Birth and RetirementEnvironmentalists are destroying your retirement.
Just kidding, but it does make a great opening line. Actually, there is a connection between the environment and your retirement. The number of humans on the planet, if excessive, can tax its resources to the point they are not recoverable. We know that as we humans currently live, we are polluting earth, sky, and sea. Therefore, if we can moderate the growth of human population, we can at least slow the damage we are doing to the planet. And that is good for the environment.
On the other hand, our retirement system in the United States (and most mature economies) relies on a steady or growing workforce. For instance, not a dime of the money my Mom paid in Social Security or Medicare taxes is going to pay her Social Security or Medicare benefits. That money was used to support her parents. Likewise, my taxes, along with other workers’, go to support her.
As I imagine you’ve heard a number of times before, there will be fewer workers supporting a growing retirement community. This is not a U.S. phenomenon.
Overall, the world’s population is growing, but the sources of that growth are the poorest and least developed third world countries in Africa, the Middle East, and Latin America. In most of those societies, large families are viewed as the source of security to the aged.
In the developed world, we’ve transferred an increasing share of that burden to the government. And that government is looking at an increasing population of retirees to provide for, and a decreasing ratio of workers to pay for it. That’s a problem.
Up to now their solution has been to promise more benefits. I’ve heard this referred to as ‘irresponsible,’ ‘reprehensible,’ and even ‘dangerous.’ Let’s just say that it is certainly ill-advised.
There are many figures out there of how bad the problem is. The one that I think is reasonable shows that we currently have an unfunded Social Security liability of a bit over $13 trillion. But that’s not the big problem.
As Richard Fisher, CEO of the Dallas Federal Reserve Bank, noted recently, “The good news is the Social Security shortfall might be manageable.” Fisher went on, “The bad news is that Social Security is the less of our entitlement worries. It is but the tip of the unfunded liability iceberg.”
The real problem is Medicare. Add up the unfunded liabilities of Medicare Parts A, B, and D, you’ll come up with over $85 trillion. That’s six and one-half times the size of the Social Security problem.
It should be made clear that the liabilities I am talking about, a total just shy of $100 trillion, are above and beyond what is covered by payroll taxes, Medicare premiums, co-pays, deductibles, and other revenue coming into the systems. If you compare the sub-prime mess to this, our current credit crisis looks like a pebble compared to a boulder.
So far this election year both parties have told us that they are going to make things better. But neither party has shown us how they can fully pay for it. Tell them that you want to hear a true solution to the problem. Otherwise you are letting them fill up your grocery cart with all sorts of goodies, leaving you and your children to figure out how to pay for them.
Gary Silverman, CFP® is the owner of Personal Money Planning, a financial planning and investment management firm located in
Wichita Falls. You may e-mail him at Gary@PersonalMoneyPlanning.com.
This article was published Sunday, August 3, 2008 in the Your Money column for the Times Record News.
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