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Social Security Recipients Being Short-Changed?

The Wall Street Journal’s Sarah N. Lynch reported this morning:

More than 55 million Americans will see a 5.8% boost in their monthly and supplemental Social Security benefits next year, the Social Security Administration announced Thursday.

That figure represents the largest increase in Social Security benefits since 1982.

The 5.8% cost-of-living adjustment will take effect for 50 million Social Security beneficiaries in January of next year. Another roughly 7 million people who receive supplementary Social Security income will start to see payment increases on Dec. 31.

Social Security benefits increase each year based on the rise in the Consumer Price Index. The increase comes at a time when many Americans are struggling economically in the wake of the financial crisis.

If you’re a recipient of Social Security benefits, this would appear to be good news. And in a way, it is. However, there’s a possibility you may be getting short-changed. How so? The key is the Consumer Price Index. According to the Bureau of Labor Statistics, U.S. Department of Labor:

The Consumer Price Index (CPI) is a measure of the average change in prices over time of goods and services purchased by households. The Bureau of Labor Statistics publishes CPIs for two population groups: (1) the CPI for Urban Wage Earners and Clerical Workers (CPI-W), which covers households of wage earners and clerical workers that comprise approximately 32 percent of the total population and (2) the CPI for All Urban Consumers (CPI-U) and the Chained CPI for All Urban Consumers (C-CPI- U), which cover approximately 87 percent of the total population and include in addition to wage earners and clerical worker households, groups such as professional, managerial, and technical workers, the self-employed, short-term workers, the unemployed, and retirees and others not in the labor force.

In addition, the CPI is the most widely watched and used measure of (or proxy for) the inflation rate in the United States.

The Wall Street Journal’s Jeff Bater and Brian Blackstone wrote this afternoon:

The consumer price index was unchanged in September compared to August, the Labor Department said Thursday. Excluding food and energy, the CPI advanced just 0.1% last month…

Still, consumer prices rose 4.9% on a year-over-year basis, though that’s well off the 17-year high of 5.6% reached in July.

Okay, so prices are up 4.9% from a year ago. With a 5.8% cost-of-living adjustment, Social Security recipients are still keeping ahead of inflation, right? Maybe not. In fact, they may even be far behind, even with the COLA from Uncle Sam.

Oakland economist John Williams has spent 25 years as a consulting economist and is the creator of Shadowstats.com, a Web site that tracks government statistics using alternative calculation methods. And according to his website:

Inflation, as reported by the Consumer Price Index (CPI) is understated by roughly 7% per year. This is due to recent redefinitions of the series as well as to flawed methodologies, particularly adjustments to price measures for quality changes.

Redefinitions? Flawed methodologies? MSN Money columnist Bill Fleckenstein wrote back in 2006:

Williams differentiates between two data-manipulation practices. One is “systemic manipulations, where methodologies are changed.” That’s done in order to align the government’s view of the world with the world, i.e., make things look better than they are. The second practice is out-and-out fudging of the data to produce whatever result is desired. Williams describes instances where various administrations have literally reverse-engineered the data to achieve that result (though politics is not the main purpose of the article).

For those not familiar with “substitution,” he explains the practice’s evolution in the CPI calculations. The concept of substitution was a concoction of Alan Greenspan and Michael Boskin, who basically argued that if one item were too expensive, consumers would substitute that with a cheaper one. Williams’ response: “The problem is that if you allow substitutions, you aren’t measuring a constant standard of living. You’re measuring the cost of survival. You can keep substituting down and have people buy dog food instead of hamburger. It happens. But that’s not the original concept behind the CPI.”

Williams says that the government’s motive in all of this, if there is a motive (of the government collectively; don’t picture a group of men cooking up something in a back room), is its desire to put a favorable spin on all the data.

Another motive? Transfer payments like Social Security are indexed to the CPI, and they would be far higher if the CPI were accurate. In fact, says Williams, if the “same CPI were used today as was used when Jimmy Carter was president, Social Security checks would be 70% higher.” That’s seven-zero.

In contrast to government data showing prices are up only 4.9% year-over-year, Williams says the real figure is closer to 13% through September 2008, when calculations are made using the methodologies in place in 1980.

