprecedented trillions in additional debt proposed by the administration," said Senate Republican Minority Leader Mitch McConnell.
McConnell charged in a statement that Democrats were "adding to the national debt at a rate of more than 100 billion dollars every month" with a budget "that triples the already unsustainable public debt over the next decade."
His comments came after the White House raised its 2009 and 2010 deficit forecasts each by nearly 90 billion dollars, reflecting the cost of fighting the economic crisis, in a finalized budget of 3.6 trillion dollars.
The administration released new projections to the federal government budget for the fiscal year 2010 beginning in October, a week after announcing 17 billion dollars in deficit-reducing cuts to 121 government programs.
Federal government spending for 2010 will increase to 3.591 trillion dollars with revenue estimated at 2.333 trillion dollars, resulting in a deficit of 1.258 trillion dollars, the new tables of data show.
The updated data also showed a 3.998-trillion-dollar budget for 2009 with a deficit of 1.841 trillion dollars, also about 90 billion dollars higher than previously estimated.
Original estimates had foreseen a 1.750-trillion-dollar deficit in fiscal 2009, which ends September 30, then a decrease to 1.171 trillion dollars in 2010.
Monday, May 11, 2009
The White House on Monday pushed up its forecast for the U.S. budget deficit for this year by $89 billion, reflecting the recession, a raft of new unemployment claims and corporate bailouts.
A fresh estimate of the deficit showed it coming in at $1.84 trillion -- representing a massive 12.9 percent of gross domestic product -- in the current 2009 fiscal year that ends on Sept. 30. A prior White House forecast released in February projected a deficit of $1.75 trillion, or 12.3 percent of GDP.
The report may add to the political challenges facing President Barack Obama as he seeks to push through a new healthcare plan and other big domestic initiatives.A White House official said the gloomier deficit picture reflected weaker tax receipts as the economy declined and higher costs for social safety-net programs such as unemployment insurance. Spending on the government rescues for the financial and automobile industries was also a factor in the higher deficit, said the official, who spoke to reporters on condition of anonymity.
For most of the past fifty years Congress has preferred to borrow instead of balancing the annual federal budget. That has led to deepening national debt. Americans have recently had warnings, from the Chinese government and other world markets, that our borrowing spree can't go on forever. We can only hope Congress finally gets the message.
President Obama clearly has not. He has just sent Congress his $3.5 trillion budget for the fiscal year that begins on October 1, along with news that he is asking for $17 billion in savings by trimming 121 government programs. The cuts represent just over 1 percent of the $1.4 trillion deficit estimated by the Congressional Budget Office. The interest on these borrowed funds will be an estimated $172 billion, ten times more than the proposed savings.
The cuts proposed by the president are justified. In remarks Thursday he highlighted some: the "obsolete" LORAN navigation system, which has been mostly supplanted by the Global Positioning System; a duplicative National Institute for Literacy; a Department of Education office in Paris; and an alternative engine for the Joint Strike Fighter. The latter is opposed by the Pentagon but has been kept alive for a decade by Congress to help maintain General Electric's jet engine works.
Mr. Obama pointed out, accurately, that $17 billion is "significant" and enough money to fund larger tuition tax credits, additional Pell Grant scholarships and the national park service's annual budget.
But his spending budget grows by a lot more than that, and faster than government revenues. Mr. Obama's fiscal 2010 budget, moreover, is just the down payment on a spending plan that envisions trillions more in debt over the next decade.
The Congressional Budget Office forecasts that there will be no cost-of-living increase in Social Security benefits for the next three years. It is expected to be 2013 before the next increase. The cost-of-living adjustment is meant to keep benefits for the more than 50 million Americans who receive Social Security current with inflation. When inflation is low, as it is due to the recession, the COLA is low.This is the first time since the adjusted increases started in 1975 that the COLA has been 0 percent, making 2010 the first year most seniors have not seen their benefits go up.
The thing I'd be most concerned about right now is deficits. What we're doing for short-term stimulus is cool and necessary, and I think everybody buys into that. It's what we're doing longer term . . . government infrastructure, government costs we're putting in place. Personally I'm frightened to death of the trillion-dollar deficits everybody's looking at years two through 10 of the next decade. I don't see how those are sustainable . . .
It means a lot for people like Americans because when we start to get up with a deficit which is approaching 100 percent of GDP then . . . the Chinese are going to wake up some day and say, 'I don't want your IOUs anymore,' and all the sudden the dollar's going to be worth 50 percent of what it was worth the day before, which means the standard of living of every U.S. citizen crashes and the government can't print money to make up for that.
How bad will future inflation be? I don't know. Neither does anyone else. It could be a "normal" inflation of 3 to 4 percent a year. It could also be a banana republic's 10 percent a month.
What we know is that all governments make promises they can't fulfill. Our government certainly has. Under both political parties, it has taken promise-making to a high art. This is not hyperbole. The figures can be found in regularly published government reports.
The figures exist, but they are ignored. News reports regularly inform us of the growing federal deficit, projected at
$1.8 trillion for fiscal 2009 and $1.17 trillion for 2010. But regularly reported, less visible government obligations have been growing much faster.
