Who will rescue the savior?

Today, all you have to do is turn on the television or open a newspaper to hear yet another dismal story about the state of the US economy and the magnitude of pending corporate bankruptcies. Many are anxiously watching to see if the government will bail out companies like automakers and some of the world’s largest financial institutions, and how much this will ultimately cost American taxpayers. But the real question should be, “Who is going to bail out the government when it cannot keep its promises??”

What do I mean?

without further intervention, the government is going bankrupt, and it is because of the generational tsunami that are the baby boomers! The problem is that the United States has approximately 80 million people born between 1946 and 1964 who were essentially promised to the world in the form of Social Security, Medicare, and pension benefits who are woefully underfunded to fulfill these promises. Unfortunately, promises are likely to be broken as the monetary value of these future payments from programs like Social Security and Medicare approaches $53 trillion. That equates to a bill of nearly $174,000 for every man, woman, and child in the US! Looks like I’m going to have to skip the cheese on my Whopper…

According to David Walker, former Comptroller General and head of the Government Accounting Office,

By the time today’s college graduates are ready to retire 40 years from now, all our government will be able to pay is the interest on the federal debt and some of the Social Security, Medicare, and Medicaid benefits. All other parts of the federal government will be closed and inactive.

Do I have your attention now? Walker also stated,

“The facts are not Democrat or Republican; the facts are not liberal or conservative; the facts are the facts. Our financial situation is worse than advertised. We need to act soon because time plays against us.”

Here are some of the earliest statistics from a study by the National Center for Policy Analysis that claims there is no significant reform of entitlement programs like Social Security and Medicare and a major increase in government revenue:

* By 2010, the federal government will have to stop providing the 10% of the program it currently funds.

* By 2020, the government will have to stop funding 25% of the services it currently provides.

* By 2030 you will only be able to provide 50% of the services you provide.

* By 2050, Social Security, Medicaid, and Medicare will consume nearly the entire federal budget.

* By 2082, the entire federal budget of the US government will be consumed by Medicare alone.

I don’t know about you, but I’ve gotten used to being provided with roads and schools in exchange for my hard-earned tax dollars, but how are they going to be funded if we stay on the fiscal path? us again? Anyone?

Tax increase or benefit reduction

One possible solution is to raise taxes, but that’s putting a Band-Aid on a gunshot wound considering the tax increase would have to be about 2.5 times current rates across the board to make a significant difference. I don’t know anyone who wants to work more than 6 months a year to pay their tax bill.

Another major hole in the fiscal argument is that we have to consider that the United States is aging as a society primarily due to the baby boomer population and advances in medical technology. It is projected that by 2030, about 1 in 5 people in the US will be over the age of 65 and there will be something like 2 retirees for every US worker. It’s going to be impossible for so few workers to financially support programs that deliver the benefits that baby boomers were promised.

Promises will be broken.

My personal opinion is that it will be a combination of reduced future benefits with higher taxes for all classes. There are no more “rich” or whatever you call those who make more money paying everyone else’s bill. The math is impossible.

“Then what should I do?”

According to Paul Volcker, former Federal Reserve Chairman, in the book IOUSA: One Nation. Low stress. In debt

“Generally, people don’t change their behavior until they are forced to. Regarding the fiscal crisis that lies ahead in the future, we will see if a democracy can deal with an obvious problem that is going to present itself in not too many years. The sooner we take steps to deal with it, the better.”

The truth is that Americans are going to have to reassess what they expect from government and learn to pay for what they expected Uncle Sam to provide in the past. The best advice I can give to anyone is to stop relying on the government, or your company, or the appreciation of your home to cover your retirement. You, along with the help of your financial professional, will need to take steps to ensure that your financial future is secure with or without government assistance.