On eating our cake and having it too

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. That percentage is unlikely to be lower in Europe, quite the contrary. Let’s take a quick look at the US federal government’s budget for Fiscal Year 2009 from Wikipedia.

Okay, 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 are facing a future disaster? If so, what do they want done about it?

The Gallup organization asked those questions and here are the answers in percentages, followed by some of their analysis.

While fewer than half of Americans say they favor 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% favor both options, 30% favor a tax increase but not benefit cuts, and 20% favor 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 recognize 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 income needs, based on the current situation, divide that percentage by half for ten years from now. Why half? Why ten years? No particular reason, but 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 favor reduced benefits over increased taxes. So count on that if you want to be safe.

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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One Response to On eating our cake and having it too

  1. R. B. Cline says:

    Not to critique this post in detail but a couple of observations that pop right out:

    Note that in the budget defense consumes a larger portion of the budget than either Social Security or Medicare individually. It would also be interesting to compare the growth of the defense budget (including special allocations for Afghanistan and Iraq) and the Social Security and Medicare budgets.

    These are called entitlements because they are something that the recipients are entitled to for having met certain preordained conditions. in the case of Social Security working regularly until the age of 65 or until one became to physically disabled to work. My employers and I have been paying a social security tax on my behalf for 42 years in order to earn that “entitlement” that I am now nearing eligibility to receive.

    Social Security was originally designed to be a self supporting program with the funds in a “lock box”, dedicated, account. I had no input into the decision to combine those funds with other receipts into the General Fund and to pay benefits from that fund. Sadly we must deal with that decision today but that does not in any way reduce the commitment that for decades was made by our Government to those generations that are now entering their senior years..

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