So, is Williams on the level or what? Maybe so. The San Francisco Chronicle’s Sam Zuckerman wrote on May 25:

“If anything, the CPI understates inflation for the average household,” said Irwin Kellner, chief economist for the online investment news service MarketWatch. “Car prices might be down 5 or 10 percent in the CPI, but in reality, when you go to the dealer, you’re paying more.”

And while there’s not much patience for Williams’ claim of outright falsification, the idea that politics influences government statistics is not entirely far-fetched.

In the 1990s, for example, Republicans wanted to make changes in calculating inflation along the lines recommended by a special commission, including more use of quality adjustments. By lowering the official inflation rate, such changes promised to reduce the annual cost-of-living adjustments for Social Security and other federal programs.

[Katherine] Abraham, the Clinton bureau [of Labor Statistics] commissioner, remembers sitting in Republican House Speaker Newt Gingrich’s office:

“He said to me, ‘If you could see your way clear to doing these things, we might have more money for BLS programs.’ “

If summary, if you receive Social Security benefits (or are close to doing so), I’m sure you’re pretty excited about the news today. However, if Mr. Williams is correct in his calculations, you could be a heck of a lot more happier.

Sources:

“Social Security Benefits to Rise 5.8%”
Sarah N. Lynch
Wall Street Journal, October 16, 2008

“Inflation Pressures Eased in September”
Jeff Bater, Brian Blackstone
Wall Street Journal, October 16, 2008

“The numbers behind the lies”
Bill Fleckenstein
MSN Money, March 6, 2006

“Economist challenges government data”
Sam Zuckerman
San Francisco Chronicle, May 25, 2008

Tough Times For Those Nearing Retirement

More bad news on the retirement front. From William M. Bulkeley of the Wall Street Journal yesterday:

One in five middle-aged workers stopped contributing to their retirement plans in the last year, and one in three has considered delaying retirement, according to a new survey by AARP, an advocacy group for older Americans…

The survey, which covered 1,628 employed people over 45 years old, found that 20% had stopped participating in their retirement accounts in the past year, and 34% contemplated putting off retirement. Twenty-seven percent said they were having trouble making rent or mortgage payments.

Bulkeley pointed out the significance of these findings. He wrote:

About 60% of U.S. workers in the private sector have 401(k) accounts, holding about $3 trillion in assets. Earlier surveys have shown workers don’t put enough into 401(k)s to support their retirements, even as such plans have become the main source of retirement support, surpassing traditional fixed-benefit pensions. Labor Department statistics also show more Americans over 55 years old are staying in the work force, a sign that many can’t afford to stop working.

There is a silver lining to all this. Regarding all those middle-aged workers who stopped contributing to their 401k’s— at least their hard-earned money didn’t get swallowed up in the recent carnage on Wall Street.

Source:

“One in Five Baby Boomers Cuts Retirement Saving”
William M. Bulkeley
Wall Street Journal, October 7, 2008

Home Values And Declining Net Worth

You’ve heard the expression. “A picture is worth a thousand words.” Earlier today, Money Magazine senior editor Walter Updegrave wrote on the CNN Money website:

You already know that the housing crisis has wreaked havoc with the economy and financial markets, not to mention the lives of millions who’ve lost or could lose their homes. But there may be a less obvious casualty too: your retirement prosperity.

According to a recent report from the Center for Economic and Policy Research, a Washington, D.C. think tank, the collapse of house prices that started in 2006 has wiped out more than $4 trillion in home equity, putting a sizable dent in the net worth of millions of baby boomers.

Among its more ominous findings: By next year, the average net worth of households headed by homeowners age 45 to 54 will be almost 25% less than it was in 2004.

Now, that last number depends on U.S. home prices stabilizing next year. But what if prices continue to fall?

Any questions?

Source:

“How the housing crash hurts your retirement”
Walter Updegrave
CNN Money, September 2, 2008

I.O.U.S.A.

For those of you looking for some feel-good cinema this summer, you may want to pass on the movie “I.O.U.S.A.,” which debuts August 21. Frank Ahrens of the Washington Post wrote Thursday:

A private-equity billionaire, a former federal government official and a Baltimore newsletter editor have made a documentary film that they hope can do what an endless parade of policy papers has not: Persuade Americans that debt has created a looming economic crisis that would make the Great Depression look like a market correction.