In the four years between January 2003 and December 2007, Medicare trustees reported that the unfunded liabilities of Social Security and Medicare grew by a stunning $10.4 trillion. The average annual growth was $2.8 trillion.
That's well over the expected formal deficit of $1.75 trillion this year.
In the 2008 trustees' report, the unfunded liabilities of Social Security and Medicare — promises of future retirement and health care benefits — total $42.9 trillion. In a few days, we should be able to read the 2009 report. It's a good bet that the unfunded liabilities will increase by $3 trillion in the new report.
Friday, May 8, 2009
"Something dramatic has happened to the world's birthrates. Defying predictions of demographic decline, northern Europeans have started having more babies. Britain and France are now projecting steady population growth through the middle of the century," Walker writes, noting that the phenomenon of rising birthrates is not exclusive to Europe. "In North America, the trends are similar. In 2050, according to United Nations projections, it is possible that nearly as many babies will be born in the United States as in China. Indeed, the population of the world's current demographic colossus will be shrinking. And China is but one particularly sharp example of a widespread fall in birthrates that is occurring across most of the developing world, including much of Asia, Latin America, and the Middle East."
Policymakers here in Washington would do well to read Walker's analysis. The idea, for example, that the birthrate among Muslim immigrants living in Europe and elsewhere is declining should have a profound impact on U.S. policies in Iraq and Afghanistan and toward Iran and Israel. The uptick in the U.S. birthrate, which reached 2.1 children per woman in 2006—2.1 being the "magic number" to keep a nation's population steady, sometimes called "the replacement rate"—could have a major impact on a number of government entitlement programs, like Social Security, where the retirement of the baby-boom generation is projected to bankrupt the program when there are far too many retirees in the system for each person still working to make the books balance.
"Perhaps the most striking fact about the demographic transformation now unfolding," Walker reports, "is that it is going to make the world look a lot more like Europe.
"The world is aging in an unprecedented way. A milepost in this process came in 1998, when for the first time the number of people in the developed world over the age of 60 outnumbered those below the age of 15. By 2047, the world as a whole will reach the same point," he says, while the United States may be the only country in the West "to have been in the top 10 largest countries in terms of population size in both 1950 and 2050."
A GOVERNMENT-FUNDED research body has recommended that the age of retirement is lifted to 70 to control national debt.
In a report released yesterday, the National Institute for Economic and Social Research concluded that lifting the retirement age, which is currently 60 for women and 65 for men, can get the country’s debt under control within 10 years.
Alternatives to lifting the age in the report were slashing public spending by 10 per cent or a basic income tax rate of 37 per cent.“But whether people choose to work or are forced to work until 70 are two very different things.”
Wednesday, May 6, 2009
The numbers show a genuinely frightening gap between what people have saved for retirement and what they will need. And many of these studies don't take into account last year's stock market crash, which will make the problem worse.
Let's start with the basic fact that only about half of Americans have any employer-sponsored retirement plan at all. The other folks will have to depend on Social Security. For a typical boomer worker, that would mean a monthly benefit of about $2,400 if you reach retirement age of 66 in 2020.
What's going to happen? Certainly, people will try to save more. But my guess, knowing my generational cohort, is that we'll want a government bailout to supplement our too-meager retirement savings. Unfortunately, the Treasury won't have enough money to fund our Medicare benefits, let alone a top-up in Social Security.
A poll released in January by the National Institute for Retirement Security shows the anxiety about this issue. Because of the recession, 83% of those polled said they were worried about having a secure retirement; of those with a 401(k) account, only about half thought they would have enough money to retire. And 71% said it was harder to retire now than for previous generations.
Are you whining yet? I am. As my pension mentor Foot says:
"This is a time bomb that has been building for years. The recession has made it more acute. It has pricked the bubble of hope that high investment returns could get us out of the crisis."
Sunday, May 3, 2009
In the party's weekly radio and Internet address, Rep. Lynn Jenkins chided Obama and Democrats in Congress for pushing through a $787 billion stimulus package and a $3 trillion federal budget for next year that she said will waste taxpayers' dollars and burden future generations.
"The plans they've passed in the first 100 days will add more to our nation's public debt than all previous presidents combined in 200-plus years," said the Kansas Republican, a former state treasurer. "They've taken away President Obama's promised middle-class tax cut and paved the way for a new national energy tax to be paid by every American who dares to flip on a light switch."
Democrats defend the president's budget, arguing that to cut spending now would undermine efforts to heal the economy. House Speaker Nancy Pelosi said the budget would help fix it.
"In the first 100 days it enables us to make the claim that more has been done in this period of time for health care than in decades," she said. "More has been done on education than in generations. And in terms of energy, there's absolutely no contest."
So Obama's goal of redirecting the budget is well on its way. Fixing those deficits? Not so much.
And that has left members of the president's own party feeling queasy. Seventeen House Democrats voted against the budget. And the so-called Blue Dogs, fiscal conservatives, are watching spending carefully.