Will we have millions of seniors eating cat food twice a day and considering themselves lucky? Will America’s 200 year trend of greater and greater wealth continue for another 100 years?
Could well be both. America does keep getting wealthier and wealthier, but as a percentage of income Americans save less and less money. Certainly any intelligent person at this point should at least consider the possibility that their cut of the social Security pie will be significantly reduced from what they are currently promised when planning for retirement.
Agreed, though I think growth in wealth is stratified and might very well become more so in the future. The quote-unquote working class has taken some real hits and the huge, amorphous middle class has been spotty in growth. You put your finger on the troublesome issue of how that wealth is used. The pattern doesn’t seem toward saving or investment for the future.
Money’s just a tool. How it’s used becomes a habit. Deferring immediate wants in favor of long term needs doesn’t seem like a widespread habit. The government’s just the collective “us”. It–we–won’t be able to meet demands beyond a certain point, whether it’s through Social Security or similar incarnations.
People aiming to depend on Social Security for the bulk of their needs will be in deep trouble indeed. I have reservations about private/work investment-based retirement plans as well after watching my own assorted plans take a 30% hit in the past few years. There isn’t any one, sure safe place for the nest egg. Spread the risk for when a basket falls.
When Social Security falls it ain’t gonna be pretty.
When social security was implement, the minimum age to collect was 65, yet the average american only lived to **55]/b]!
Now the average life expectancy is 75, and rising. Obviously, the solution is not to kill people when they get older. The age of benefit collection needs to go up. They should have made it keep pace somewhat with increasing lifespans.
People will have to find ways to keep active longer as they learn to live longer by maintaining proper health and nutrition. They will also need to work longer, or invest more wisely. Since neither of these things is likely to happen anytime soon ( when left to their own devices, even in the presence of sound advice, people will screw themselves, also there is the current tradition of jerkwad CEOs giving themselves multimillion dollar rewards for screwing thousands of people out of their pensions) Social security will fail, horribly.
In 2007, the first of the baby-boomers will become eligible for social security. In 2011 they will become elligible for Medicare. The collapse is sooner than many people realize. IMHO, I give it to 2020 before it falls to peices. When it does, expect reccession, perhaps even a depression. Combined with the coming spike in oil prices that is only a matter of time, things look pretty gloomy after then. Sure ,we’ll adjust, but the adjustment will be quite painfull for many.
Hopefully the one-two punch of rising oil prices and collapsing social security won’t knock the US out of the picture. We’re tough, but we’re likely to get a real test of that in 20 or so years.
I dunno. Boomers stomp and scream whenever something doesn’t go their way. The collapse of their retirement may rile them up to do something…
But I sure ain’t counting on Social Security.
What I don’t see mentioned much is how the upcoming retirement boom is going to affect the economy, regardless of whether SS money is around or not. You’ll have 50 million retired people (just throwing a big number around) sitting on their asses, soaking up resources like food, housing, medical care but not producing anything with their own work. The other 250 million people will have to produce enough goods and services for 300 million people. The proportion of active workers to total population will fall dramatically.
Even if there is a ton of money stuffed into mattresses to pay for it, who will create the goods and provide the services? Hmmm… maybe it’ll help with job creation.
Interesting point. I guess I was thinking about something like that when I wrote the post. Even if the older generation has lots of cash, what happens to the economy when the ratio of retired people to workers gets too high?
I guess one possibility is that if there is enough money then we increase immigration and thus the labor pool. Or maybe through greater automation and efficiency in providing services, we don’t need as many people as we thought to take care of each retiree.
I agree with you on that 100%. Too bad the pols don’t have the guts to face it. As a baby boomer I’m supposed to be one of those who would insist on the government meeting its promise to support me for 30 or more years, but I feel the opposite. If they would immediately delay benefits by ten years I’d be glad for the country.
I figure they’ll figure out a way to save it.
My own bright idea. Means test social security…but, in exchange make all those 401k withdrawls to people who aren’t paying social security tax free. I’d trade my social security check for tax free withdrawals on my 401k.
I’m not counting on social security either.
That’s an easy one. Taxes go up. My generation (born in the 1980s-90s) is forecast to pay higher taxes than practically anyone now alive. Social security will not “go bankrupt,” simply because it doesn’t own anything in the first place. The money that is left over from FICA collection that is not spent each year goes to purchase treasury bonds–i.e., to finance the deficit. Uncle Sam writes an IOU from himself, to himself, and puts it into the jar marked “Social Security trust fund.” Not to say this is a bad thing; charging government with holding/investing the money collected (remember the so-called “social security lock box” of the 2000 election?) has vast pitfalls.
The dollar simply represents an ability to exchange it for goods and services (of course). The cash the retired boomers will hold does not produce any tangible goods or services–the G/S the boomers will need in their retirement will need to be produced either by foreigners as imports or immigration; or by a highly productive workforce.
My bet? The boomers will legislate greatly inreased taxes during my prime earning period. It’s the eternal problem with democracy–often those making the laws are not those affected by said laws.
Social Security is a “pay as you go” system. So it will never go bankrupt since it is funded by tax collections. Taxes will just be raised to meet the expense each year.
But that’s the beauty of it. Eventually we’ll have control and we can screw our parents (and grandparents) any way we want.