The movie, “I.O.U.S.A.,” debuting Aug. 21, is an 87-minute alarum on what it calls the tsunami of debt bearing down on the United States’ future, caused by the rising national deficit, the trade imbalance and the pending costs of baby boomers cashing in on entitlements…

The film will debut in 400 theaters around the country on Aug. 21, followed by a live video town hall meeting from Omaha, featuring Walker, Peterson and Buffett. The next day, the film opens in 10 cities, including Washington.

From the movie’s website:

Wake up, America! We’re on the brink of a financial meltdown. I.O.U.S.A. boldly examines the rapidly growing national debt and its consequences for the United States and its citizens. Burdened with an ever-expanding government and military, increased international competition, overextended entitlement programs, and debts to foreign countries that are becoming impossible to honor, America must mend its spendthrift ways or face an economic disaster of epic proportions.

Throughout history, the American government has found it nearly impossible to spend only what has been raised through taxes. Wielding candid interviews with both average American taxpayers and government officials, Sundance veteran Patrick Creadon (Wordplay) helps demystify the nation’s financial practices and policies. The film follows former U.S. Comptroller General David Walker as he crisscrosses the country explaining America’s unsustainable fiscal policies to its citizens.

With surgical precision, Creadon interweaves archival footage and economic data to paint a vivid and alarming profile of America’s current economic situation. The ultimate power of I.O.U.S.A. is that the film moves beyond doomsday rhetoric to proffer potential financial scenarios and propose solutions about how we can recreate a fiscally sound nation for future generations.

I know where I’ll be August 21…

Trailer, “I.O.U.S.A.” (2008)
YouTube Video Link

Source:

“Indebted Ever After”
Frank Ahrens
Washington Post, August 7, 2008

America’s Debt? $455,000 Per Household

Yup. You heard right. The U.S. government is $53 trillion in debt, factoring in long-term liabilities. This translates to $455,000 per U.S. household. The San Francisco Chronicle’s Carolyn Lochhead wrote last Thursday:

As the Bush administration proposes backstopping mortgage giants Fannie Mae and Freddie Mac with a $300 billion line of credit and Congress contemplates another economic stimulus, the question is who will bail out the government?

“People seem to think the government has money,” said former U.S. Comptroller General David Walker. “The government doesn’t have any money.”

A rare consensus has developed across the political spectrum that the government’s own fiscal affairs are precarious, with an astonishing $53 trillion in long-term liabilities, according to the Government Accountability Office.

To put that number in human terms, the debt has reached $455,000 per U.S. household. As that debt grows, the United States increasingly relies on foreigners, including China and Middle East oil producers, for financing.

“The factors that contributed to our mortgage-based subprime crisis exist with regard to our federal government’s finances,” said Walker, now head of the Peter G. Peterson Foundation, a group established to raise alarms about the nation’s budget. “The difference is that the magnitude of the federal government’s financial situation is at least 25 times greater.”

According to Lochhead, the federal government’s finances are in worse shape than annual budgets show. This is due to the U.S. government not being required to state its long-term obligations. And the situation is about to become a crisis. She wrote:

This year’s presidential election coincides with the first retirements of the 78 million people born between 1946 and 1964. The first of this Baby Boom generation may now collect Social Security. In three years, they will join Medicare, the giant health care program whose finances are commonly described as out of control. Medicare accounts for the bulk of the nation’s long-term liabilities.

According to the Chronicle, current liabilities total $6.7 million for Social Security and $34.1 trillion for Medicare.

When will the financial meltdown occur? According to Kent Smetters, an economist at the Wharton School of Business at the University of Pennsylvania and a former Bush Treasury official:

I believe we could have a financial crisis like we’ve seen in South America or Asia. It could easily happen, and under current policy will happen in the United States. People say, “Gee, give me a date.” Obviously, that’s impossible, but the longer we wait, the higher the probability. Could it happen in the next decade? Absolutely.

