“I believe that all of us ought to retire relatively young.” – Fidel Castro (in a 1967 Playboy interview)

America is getting older fast, as the 79 million members of the 1945-1965 baby-boom generation start closing in on their 60th birthdays. And, as Kiplinger’s Personal Finance recently pointed out, they will begin to retire just six years from now.

If you’re one of those millions — and you’re counting on Uncle Sam to take care of you in your “golden years” — you’re going to be bitterly disappointed. But if you get your finances in shape, you’ll never have to worry about the two promises that Uncle Sam won’t be able to keep:

1. that monthly Social Security checks will provide enough money for you to live modestly but comfortably in retirement

2. that Medicare will be available to take care of your senior-health-care needs

The government won’t be able to keep those promises, because Social Security and Medicare are going broke. And here’s why:

Until now, the amount of money drawn into the Treasury from Social Security taxes (which shows on your pay stub as money withheld for FICA and Medicare) has exceeded the outgoing payments made by the Social Security Administration (SSA) for these programs. But by 2017, the SSA will be paying out more in benefits than it collects.

In their 2003 Trustees Report, the SSA itself said that “if Social Security is not changed, payroll taxes will have to be increased or massive transfers from general revenues will be required.”

Neither of these things is likely to happen. Young people won’t allow their payroll taxes to be increased for the benefit of baby boomers who squandered away the funds while they were running the government. Additionally, there are so many boomers retiring (as compared with the number of people working) that any tax increase would have to be enormous to have any real effect. And there are certainly no surpluses to be found in “general revenues” these days.

Something has to give.

The first cuts will be subtle. Cost of Living Adjustments (COLA) will disappear.

Then, as the number of retiring boomers increases, more onerous measures will be taken. Benefits will be cut. Or, if they’re not cut, the debt will become so large that the government will need to inflate our currency — which will result in a devalued dollar and diminished purchasing power. In either case, you’ll end up with less.

Rely on Social Security for your retirement years, and you can plan on living in a rented room and eating dog food.

And the outlook is even worse for Medicare:

  • The Annals of Internal Medicine recently reported that older Americans with health problems are getting the care they need just 52% of the time. Many can’t afford top doctors and facilities. When Medicare starts paying less to doctors and hospitals because it’s running out of money, the quality of senior care will only get worse.
  • The average remaining-life expectancy for 65-year-olds is currently 17.5 years, up from 12.4 years in 1935 — and it continues to increase. This means that more people will be drawing from the same rapidly emptying pool of benefits.
  • Health-care costs keep rising. A recent survey indicated that hikes in business health-care costs for 2003 alone resulted in an 18% increase for employers and a 13% increase for employees. In other words, every one of their dollars now buys less care.

In a nutshell, the future of Uncle Sam’s retirement program is grim. Very grim.

So if you want to look forward to a decent income and acceptable health care, you’re going to have to take charge of your own future. How? That’s what we’ll talk about tomorrow.