This is a continuation of the article published yesterday.
If you were born from 1943-1954, your full retirement eligibility kicks in at 66-yrs old. If you were born in 1960, full retirement benefits kick in at 67-yrs old. So, you will be eligible for social security at age 67, and that would occur in 2027.
Of course, you can get benefits as early as age 62, but your benefits are far less than what you would get at 67, or you could wait until your 70 and enjoy greater benefits.
Now, here’s the real rub, if you make a certain amount in social security, those benefits may be taxed. That’s right, taxed. Nearly one-third of retirees pay taxes on their social security income. Ah, what a racket!
Also, if you are fortunate to work with a company, organization, agency that has its own separate pension plan, then you could enjoy a less stressful retirement. I am speaking to many teachers in this article, and although we have a separate retirement pension, we are seeing that some of those benefits are now being manipulated and massaged.
For those born in 1970, your benefits at 67 will kick in 2037, a year after the experts predict that only 77-percent of benefits will be able to be matched. What does that mean? Either benefits will be significantly reduced or people will be taxed beyond comprehension.
Again, I am a simple man, so I try to boil complex things down to as simple a solution/result/explanation as possible.
SS is a pay as you go system. Retirees right now rely on the current work force to pay their benefits. In 1950 there were 5 people working for every person retired, and because of that payroll taxes were 2% (1% employee, 1% employer). Today, there are 2 workers for every retiree and payroll taxes are 15.30% (7.65% employee, 7.65% employer). The President’s recent payroll “tax holiday” reduces payroll taxes by 2%, of which about 105 Billion was lost in SS revenue. More on that was chronicled in Part I of this article.
As of this time there is a surplus in the social security system due to the fact that in times past the Federal Govt. was able to convert those surpluses into, get this, Federal Bonds, so in essence borrowing from itself to pay itself. Sounds like fuzzy math to me.
So what does this mean to those born from 1960-1970? According to most experts, the Baby Boomers are going to completely exhaust the system. There is so much focus on them right now that the generation that follows them will not get the attention they need or deserve, and who will most likely have to endure some of the deepest cuts or have to endure a defunct system that cannot support them? That’s right the decade beginning with those born in 1960.
The information below indicates such.
The Problem
• Social Security is an "unfunded" income transfer scheme—the benefits paid out to retirees are financed by taxing the current income of working people.
• It is not a "funded" approach, where an individual's taxes would be invested, and the proceeds used to provide their retirement benefits (like an IRA or a 401k).
• This system worked for decades because there were many workers and few beneficiaries—16 to 1 when the program started.
• Because of declining birth rates and increased life expectancy, there are now only 3 workers for each beneficiary, and soon there will be only 2. The system will not be able to support itself with so few workers to pay for so many beneficiaries.
• According to the best estimates, the Social Security system will go into the red in 2017—just over a decade from now. Here is an even more alarming statistic. According to this article, written in 2007, and I apologize for not having the source, I read about 10 separate articles from a variety of websites. The system is already beginning to be in the red. It has accelerated in terms of losses, and especially with the slow recovery the revenues just aren’t there, and yet the President pushed the payroll “tax holiday” anyway.
• In 2041, less than 25 years later, it will be completely out of money.
• If we continue under the current system, the only way to address this problem is to either cut Social Security benefits or raise payroll taxes. But even these will only put off the problem, not solve it.
The problem is not just one that can be pushed down the field for another day. There are two systems looming very large and do not seem to have any foreseeable solution: health care and social security. In 2010, health care and social security consumed 40% of the total federal budget, not too bad, right? Also, defense consumed another 20%. Safety net programs and interest on the debt were another 20%. However, it’s what the future holds that concerns me most. Again, I admire the President for his idea to have everyone covered, but by 2025, and that is just over a decade from now, social security and health care will consume more than 70% of the total budget. Think about that for a second. Imagine your budget and that two items consume more than 70% of your household budget, and maybe for some it is, like a house and a car. You have 30% for the rest. And to further obligate the government just sounds counter-intuitive to me.