In 1802, President Thomas Jefferson said to Treasury Secretary Albert Gallatin:

We might hope to see the finances of the Union as clear and intelligible as a merchant’s books, so that every member of Congress and every man of any mind in the Union should be able to comprehend them, to investigate abuses, and consequently to control them.

Is it just me, or are we doing a lot of things these days the Founding Fathers warned against?

Source:

“Concern grows over a fiscal crisis for U.S.”
Carolyn Lochhead
San Francisco Chronicle, July 17, 2008

Baby Boomer Retirement: From Dream To Nightmare?

With 77 million Baby Boomers expected to retire in the next few years, a new study by Ernst & Young shows that the retirement bliss may be short-lived. According to Reuters today:

Almost three out of five new middle-class retirees will outlive their financial assets if they attempt to maintain their pre-retirement standard of living, according to a new study conducted by Ernst & Young LLP on behalf of Americans for Secure Retirement.

The study also finds that middle-income Americans entering retirement now will have to reduce their standard of living by an average of 24 percent to minimize the likelihood of outliving their financial assets. Those Americans seven years out from retirement are even less prepared and the study estimates that they will have to reduce their standard of living by even more, an average of 37 percent. These reductions will be necessary even when assuming that retirees can maintain the same standard of living with income equal to 59 to 71 percent of their pre-retirement wages.

Source: Gifts For Geezers

Tom Neubig of Ernst & Young told Reuters:

Many Americans envision a retirement where their lifestyle continues much as before. Our work shows that this is not a realistic expectation and that, with the current state of savings and potentially very long life expectancies, many retirees will have to cut back far more on expenditures than they had ever expected.

Ernst & Young staff concluded that retirees were much better prepared to have a financially-secure retirement if they had a guaranteed source of retirement income beyond Social Security. They predict that retirees with only Social Security as a source of retirement income have a 90% chance of outliving their financial assets during retirement.

According to Reuters, other key findings of the study include:

• Persons that are 5 to 10 years away from retirement have a higher risk of outliving their financial assets than those already at retirement age.
• Married couples, with their longer joint life spans, are more likely to outlive their financial assets than single households.
• Montana, Wyoming and South Dakota residents have the highest likelihood of outliving retirement savings.
• Washington D.C., Rhode Island, Utah, and New York citizens have the least likelihood of outliving retirement savings.

Source:

“Ernst & Young Study Finds Most Middle Class Retirees Will Outlive Retirement Savings”
Reuters, July 14, 2008

Economic Woes Force Baby Boomers To Put Off Retirement

Some years ago I remember reading an article that said how the employment outlook was incredibly bright for Generations X and Y, as the Baby Boomers were fast approaching retirement age. Because economists and demographers were predicting a huge exodus of Boomers from the workplace, companies were trying to figure out ways to retain these highly-experienced workers.

That was then. But now, says Jennifer Levitz of the Wall Street Journal, the gray tsunami “has run into a breakwall.” Levitz wrote yesterday:

While many Americans are still sitting on large gains from homes and stocks bought years ago, today’s market turmoil is shaping up to be the most painful in decades. Nationally, house prices have fallen 10% or so in the past year. And the quarter ended Monday marked the worst period for stocks in 5½ years, with equities off 15.5% from their October highs…

With their homes worth less, fewer people feel confident enough to retire, even if they plan to continue living in them. And unlike younger workers, they don’t have years to make up for downturns in the stock market. As a result, they worry that their investments will diminish to the point that they won’t have enough money to get through retirement.

Because of the troubled housing and stock markets, increasing numbers of Baby Boomers are putting retirement on hold.

Someday soon?

Levitz wrote:

Millions of retirement-age Americans, stung by the recent economic pall, suddenly are having to reassess their plans — with many forced to quickly change course. In February, the proportion of people ages 55 to 64 in the work force rose to 64.8%, up 1.5 percentage points from last April. That translates to more than an additional million people in the job pool, according to the U.S. Labor Department. The ranks of those 65 and over in the work force rose to 16.2% from 16% in the same time span — meaning 212,000 more hands on deck. So far, the numbers for March continue to show a “sharp” increase, says Steve Hipple, a department economist.

