This is the companion blog to the MyGovSpending.com website.





Tuesday, July 5, 2011

BUSTED BOOMERS

Mismanaged Entitlements and Generational Bankruptcy
Will You Pay? Or Someone Else?


"...The boomers are stealing our future..."  I overheard these words from a 35ish fellow talking on his cell phone. I'm a boomer. He is right.

Social Security and Medicare together are by far government's largest expenditure. They account for 22% of federal, state, and local spending.  Next in line is education at 15% and defense at 13%. 

Social Security and Medicare pump out an average of $50,000 annually per retired couple whether seniors need it or not. According to Robert Samuelson, a quarter of households over the age of 65 have incomes that exceed $75,000 annually.

The fabled trust funds are just that - fables.  From a taxpayers' viewpoint, the trust funds are irrelevant. They never held any real money.  The trust funds can pay out only if citizens pay in - with higher taxes, fewer public services, or borrowing yet more. 

Holistically, the boomer's retirement picture is even worse. In 2007, before the recent recession, the median household aged 55-65 had wealth of only $250,000. The cost of a barebones retirement is in the neighborhood of $600,000 to $800,000 depending on assumptions. That $350,000 to $550,000 shortfall can only be closed if seniors' cut living expenses or youngsters pay up.

A hard view of the situation is that seniors consumed their earning years while relying on Social Security's "don't worry, be happy" financial structure. Only the boomers are financially responsible for their own mistake.

The softer, more emotionally soothing view is that the retiring boomers are senior citizens stuck in a tight spot. How they got there does not matter. They need a big financial hand from the youngsters in the pursuit of one version of fairness. 

As younger people living in the boomers' wake come to grips with the problem, a middle position seems logical. The boomers dallied while the most anticipated train wreck in history unfolded. They were negligent in planning for their retirement. 

Therefore, the Woodstock generation should take a large portion of the financial responsibility by accepting lesser subsidies.  Subsequent workers will pony up some of the boomers' shortfall out of the goodness of their hearts. 

So far, young people are too busy studying, building careers, and raising families to pay much attention. So not surprisingly, today's proposals put most of the burden on them.

Post-boomers will be prudent to make sure this does not happen again. So they'll engineer a stronger retirement funding mechanism.

There are only three ways to fix today's problem. 1) Cutting senior subsidies puts the burden on boomers - unless, of course those benefit cuts are pushed into the future. That puts the cost on youngsters.

2) Raise taxes. Here, again the weight falls on youngsters because they'll be paying those taxes.

Or 3) reduce the cost of retirement. This could be a very rich vein. US health care is two to four times more costly than other rich country medical systems. Productivity savings of 6% - 10% of GDP are ripe for harvest...sufficient to ease the transition to a new system. 

Chew on this issue. Don't discard proposals condemned as politically undoable now. Times change.  Cutting current benefits, means-testing, pushing medical cost savings, prioritizing disability, and private accounts all have great potential.

Enough stress is building in the system to force a torrent of change over a short span.

With the cohesion that Smart Girl Nation Summits build, and a little luck, the Smart Girl generation can enjoy a theft-free future.

(This article first appeared in the May issue of Smart Girl Nation.) 

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