In light of the recent announcements on the eminent bankruptcy of the Medicare Trust and the looming insolvency of the Social Security Trust, I find it interesting that several of my more recent posts have focused on those topics. So now that the cat is out of the bag, what are we to do?
First things first, we need to answer several questions. Can Medicare and Social Security be saved? Should they be saved? Finally, what are the consequences either way?
The first question is probably the simplest to answer – yes, Medicare and Social Security can be saved. However, I think that the second question is more important – should they be saved? In my opinion the answer is NO, ABSOLUTELY NOT! Not if we mean more of the same old Medicare and Social Security.
In 1937, Social Security started making its first payments to retirees. The lucky few who received this new benefit had not only lived a productive life and retired at a ripe old age, but now their own savings for retirement would be supplemented by the government.
Two key items may have jumped out at you – first, I used the words “lucky few” and as you will see – I meant it. Second I referenced a “ripe old age”. Both points are critical in understanding what has happened and how it is only going to get worse.
In 1937 the average life expectancy was 58 for men and 62.4 for women, implying that more than half of the population at the time wouldn’t live long enough to qualify for this new “Social” benefit.
On top of that, provisions in the original Social Security laws excluded many occupations, most women, and many minorities, meaning that many of those who did live long enough still wouldn’t qualify, further reducing the total number of possible recipients.
Additionally, the average working career at that time lasted over 50 years and the average retirement age was actually age 70 and lasted less than 10 years. These factors meant that you would never have more than 5% of the total population eligible for and collecting on Social Security.
That was done intentionally – social security was never intended for everyone. It was only meant to supplement the savings that a retiree already had and allow a small percentage of workers to retire when they otherwise couldn’t afford to.
Unfortunately today, those numbers are much different. On average, a working career lasts just 42 years, and retirement starts at 62. Due to these changes and with the subsequent amendments expanding eligibility to Social Security, now nearly 15% of the population is actually eligible and receiving benefits. The scary part of this is the fact that this number is projected to rise over the next 20 years as additional baby boomers retire and enter the social security system. Obviously this increase will further strain a system already at the breaking point.
This additional strain will have two other damaging effects. First it will cause the National debt (tax-payer debt) to soar even further out of control in an attempt to meet the obligations owed to new retirees. Second, the increased debt will further devalue the dollar and the US economy causing increased inflation, possibly even hyper-inflation.
So if Social Security can’t or shouldn’t be saved, what should we do? With the threat of rampant inflation and increased national debt looming – we really only have one option; drastic and immediate reform of the current Social Security system.
Disappointingly, I don’t think that our current batch of politicians is up to the task. Eventually, those in Washington, D.C. will be forced to act, but by then, the only remedy will be to increase taxes; further obligating the tax-payer with more debt, and to increase the retirement age at which benefits can be received at.
Obviously for everyone not already at, or in, retirement, this creates concern. These additional dangers of inflation to the buying power, increased living expenses, and rising medical costs; along with the likelihood of increased income taxes should cause great concern for those in or approaching retirement.
For Social Security these things are very bad, but for the Medicare system they are catastrophic. Inflation and increased taxes are exactly what the already high price of medical care can’t afford. One of the main reasons the Medicare Trust is running out of money faster than expected is the rapidly increasing cost of medical treatment.
Further compounding the problem is the move toward a National Healthcare system. While it is intended to provide low cost medical coverage for everyone, it will actually cause the already strained Medicare system, National budget, and ever increasing debt to spin further and faster out of control.
Unfortunately, the current administration has made National Health Care a priority and is moving forward with their plans even in the face of opposition and the failed Medicare system. If only a portion of the currently planned health care reforms are actually implemented, the cost to the tax-payer will be enormous.
So what should you do? An immediate re-evaluation of your current retirement plans, including health care, is in order – No, required. Without it, the chances of being able to retire at a reasonable age, or even at all, drift further and further away. The further you are from retirement, the greater the planning you need.
With the likelihood that both inflation and taxes will increase, even more money needs to be set aside for retirement. An aggressive, yet systematic, approach needs to be taken to your future retirement goals and needs. This planning starts with a “Financial Professional” and continues with your education, action and involvement in your retirement planning.
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