According to the Journal reporter, a recent Schwab survey of 1,006 financial advisers showed nearly a quarter of their clients are looking at working longer because of the poor economy. Levitz also noted:

Seniors delaying retirement could create competition for jobs with younger workers and put more pressure on the unemployment rate, which at 4.8% remains low, but has been edging up in recent months.

Source:

“Americans Delay Retirement As Housing, Stocks Swoon”
Jennifer Levitz
Wall Street Journal, April 1, 2008

New Poll: More Than Half Of Americans Expect Recession

Earlier today, a Reuters/Zogby poll showed that a majority of Americans expect a recession in the next year in light of the housing slump, growing inflation, and tightening credit conditions. The survey of 1,105 likely voters found that 54% of respondents thought a recession was looming. According to Emily Kaiser in “Majority of Americans expect a recession: poll,” it was the first time since the recession question was added to the monthly poll in September that more than half predicted such a downturn.

“Can you say hell in a handbasket?”

Economic worries have now replaced the war in Iraq as the top issue in this year’s U.S. presidential election as the housing bust takes a toll on Americans, said Kaiser. Three out of four Americans expected home prices will hold steady or fall in the next year. The poll, conducted between January 13 and 16, found that less than 40% of those surveyed thought the U.S. economy would be able to avoid a recession. The Reuters reporter noted:

Those nearing retirement age were particularly concerned about recession. Among those ages 50 to 64, 61.2 percent expected a recession, making them the most pessimistic group.

That group includes a large portion of the Baby Boomer generation born in the nearly two decades after the Second World War. Much of their savings is tied up in home equity and stock-based retirement plans, both of which have been under pressure in the past year.

Pollster John Zogby, himself a Boomer, said older boomers were increasingly delaying retirement or cutting back spending for fear of outliving their savings. Zogby said:

We began as an anxiety-ridden generation and that’s how we’re going to punch the time clock, too.

The poll had a margin of error of plus or minus 3 percentage points.

Most Americans Face A Lower Standard Of Living In Retirement

I can’t say I’m too surprised about the following, especially when 62% of Americans expect to receive pensions, even though only 41% have them. Yesterday, CNN Money’s David Goldman talked about a report that was released Tuesday by the Center for Retirement Research (CRR) which said a majority of American workers will not be able to maintain their current standard of living after they retire. The center estimated 61% of households are “at risk” of being unable to live the way they would like and pay for their health care when they get old. CRR said consumers were at risk if the combined total of their savings, Social Security, and pension benefits was at least 10% short of the income needed in retirement to support the same standard of living they enjoyed while working. While previous reports assumed that less would be spent on consumer goods to cover health care costs, this study takes into account the idea that Americans want to keep on spending on the same amount of goods into retirement, while still being able to afford health care. Andrew D. Eschtruth, associate director for external relations at CRR, told CNN Money that:

People take the notion of health care for granted. The basic assumption of this report is that retirees think they will eat the same kind of foods, travel the same - or more - and buy the same clothes.

Goldman wrote:

If that’s the case, then there is cause for concern. Health care costs continue to increase dramatically, far outpacing wage increases year over year.

Additionally, out-of-pocket health care costs for most consumers rise significantly upon retirement. The report assumes that people recognize the burden of health care costs once they retire; however, those retirees to whom the added expense comes as a surprise will have to reduce their spending on consumer goods and spend much more on health care.

The CNN Money staff writer also noted that many workers do not have a realistic estimate of how much they will need to spend on health care when they retire, citing a 2007 study by the Employee Benefit Research Institute (EBRI). The EBRI report showed that 84% of employees estimated they and their spouse will need to accumulate less than $250,000 for retiree health costs, with 32% from this group thinking they would need less than $100,000. However, EBRI estimated that couples will need to save about $300,000 in retirement to cover health expenses, assuming they live to average life expectancy and Medicare benefits remain at current levels. For those who make it to age 95, this amount jumps to $550,000.

Can Boomers Save The U.S. From Recession?

