The Bridge Is Out

A train is careening down the railroad tracks toward a damaged bridge over a deep mountain gorge. This bridge is in terrible disrepair caused by years of neglect and incapable of transporting the weight of the train and passengers to the safety of the far side. The finest minds have documented years ago that the bridge will fail under the load. Yet, Congress has directed the train’s engineer to continue with assurances that everything will be all right.

What would it take to convince you that this is a very serious crisis? What if there were millions of people on this train? What if some of them were your friends and neighbors? With so many passengers, this train wreck will be the worst the country has ever seen. Why not awaken your friends and neighbors? You don’t want them to miss an accident like this one is going to be. Think of this as Congress, pretending to be Evel Knievel trying to jump the Snake River Canyon, but behind the controls of a train instead of a motorcycle. Come to think of it, you’re probably on the train yourself and entrusting your life and your family’s financial welfare (on faith, which is no longer permitted in a public venue) to the wise, unselfish and patriotic Americans you elected to Congress. There’s nothing to worry about. As Bill O’Reilly would say, surely Congress is “watching out for you?” Sorry, I didn’t mean to alarm you. Go back to sleep.

Some of the nastiest conflicts in America's domestic future have already begun in an attempt to remake the United States into a socialist union. You saw the initial skirmishes when President Bush attempted to cajole Congress into resolving funding shortfalls in Social Security and Medicare. Congress smacked down any suggestion of reform, rebuked the President and raised its prodigious middle digit to all American citizens. There will be more skirmishes in other Administrations. Eventually the skirmishes will morph into battles and finally into a domestic war between the American public and Congress – similar to illegal immigration. These political wars, necessary because most Congressmen, Governors and state legislators are "in it for themselves," will be fought on a wide range of battlefields, involving not just workers and their employers but also governments at all levels, regulators, accountants and taxpayers. And the coming wars will be bitter - because victims of the combatants, the American people, will become desperate.

It should be noted that Congress has carefully insulated itself from any retirement risk by voting for a sweetheart benefit package for themselves that includes an annual income and cost of living adjustment that would qualify as a king’s ransom, not to mention every imaginable perk, and the world's finest medical care. Many Americans, to this point, have been left to literally suffer and die in financial desperation - with what will be close to nothing the longer Congress delays action on behalf of the American people. Congressmen know you will suffer without their action. Do you sense any concern to intercede or obligation to protect the welfare of elderly Americans? After all, they've got theirs. For now, things are relatively peaceful. But that won't last long, especially as more Baby Boomers reach retirement age and find the greatest pension entitlement of them all, Social Security, teetering on the brink, or maybe over the edge, of insolvency.

Some Americans are already receiving Social Security, such that it is, and personally don’t have a big horse in this race. Many who are currently receiving Social Security will not be alive by the time the train reaches the bridge. However, your future is easy to foretell.

What will it take to make you believe that Social Security is your very own personal financial catastrophe in the making? It doesn’t take J. Edgar Casey, a renowned 20th Century seer, to accurately predict that this will be the worst train wreck in the country's history. Unseen and not far behind, approaching at breakneck speed, is another train headed for the same non-existent bridge, loaded with millions more people. The second train is called the Medicare Express. It would appear this is going to get ugly.

We’ve all listened to media accounts about the looming retirement of 76 million “baby boomers.” 76 million! When they begin drawing benefits in ever increasing numbers, the benefits paid out will quickly exceed the FICA taxes collected – and the disparity between taxes and benefits will grow. What are the government’s most obvious choices? Increase taxes, reduce benefits, and privatize portions of Social Security, or some combination. Lacking action, Social Security insolvency is guaranteed. Lacking action soon, the cost in taxes to American citizens who eventually expect to receive benefits will grow exponentially. So, you tell me, who is looking out for you?

To fix the problem now through the bluntest methods, Congress would have to either raise Social Security taxes 16 percent or cut benefits 13 percent. The longer we wait, or the more incremental we make the fix, the more drastic must be the fix. Unless benefits are cut sharply, which isn't expected, today’s workers will lose a bigger chunk of their paycheck to support retirees. People who are now in their 20s and 30s will be most affected.

Who are these “baby boomers,” and why isn’t Congress doing anything about a train wreck of epic proportions clearly visible and years in the making? In the United States, demographers have put the Baby Boomer's birth years between 1946 and 1965. In 2006, Baby Boomers are between 41 and 60 years of age. As is often the case with a large war, the elation of victory and large numbers of victorious males returning to the United States after World War II triggered a baby boom, and not just in the United States but in many countries around the globe.

To understand how all this happened socially, not biologically, one only has to imagine three events of social significance: soldiers returning triumphantly from World War II, soldiers on leave during the war, and the economic prosperity that followed World War II. Add to this euphoric social environment the key biological factor that a woman is fertile only into her mid-forties. Austerity and restraint, both physical and financial, were the norms during the stress of the war years, which if you remember was preceded by the Great Depression. When the men came home, many of those women who were heroically supporting the war effort left their jobs in the factories and returned to their marriage and families. Marriage once again became the cultural and career norm for most women. The obvious result was babies, millions of babies, a boom which continued into the economic glow of the fifties, and was dampened only slightly by a recession around 1958. The birthing boom petered out (figuratively speaking) as the biological capacity of the boomer parents took their natural course. Simple mathematics always governs and a woman who married in her mid-to-late twenties after the war ended in August 1945, became infertile twenty-or-so years later (1965). The peak birth rate (births per 1,000 population) occurred around 1957.

And then there was Social Security, created by Congress in 1935 and signed into law by President Franklin D. Roosevelt. Let’s add Social Security to the mix.

