Who Will Rescue the Rescuer?

Today, all you have to do is turn on the TV or open a newspaper in order to hear another depressing story about the state of the U.S. economy and a magnitude of pending corporate failures. Many are watching eagerly to see if the government is going to bailout the likes of the automakers and some of the largest financial institutions in the world, and to what extent this is ultimately going to cost the American taxpayers. But the real question should be, “Who’s going to bail out the government when it can’t make good on its promises?”.

What do I mean?

Without major intervention, the government is going broke, and it's due to the generational tsunami that is the baby boomers! The problem is America has approximately 80 million people born between 1946 and 1964 that were essentially promised the world in the form of Social Security, Medicare, and pension benefits that are woefully underfunded to make good on these promises. Unfortunately, it’s very likely that promises will be broken since the monetary value of these future payments from programs like Social Security and Medicare are approaching $53 trillion dollars. That equals a bill of almost $174,000 for every man, woman, and child in the U.S.! Looks like I'm going to have to skip the cheese on my Whopper....

According to David Walker, former comptroller general and head of the Government Accounting Office,

“By the time today’s college graduates are ready to retire 40 years from now,the only things our government will be able to pay for are interest on the federal debt and some of the Social Security, Medicare and Medicaid benefits. All other parts of the federal government will be closed and out of business.”

Do I have your attention now? Walker also stated,

“The facts aren’t Democrat or Republican, the facts aren’t liberal or conservative; the facts are the facts. Our financial condition is worse than advertised. We need to act soon because time is working against us.”

Here’s some of the more startling statistics according to a study conducted by the National Center for Policy Analysis which state without a meaningful reform to entitlement programs like Social Security and Medicare and a major increase in the government’s revenue:

• By 2010, the federal government will have to stop providing for 10% of the programs it is currently funding.



• By 2020, the government will have to stop funding 25% of the services it currently provides.



• By 2030, it will only be able to provide 50% of the services it provides.



• By 2050, Social Security, Medicaid, and Medicare will consume nearly the entire federal budget.



• By 2082, the entire federal budget of the U.S. government will be consumed by Medicare alone.

I don’t know about you but I’ve grown accustomed to things like roads and schools being provided for me in exchange for my hard-earned tax dollars, but how are they going to be funded if we stay on the fiscal path we’re on? Anybody?

Raising Taxes or Cutting Benefits

One potential solution is to raise taxes, but that’s putting a Band-Aid on a gunshot wound considering the tax hike would have to be about 2.5 times today’s rates across the board to make a meaningful difference. I don’t know of anyone that wants to work 6+ months out of the year to pay their tax bill.

Another major hole in the tax argument is we have to consider that America is aging as a society due mainly to the baby boomer population and advances in medical technology. It’s projected that by 2030 approximately 1 in 5 people in the U.S. will be over 65 years old, and there will be something like 2 retirees for every American worker. It’s going to be impossible for so few workers to financially support the programs providing benefits that were promised to the baby boomers.

Promises will be broken.

My personal opinion is it will be a mix of reduced benefits in the future with higher taxes for all classes. There’s no more of the “rich” or whatever you call the top income earners footing the bill for everyone else. The math is impossible.

So What Should I Do?

According to Paul Volcker, former chairman of the Federal Reserve, in the book I.O.U.S.A.: One Nation. Under Stress. In Debt.

“Generally, people don’t change their behavior until they’re forced to. With
respect to the fiscal crisis looming out there in the future, we'll see whether a
democracy can deal with an obvious problem that’s going to be present in not too
many years. The earlier we take action to deal with it the better.”

The truth is Americans are going to have to re-evaluate what they expect from the government and are going to have to learn how to pay for what they’ve counted on Uncle Sam to provide in the past. The best advice I can give anyone is to stop counting on the government, or your company, or home-run appreciation on your home to provide for your retirement. You, along with the help of your financial professional, are going to have to take steps to make sure your financial future is secure with or without the government’s help.