As the United States teeters on the brink of recession, some wonder if the Baby Boomers can rescue us through their propensity to spend. A Reuters piece that appeared in the New Zealand Herald on February 8 tried to answer this question. According to Reuters:

Retirement is fast approaching for many of the 76 million-strong generation born in the nearly two decades following World War II. The oldest members of that group turn 62 this year, which is the earliest age to collect Social Security retirement benefits.

Much of their savings are tied up in home equity and sharemarket investments, both of which are now under pressure as the housing and financial sectors stumble. The housing slump and subsequent credit contraction have already taken a toll on US spending and employment, leading many economists to conclude that a recession is close at hand.

David Rosenberg, an economist with Merrill Lynch in New York, told Reuters:

In the early 1980s, early 1990s and the last recession in 2001, as rough as it was for the economy, the boomer could still be relied upon to put a floor under the consumer.

A powerful spending force for the past three decades, the Baby Boomers boast about $3 trillion in annual income, according to the AARP. On the flipside, Reuters claims they have been a big reason for the miserable U.S. savings rate of close to zero, as they took advantage of housing and investment wealth to fund their lifestyles. As this wealth shrinks, Boomers may cut back on spending to rebuild their nest eggs. There is evidence to support this scenario. According to Reuters:

After the technology bubble burst, leading to the 2001 recession, AARP surveyed investors aged 50 to 70 on how they were coping with the sharemarket slide. More than three-quarters of those polled said they had lost money in stocks, mutual funds or other investment accounts. Of those, two-thirds said they had adjusted their lifestyle as a result, including budgeting more carefully, taking fewer holidays and putting off major purchases.

As a result, Rosenberg, Merrill Lynch’s North American economist, now expects the worst consumer recession since 1980 as the Boomers cut back on spending.

The fact that the generation’s youngest members are still in their 40s (which puts them in the peak of their spending years) offers some hope. However, roughly two-thirds of the Boomers are 50 or older.

While recent stock market losses are nowhere near as bad as they were earlier this decade, the housing market is another story. Dean Baker, economist and co-director for the Center for Economic and Policy Research in Washington, D.C., said the present situation in housing is far worse, and more worrisome as homes account for a heftier chunk of savings. Baker explained:

We’re talking about a massive loss of wealth. Prices are just plummeting. You have someone who’s in their 50s, maybe even 60s, and they’re counting on the equity in their home to be a major source of their wealth in retirement. They just saw their home price fall 15 per cent. They’re in real trouble.

Yet, a Reuters/Zogby poll conducted in mid-January still found Americans aged 50 to 64 felt “pretty good” about their financial situation. Nearly 60% rated their financial situation “good” or “excellent,” making them more optimistic than the overall population. The reality is, older workers are “particularly vulnerable” in downturns. According to the article:

Baker says worries about job security and paying for retirement may prompt boomers to pocket rather than spend any rebates they receive as part of a stimulus package of some US$150 billion moving its way through Congress. “If people do end up saving it, obviously it doesn’t provide very much stimulus,” he says.

In another blow to Boomer wealth, on February 5 MarketWatch reported that the vast amount of wealth that was to be transferred between the “greatest generation” and the Baby Boomers is now looking to be a bust. Thomas Kostigen wrote that the $17 trillion that is supposed to change hands in the next 20 years may be far less due to longer life expectancies, increased medical costs, and estate taxes. According to a new Consumer Wealth research report by Tiburon Strategic Advisors:

The World War II generation wealth transfer has been less impressive than many predicted, and it likely will not grow much further…

The median value of a baby boomer’s inheritance is $48,000; very few have received more than $100,000. Specifically, only 2% of those baby boomers who received an inheritance received more than $100,000. Furthermore, the coming wealth transfer faces several limiting factors, including immediate spending, longer time in retirement, health-care costs, taxes and wealth concentration.

Bad Moon Rising

On Monday, the Bush administration released its Financial Report of the United States Government for the 2007 budget year. And guess what? The U.S. government is promising $45 trillion more than it can deliver on Social Security, Medicare, and other benefit programs, according to the Associated Press yesterday.

I see the bad moon arising.
I see trouble on the way.
I see earthquakes and lightnin.
I see bad times today.