Count me as another one who, as soon as I get a full-time job and out of college, will start massively funding his Roth IRA and making other investments.
Agree 100%. There is absolutely no way that it will be politically feasible for SS to bankrupt. They would cut Defense & every cabinet department you can name in half first – whatever sacrifice the Federal government will need to make they will make. SS will be the last sandbag thrown off the balloon. I would expect an almost entirely open border to bring in younger workers.
They will be paying the deficit too. I would expect some combo of high interest rates and low growth, high taxes & inflation. I would expect SS to be heavily means tested (i.e. Bill gates won’t be eligible) and Medicare (& other rising health care costs) costs to drive the U.S. toward some form of euro-Canadian socialized medical system.
I don’t think anyone entirely dependant on SS for retirement in 2050 will be destitute, but they will be (a little) worse off than a 75 yo in the same position today.
MrPict and I have basically been maxing out on the SS payment for the past 30 years. We have also saved a considerable chunk of change on our own and MrPict has a private pension plan. I can’t tell you how much it PISSES me off when people say we shouldn’t get any SS benefit (means testing) because we are among the few who have been responsible adults and planned for the future!!! We continue to work, save, invest, help support retired parents, etc. Don’t tell me we don’t deserve a piece of the pie we have supported.
But that said I am not basing my retirement plans on SS.
I hear you PictsiePat. You know what is worse that the means test (that I think is coming)? I bet you will pay higher taxes on the retirement savings and will face greater inflation (a % of which will be due to SS) due to some folks not doing what you and your husband did.
My gripe is that SS was never intended to be America’s Pension Plan. It was there suposedly to help those who had no other means of help - widows and orphans, etc. People 70 years ago didn’t expect the government to do everything for them as they got older. They saved, they owned their homes outright and they worked pretty much until they dropped. And they also expected (and got) their families help when they needed it.When my grandfather died in 1960, my grandmother continued to teach school. She moved in with one of my aunts, and still taught, plus she helped with child-care, etc. No one thought she was a burden - she was their mother! Now people don’t want to be “bothered” with their aging parents. Although the parents supported them while they were growing up, they often don’t want to do the same when the parents are grow old. We also have a generation of older people who expect the world to support them. I’m talking about the young, healthy people who want to retire at the earliest moment but haven’t thought far enough ahead to how they might finance it. Then they lobby to make those people who are still working finance it.
I know it sounds like I’m talking at both ends of the stick, but really I’m not. I think SS should be for those who can show they have a true need for it. It is society’s job to help those less fortunate then themselves. However, unless you can show you have no other means of suport, you shouldn’t be receiving. I also think that all people of working age should receive financial counseling to understand that they have to be responsible for themselves, no matter what their age.
StG
I hafta wonder if financial counseling would do any good. We all know that being ass-deep in debt isn’t a good idea, you know? But very few people care.
You also see the mindset here: nobody wants to pay for it unless they’re going to get theirs back
“nobody wants to pay for it unless they’re going to get theirs back”
Well that’s kind of the social contract we made lo those many years ago. You pay into social security and you get a minimal payback when you retire. Not once did they say, “Hey suckers pay into social security but if you save for retirement on your own you’re out of the loop when it comes retirement time. The only ones who will benefit will be the grasshoppers who save nothing.” Not that we had any choice in the matter. But when you go along for 30 some years paying and paying and saving and investing and then it appears that your “good” socially responsible behaviour is going to be penalized while the irresponsible schmucks benefit it kind of gripes your ass. Or at least it gripes mine. :rolleyes:
Actually, I think the original Social Security proposal went something like this:
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Put your name at the top of the family tree and sign up the next level of investors into this opportunity!
If you want to be removed from this list, click here!
As it was mentioned in one of the previous posts, Social Security will not go bankrupt per se, but will have unfunded obligations beginning in 2042. At this point, benefits could be reduced or taxes could be increased. If we prepare for the problem in advance and raise taxes now or cut expected benefits or increase the age requirements, the pain of fulfilling these obligations will be much less.
Some interesting factoids regarding the coming era of boomer retirement:
-The growth rate of people eligible to retire will exceed those entering the workforce next year. In 2004, the rate of people joining the 65+ is 1.03% while those in 25-64 is 1.15%. In 1997 the respective rates were .73 and 1.5. By 2010, the rates will be 1.93 and .89
- Until 2018, taxes collected are expected to exceed benefits paid. By 2013, it is expected that SS will have assets of 3.6 trillion vs. 1.5 trilliion today.
The report published by the Treasury is quite frank and informative: http://www.ustreas.gov/offices/economic-policy/reports/oasdi.pdf
Some of the related issues I’m currently researching are:
- The effect of SSA surpluses/defecits on interest rates vis-a-vis the bond market.
- Effect of coming shift from equities to fixed income bonds on interest rates.
- Effect of retirees tapping real estate wealth to fund retirement.
- Possibility of a sustained period of full employment as less people will fill more jobs.
One last note, the US is by no means in the most dire conditions regarding retirement benefits. Many developed Western countries and Japan are even worse off as their demographics shift toward the golden years. Conversely, many developing nations in the Middle East, Africa and South America are experiencing quite the opposite. An interesting look can be found here: http://www.frontlinethoughts.com/printarticle.asp?id=mwo103103