We have education, infrastructure, defense, commerce, trying to pay down the debt or default, etc. and only 30% to work it in to the total budget. If this does not frighten anyone under 50 you need a refresher course on “That scares the sh** out of me.”
In 1984 there was a similar problem with social security, but then Fed Chairman Alan Greenspan, came up with the idea to save social security by creating the so called, “lock box” that is sometimes used as a political football. But in today’s political environment, I am appalled at the lack of foresight by so many politicians who only care about the next election rather than the next 20/30/40 years. But you know what, why should we be surprised? We have so many Americans who can’t even see past next week, or their next paycheck. I believe there are so many people who are unaware and one day will be subject to being told what to do, how to do it, and when to do it; which contrasts with a young generation that seems to have its own idea about doing whatever they want, wherever they want, and however they want. Oh, the irony is not lost on us reasonable people, I assure you.
Look, The Bottom Line is that neither party can run from this. They can’t just “hope” that the economy bounces back and our country becomes a beacon for unprecedented economic growth. You know what I see as a growing problem? The Administration and many on the Liberal Left love to target the rich man, or at least the one that doesn’t agree with them, so what I think we are seeing is that guy on Wall Street is going into defensive mode. He sees what’s going on and is looking to protect his family. It’s a natural defense mechanism. Once someone knows that someone is after them what do they do? They hunker down. They begin to protect and hoard. If a financial Armageddon is on the horizon, how could anyone blame someone for trying to protect their interests?
I encourage you to read the following information posted by the Congressional Budget Office (CBO), scroll down to The Budget Outlook and prepare to be awakened. And even the CBO has to readjust their numbers. What they projected as an annual deficit for 2012 of 1.11 trillion has been readjusted to 1.12 trillion. That doesn’t sound like a lot, but most of you understand how things can increase exponentially, and that would be very dangerous for our financial health.
Lastly, the Bush tax cuts, which have been roundly criticized as adding to our debt, and yes, they may have had some impact on it, but if they are so bad why did President Obama have to move forward with yet another round of tax cuts? If the President meant what he said, then he should have discontinued the Bush tax cuts and that added debt would have discontinued, but he saw that he couldn’t and even had to go so far as to provide yet another round of tax cuts.
The Bottom Line?
The federal government spends way too much money. Their priorities have gotten us so far down the railroad track that any brake system will inevitably cause whiplash, and no party wants that to happen, so we continue down the track with no brakes, or very little brakes, and if we don’t get a grip on “reality” and stop thinking that money can just be printed or mysteriously wiped away with an eraser, those people are sadly mistaken. Try that number with your lenders and see how far you get.
Politicians need to think more seriously about the financial future of this country instead of pointing fingers at one’s faith as being too radical, or whether the contraception argument is more about women’s rights or religious rights (can’t we all agree that it’s both and just move the heck on?) or the class warfare issue (which is dirty politics), or pie in the sky hopes and dreams, let’s be realistic and get this country back on a strong financial track; one that was (not is) admired and emulated world wide.
If something is not done by the next administration then our 2020 financial crisis will make Greece’s default look like a pimple on the ass of the Jolly Green Giant.
I want to be more optimistic, trust me I do, but when I see a debt that almost seems insurmountable, a lackluster energy plan (BTW, President Bush introduced a comprehensive energy plan in 2004, which was highly criticized, is now the resulting in the drilling on private land), a seemingly insolvent social security system, a Medicare/health care monster (people living longer and that by 2020 an estimated 70% of male and females will be considered obese) potentially breaking the bank on the horizon it’s hard to shout from the mountaintop. As a 48-year old man who has almost 20 years to retirement, I do not see a rainbow, but more of a storm.
Many of my liberal friends call me several things, one being that I live in a bubble, or that I am just plain wrong. Well, if being reasonable, practical, realistic, honest, and personally responsible is living in a bubble, I’ll take it. And, as always, GBA.
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