Social Security, by unanimous agreement, is expected to “start running out of money in 11 years.” We almost joke about senior citizens eating dog food, but by nearly every expert's forecast, half to three-fourths of the next few generations of retirees will live "on the edge" financially, or in desolate poverty. Today's children and most of today's workers will almost certainly pay steeply higher taxes to cover promises to current retirees. Taxes will rise while workers are told they need to save more and work into their 70s to avoid a similar retirement plight. Choices will be few. Many people will have no choice but to delay retirement and tap home equity. For obvious reasons, politicians don't want you to think about it.

By most estimates, about 25% of future retirees will be in good financial shape. Another 25% face an impossible future because of little savings, no home, and no insurance. No spouse in many cases further complicates the situation. The remaining half will be "on the edge.” Best case: Many will struggle. Worst case: Many will collapse financially.

Study after study shows roughly the same bleak outlook. An analysis by the Center for Retirement Research at Boston College found that under the best assumptions, 43 percent of echo-boomer households (children and grand children of Baby Boomers) will have trouble making it in retirement. Their analysis assumed people worked until at least 65 and lived partly off the value of their homes utilizing some form of reverse mortgage. And the analysis didn't add in health-care costs, which researchers said were too unpredictable to even estimate.

Worst case, some experts predict that parts of America will become Third World and many citizens will need their extended family just to survive. Most Americans will come to the realization too late that the only way to have survived comfortably was to begin methodically saving very, very young. You can’t become wealthy by contemporary standards by beginning to save at age 30. Last year Americans spent more than they brought in -- meaning no savings -- for the first time since the Great Depression. Among workers 55 and older today, 52 percent have less than $50,000 saved for retirement. (You will need $350,000 to $400,000 at retirement to have an income of $30,000 a year.) Only a fourth of workers 55 and older have $250,000 or more. If that much money sounds good, stomach this: It's projected that a 65-year-old needs $210,000 in savings just to pay for out-of-pocket medical expenses and supplemental insurance. Do you have enough savings?

But wait: The typical man who makes it to 65 in 2005 has a 50 percent chance of living until age 85. A 65-year-old woman has the same chance of living until age 88. Maybe dying early doesn't sound bad about now?

Social Security is on course to start paying out more than it takes in by 2017. The money built up before then will be gone in 34 years, just about the time today's 30-somethings start reaching in their mailboxes for a benefit check. Even now, Social Security pays an average of only about $12,000 a year to a retiree, before taxes. Yes, unless you are among the nation's most destitute, a portion of your Social Security stipend will be taxed as ordinary income. The Medicare system that retirees rely on for health coverage starts to run out of money this year. It'll go broke in 12 years.

"We may have already committed more physical resources to the baby boom generation in its retirement years than our economy has the capacity to deliver," Alan Greenspan said in 2005 when he was chairman of the Federal Reserve.

Social Security is 40 percent of the income of today's retirees and the only income for one in five retirees today. Here are some facts you should consider:

1. Between now and 2030, the number of people over 65 will double.
2. The number of new workers paying into Social Security and Medicare will increase only 20 percent.
3. Life expectancy is about 13 years longer for children today than when current retirees were born.
4. The stock market has lost significant valuation for three straight years -- a first since the Great Depression.
5. Congress and numerous administrations saw the warning signs in the 1970s and 1980s and 1990s, but political leaders in Congress procrastinated for their own self-interest.
6. Experts have begged all of us, citizens and government, to spend less and save more.

Meanwhile, old people are living to be really, really old. The age for receiving full Social Security and Medicare benefits had always been 65. That was no big deal at first, because until 1950 the average life expectancy for male babies was less than that. Only 2% of the population was ever expected to receive benefits. Now life expectancy is 75 years for men and more than 80 for women. In 1950, Social Security had 16 workers paying in for every retiree receiving benefits. Now, the ratio is three workers for every retiree. By 2030, it will be 2-to-1.

If a 30-year-old could invest $840 a year at 12 percent, he would potentially have an income of $50,000 a year in retirement. But if the return is less, say only 8 percent, he’d have to invest $2,700 a year to get that same income. If the return is still less, what are your plans?

The same principles apply to pensions. Many employers are being caught without nearly enough money in their pension funds because of lower earnings projections. That includes the government. Standard & Poor's said federal employee pensions are short about $4.5 trillion. Taxpayers could be forced to pay that bill. Many corporate pension plans are expected to be in trouble in the next 10 to 20 years. The trail already includes IBM, General Motors, Hewlett-Packard, Sears, Delta Airlines, Polaroid and Goodyear. Many pension plans could go bankrupt. The Pension Benefit Guaranty Corp., which insures workers whose company retirement plans go bust, could be under a "mega-threat," because it wasn't designed to bail out whole industries (such as the airline or automobile industries).

Congress deserves all the credit, particularly those who have been in Congress for 20 years or more – like Senator John McCain. Once it became obvious 20 or 30 years ago that the birth rate was slowing and life expectancies were increasing, researchers waved warning flags. Changes could have come then with minimal pain. However, Americans who are angry about Congress’ irresponsibility should look in the mirror. With one out of three people not saving anything toward retirement, and most of the rest not saving enough, we as a nation must be waiting for the retirement fairy.

What it will take for Americans to face reality? The answer appears to be that there is nothing that can make Americans face reality except a brutal dose of reality. And Congressmen are already on record as not caring about the American people having just defiantly refused to make fundamental Social Security system reforms. People think this is all just going to work out. It's now obvious it won't. The bridge is out. We've known this for decades and Congress has still sent us to our … day of reckoning.

Red State Patriot

Posted June 29, 2006 02:19 AM
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