Social Insecurity
A recent Gallup survey asked 1,003 randomly selected Americans this question: “If you could talk with President George W. Bush for 15 minutes and give him advice about anything that’s on your mind, what would you tell him?”
The number one response dealt with the war in Iraq, and in second place were concerns about Social Security. The President’s latest attempt to revamp Social Security is an indication of the seriousness of the problem with the forced federal retirement program.
In a speech to auto workers this week, he commented, “The American people now understand we have a problem. And our leaders must choose: Do nothing and guarantee a massive tax hike or a 30 percent benefit cut; or act now to keep the promises of Social Security for the 21st century.”
Adding greater credibility to the situation is Federal Reserve chairman Alan Greenspan and his recent appearances before the House and Senate budget committees. For 18 years no person has had more influence on American economic and monetary policy than the Fed chairman.
He has the ability to make stock prices rise or fall not only on what he says, but what investors think he intended to say—so he is usually very careful with the words he chooses. This was not the case, however, when Greenspan warned U.S. lawmakers that “under existing tax rates and reasonable assumptions about other spending, these projections make clear that the federal budget is on an unsustainable path, in which large deficits results in rising interest rates and ever-growing interest payments that augment deficits in future years.”
He said projecting Social Security costs is relatively simple; however, the uncertainty about future medical spending is daunting. “I fear we may have already committed more physical resources to the baby-boom generation in its retirement years than our economy has the capacity to deliver.”
Individuals labeled as Baby Boomers are called that because between 1946 and 1964 one-third of the world was born. Just to give you an idea of the explosion of people that came into the world, Gerber baby foods was selling about $200 million per year in 1946; two years later they were selling $2 billion per year! A Boomer turns 50 once every 13 seconds in the U.S.—more than 6,600 people per day.
Greenspan further cautioned that despite pledges made by President Bush’s administration, there would be increases in the deficit. “Unless that trend is reversed, at some point these deficits would cause the economy to stagnate or worsen.” Greenspan continued that it would get worse in 2008, which is when individuals born in 1946 turn 62 and start to retire, and collect pensions and medical insurance under the Medicare program.
Social Security figures indicate that if the system continues in its current structure, the surplus of payroll taxes left after annual retirement payments will end by 2017. In the late 2020s, when the last of the Boomers retire, there will be more than 72 million individuals drawing on the system.
It’s no wonder that Social Security ranks the second biggest concern on the minds of Americans, and now with the President anxious to revamp the program, many Boomers worry that it will mean a loss of benefits that will make it even more difficult to enjoy their “golden years.”
According to statistics compiled from the 2004 Retirement Confidence Survey, two in five workers stated that they are not willing (19 percent) or not at all willing (15 percent) to cut back on their spending in order to save for retirement. It’s going to be a rude awakening for many American’s when they reach the age when they hoped to relax and enjoy life. In the same survey, almost 7 in 10 workers now expect to work into retirement; however, 4 in 10 retirees will end up having to leave the work force earlier than planned because of health complications or downsizing.
Greenspan indicated, “The combination of aging population and the soaring costs of its medical care is certain to place enormous demands on our nation’s resources and to exert pressure on the budget that economic growth alone is unlikely to eliminate.”
CNMI government workers are lucky that they don’t have to depend on Social Insecurity when they retire because we have a secure retirement program where the government dutifully makes required contribution to ensure the long-term security of it’s citizens. Ha! We could go into that, but it will take another series of articles that have already been covered well by local economists who know that the CNMI nest egg has some serious cracks in it.
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Rik is a business instructor at NMC and Janel is the owner of Positively Outrageous Results. They can be contacted at: biz_results@yahoo.com