I want to share a recent poll that strikes at the heart of many an “Over-50’s” concerns. What will happen to Social Security and Medicare? These two huge programs consume about 40% of the US government’s budget. Let’s take a quick look at the US federal government’s budget for Fiscal Year 2009 from Wikipedia (see chart).
OK, that helps set the stage. So Social Security and Medicare/Medicaid consume nearly 40% of the budget already and I imagine you have heard that their proportion is growing (true). Since the “Over-50’s” are also “Boomers”, you know one big reason that the financial situation is going to get worse before it gets better, if we continue in the direction we are currently following. The reason? You (and me). Nothing new here. So, what do the American people think about all this? Do they believe social welfare programs for older people are facing a future disaster? If so, what do they want done about it?
The Gallup organisation asked those questions and here are the answers in percentages, followed by some of their analysis.
While fewer than half of Americans say they favour raising taxes or cutting benefits to address the economic problems they foresee from the government’s major entitlement programs, 62% do support one approach or the other. Specifically, 12% favour both options, 30% favour a tax increase but not benefit cuts, and 20% favour benefit cuts but not a tax increase. Still, the data show that there is little consensus on how to address a problem most Americans see looming, and more than one-third of Americans (35%) oppose both options. [full report found here]
Aha! Now we see the problem that can come from “entitlement” programs. Americans have been very aware of Social Security’s problems for decades, and for the medical programs more recently, but for a long time too. This is not a new topic. Indeed, it has been discussed so much that it bores most people today to hear any details. They know there’s a serious problem already. So the consensus that a serious problem exists is there, but there is no consensus as to what to do about it. That is a forecast for trouble ahead, big trouble.
Too many folks want the benefits, but at no cost to them. They want to eat that beautiful piece of chocolate cake tonight, go to bed, then wake up the next morning to see the cake still there, intact, ready to be eaten again. Life does not work that way. We know that, but we still have trouble accepting it.
After all these decades of a growing consensus that a disaster awaits us on these matters, we still have no consensus on what to do about it. As long as that is the case, nothing significant will be done…until it is forced on us. When that day comes, perhaps sooner than we think, it is going to be a nasty business trying to force a plan when there is no public consensus supporting it.
Two things to draw from this. First, we have to publicly recognise this problem, raise the issue openly, insist that a solution must be found, and allow the discussion/debate to help us eventually develop a consensus as to a solution. Don’t hold your breath.
Second, for your future planning purposes, just assume this will not be dealt with successfully in advance of blowing up. If you are assuming that Social Security, for example, will provide 20%, 50%, 80% or whatever portion of your future income needs, based on the current situation, divide that percentage by half for 10 years from now. Why half? Why 10 years? No particular reason, but if you haven’t already, it helps you focus on the likely future need for more income beyond government checks than you might like to think now.
If this leads you to seriously consider a Life Sabbatical, fine. If this leads you to put off retirement for a “few years”, fine. If this leads you to make a serious reduction in your standard of living now to protect your standard of living in years to come, fine. Whatever works for you, as long as it moves you to positive action of some kind, is fine.
Yes, either taxes will have to rise or benefits fall or both. I don’t know the outcome, but I suspect the taxpayers who will determine the final answer are more likely to favour reduced benefits over increased taxes. So count on that in your future planning.
Let’s go ahead and nibble at the chocolate cake if we feel like it, but let’s not expect it to be there, fully intact, tomorrow.
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