Well, somebody finally had the nerve to speak the truth about Social Security. During the last week in February, Federal Reserve Chairman Alan Greenspan, while testifying before the House Budget Committee, said that raising taxes enough to solve the budget deficit would harm the economy. He also said that President Bush`s tax cuts should be made permanent. However, his most compelling and controversial comment had to do with Social Security and Medicare.
In a nutshell, Mr. Greenspan reiterated his longstanding belief that trying to fund Social Security and Medicare under the formulas currently in use will break the bank when the Baby Boomer generation begins retiring in 2011. He favors pegging the annual increases in Social Security benefits to a lower price index than the one in use today. He also believes that retirement age for both Social Security and Medicare, now 67, should rise with life expectancy.
Good thing he`s not running for office! However, others are running and they were quick to disagree with Mr. Greenspan`s suggestions. Both major Democratic presidential candidates, Senators John Edwards and John Kerry, said they would not tolerate any modification in Social Security or Medicare benefits if they were elected president. President Bush joined the other politicians and said there was no necessity to change the structure of either Social Security or Medicare.
And, since I’m not running for anything either, I can voice my opinion without fear of reprisal from other “gray panthers.” Mr. Greenspan is clearly correct in his view that Social Security and Medicare cannot be maintained at their current level when the boomers start retiring, a scant seven years from now. There are too many of us to be supported by the smaller group of workers who will be left to carry the burden when we retire.
The subject of Social Security is often referred to as the “third rail” of politics. The term refers to the part of an electric train track that will electrocute anyone who touches it. Similarly, politicians have long known that any suggestion that future problems may exist for the Social Security system would result in their electrocution. Thus, elected officials are committed to deceiving the public in the interest of avoiding political electrocution and becoming unelected.
The political implications of avoiding the subject do not change the facts. Social Security and Medicare must be drastically changed or our economy will collapse. The next generation simply will not be willing to forfeit such a huge portion of their paychecks to support us in the style we’re expecting. The only other equally unacceptable possibility is a huge federal deficit.
What needs to happen is a realignment of expectations by boomers. When Social Security was created in the 1930`s few people made it to 65 and thus, a big political enchilada was tossed out to voters with little expectation of ever having to pay the tab. Additionally, the benefit was modest in amount and was designed to prevent destitution. In the intervening years, politicians have consistently increased the benefit formula to the point where many workers assume Social Security will fully support their lifestyle in retirement. It won`t.
Advances in medicine and a safer work environment are steadily increasing the life span of Americans. Most boomers who make it to 65 will likely spend 20 years or more in retirement. This factor alone will put an untenable strain on the system. Add to that the built in benefit increases based on the consumer price index and the burden gets heavier. Further, medical treatment is steadily improving and the cost is escalating like a house afire. There`s simply not going to be enough money to pay for all that and we might as well get used to the idea and adjust our expectations.
What can we do? Forget retiring to a life of inactivity at 65. Those who are physically able will continue employment, either full or part-time, into their 70s while some will continue into their 80s. Don`t quit investing in yourself just because you are nearing traditional retirement age. Keep up with changes in your field or change to another field that is more conducive to post-65 employment.
Another strategy that can pay big dividends is to increase personal savings by cutting personal spending. This can produce a double whammy – a less expensive lifestyle to fund in retirement and some savings to help with living expenses after retirement.
It is truly regrettable that politicians lack the courage to tell the American people the truth about the future of Social Security. We are fortunate that people like Alan Greenspan are around to say what must be said. Don`t ignore this problem, it will not go away.
Thought for the Moment – Make it your ambition to lead a quiet life, to mind your own business and to work with your hands, just as we told you, so that your daily life may win the respect of outsiders and so that you will not be dependent on anybody. – 1 Thessalonians 4:11
Joe D. Jones, CPA, is publisher of the Mississippi Business Journal. Contact him at firstname.lastname@example.org.
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