The Bush administration said Monday that the $45 trillion represents the gap between the promises the U.S. government has made in benefits, and the projected revenue stream for these programs over the next 75 years. The shortfall increased by nearly $1 trillion in just one year when using the 2006 report as a benchmark. In addition, the gap between entitlements and revenue is up 67.8% in just the past four years. Martin Crutsinger, an AP Economics Writer, said that in 2003 the shortfall was projected to be only $26.9 trillion over the same 75-year time period.

I hear hurricanes ablowing.
I know the end is coming soon.
I fear rivers over flowing.
I hear the voice of rage and ruin.

Even worse, when the gap in funding social insurance programs (Social Security, Medicare, Railroad Retirement, and Black Lung Program) is added to other government commitments, the total shortfall as of September 30 increases to $53 trillion, up more than $2 trillion in just a year, according to the report. Comptroller General David M. Walker, who serves as the head of the Government Accountability Office (GAO), said Monday that, “Our government has made a whole lot of promises in the long-term that it cannot possibly keep.”

Hope you got your things together.
Hope you are quite prepared to die.
Looks like were in for nasty weather.
One eye is taken for an eye.

As usual, Congress said something should be done as 78 million Baby Boomers reach retirement age…

On a side note, the report said that the federal budget deficit would have been 69% higher than the $162.8 billion reported two months ago if the government were held to the same accounting standards as private companies. Using the accrual method of accounting, the deficit would have totaled $275.5 billion for the fiscal year ending September 30.

Rise Of The Silver Tsunami

Remember this date. Earlier today, Kathleen Casey-Kirschling, a retired New Jersey schoolteacher, became the first “baby boomer” to sign up to receive Social Security payments. Ms. Casey-Kirschling was born one second past midnight on New Year’s Day 1946, which makes her the first baby of that generation. The U.S. government estimates that starting Monday, 10,000 people a day will become eligible for Social Security benefits over the next two decades. “I think I’m just lucky to be at the top of the boom. I’m just one of many many millions and am blessed to have been in this generation and really blessed to take my Social Security now,” Casey-Kirschling said during a ceremony held at the National Press Club featuring Social Security Commissioner Michael J. Astrue. “Really blessed to take my Social Security now?” Do you think she suspects that Social Security may be in trouble down the road?

Almost 80 million baby boomers stand in line behind Ms. Casey-Kirschling. David Walker, the comptroller general of the Government Accountability Office, is warning that the Social Security trust fund will be overwhelmed by these numbers. Walker was quoted by Fox News today as saying:

We face a tsunami of spending due primarily to the retirement of the baby boom generation and rising health care costs. So what’s happened is we’ve gone from 16 workers paying into Social Security for every person drawing benefits in 1950 to 3.3 to one today, and we’re going down to two to one by the time the boomers retire in big numbers and that’s about where it will stay over the long run.

According to a number of analysts, by 2017 the United States will no longer be collecting enough payroll taxes to pay Social Security benefits. By 2041, the trust fund will be broke.

A U.S. Treasury Department report issued last month said that some combination of benefit cuts and tax increases will be required to permanently fix the shortfall. But there’s an additional problem lying just below the surface. Fox News did a pretty good job of explaining the dilemma on its website today:

When Social Security gets payroll taxes it pays out most of the money in benefits. The rest is supposed to go into a trust fund. Instead the government has been spending the money on other government programs, and putting IOUs into the trust. When Social Security needs the money it’ll turn to the government waiting for the payback. But the government won’t likely have any.

According to Fox News, the “loan” is expected to be called in 2017, when payroll taxes will be insufficient for meeting the required benefit payouts- and the largest segment of boomers will be retiring. The surplus funds that were being diverted to other federal programs will no longer be available, creating a situation where “everything — from education to defense to the environment — will face a financial crunch.” Get ready for a world of hurt.

Earlier today Kathleen Casey-Kirschling said that her generation won’t let Social Security fail. “I think the baby boomers will want to get this fixed,” she said. “They’re going to want to take care of their children and their grandchildren.” I’m not so sure. I suspect the politically-powerful baby boomers will fight tooth and nail to receive the full value of existing entitlements. Without benefit cuts, the most likely course of action will be increased taxes- on the children and grandchildren of the boomers. Along with a reduction in government services, I should add.