“Social Security is a government program with a constituency made up of the old, the near old, and those who hope or fear to grow old. After 215 years of trying, we have finally discovered a special interest that includes 100 percent of the population. Now we can vote ourselves rich.”
– P.J. O’Rourke
“U.S. taxpayers owe more than a half-million dollars per household for financial promises made by their government, mostly to cover retirement benefits for baby boomers.”
That’s how USA Today put it in a recent front-page article.
In the past two years, federal, state, and local governments have added nearly $10 trillion to taxpayer liabilities, the newspaper continued, “bringing the total of the government’s unfunded obligations to an unprecedented $57.8 trillion.”
I’m not surprised at the numbers. What amazes me is that such a mainstream publication as USA Today would characterize the sacred Social Security cow this way.
Longtime ETR readers know that Social Security is tomorrow’s bad news that nobody has so far wanted to pay much attention to. Politicians make promises that this holy trust between the government and its taxpayers will never be broken, even though number-crunchers have been telling us for years that the current funding won’t be able to support the boomers when they begin to draw from it in 2008. And common sense tells you that it will only get much worse after that.
The problem, in a nutshell, is this: For the next 10 to 20 years, there will be many more users than funders of government-promised retirement benefits. In other words, the generation of younger workers that will be supporting the baby boomers is too small to both take care of their own financial obligations and pay for the boomers’ retirement “obligations.”
If you are thinking, “But future Social Security payments have already been funded by the baby boomers – that’s what all those tax deductions (both individual and corporate) were all about,” you get a D in government economics. Just because they took the money from us for 40 years (because they didn’t trust us – and still don’t – to save for ourselves), doesn’t mean they haven’t spent that money already.
USA Today compiled a list of taxpayer liabilities to give a clear look at what’s really going on here. The amount that each household will have to cough up for the baby boomers includes:
$263,377 for Medicare
$133,456 for Social Security
$63,056 for military, federal, state, and local employee retirement benefits
And, like an unpaid credit card bill, the newspaper pointed out, “the balance grows every year – about $25,000 per household.”
The article ended with this comment: “Economist Dean Baker of the liberal Center for Economic Policy Research says the nation can afford Social Security but not the current health care system. ‘If we don’t fix health care, it’s hard to imagine what our country will look like in 20 years.'”
Well … here is one extreme scenario to consider:
Chapter One: Baby boomers – broke because they counted on the government and didn’t save enough to take care of themselves – form the largest single-issue voting block in history and force the younger, working generation to pay half of their income to the government so that the money stolen from the boomers can be repaid.
Chapter Two: Working taxpayers revolt. They forget about all other political issues and form themselves into the second largest voting block in the history of U.S. politics.
Chapter Three: Civil War II.
What can you do about it?
If you are over the age of 50, get a copy of my next book, Seven Years to Seven Figures, when it’s published in the fall. It will provide you with a blueprint for making enough money to live well even if you never get a nickel from Social Security. Meanwhile, reread Automatic Wealth: Six Steps to Financial Independence.
If you are younger than 50, start socking away money as fast as you can. Put a portion of your assets into portable, tangible vehicles (such as precious metals, fine art, etc.) that you can take with you when you escape the chaos. Stow a good chunk of the rest in rental real estate. It will continue to provide you with income, no matter where you’re living – and it will be difficult for the boomers to get their hands on it.[Ed. Note: Mark Morgan Ford was the creator of Early To Rise. In 2011, Mark retired from ETR and now writes the Palm Beach Letter. His advice, in our opinion, continues to get better and better with every essay, particularly in the controversial ones we have shared today. We encourage you to read everything you can that has been written by Mark.]