The Social Security Administration (SSA) announced a 5.8% increase in social security benefits for 2009 (See Yahoo Finance article HERE). Interestingly, according to the AP press release, the increase would have been higher had energy prices held up through September and October (now that’s a catch 22 eh?).
This is the LARGEST increase since 1982 – and as long as it is not a trend, things should be ok. However, with Uncle Ben Bernanke printing money like it’s going out of style, and with Treasury’s unfortunate but necessary bailout plan, government agencies are doing their best to stoke inflation.
And what does this have to do with poor planning by Roosevelt? Lots actually – when leaders discuss our entitlement program going negative in 20-30 years, they are not assuming inflation as high as 5.8% I can tell you that. If our excessive monetary policy does foster continued higher inflation, look for our entitlement programs to blow up a lot sooner. And not to pick on just Roosevelt, he represents all politicians who try to plan a grandiose program with poor attention given to cost.
And that is what is most disturbing about these programs, as with any financial planning mistake: poor assumptions. People now live longer on average. The baby boomers created a bubble in the benefit planning that wasn’t known when the social security program was created. new medical procedures which keep people alive longer or provide more diagnostic information for example, cost a lot of money. These points were not planned for originally which is why social security was so cheap to administer when it began.
Now, after many patches and tax increases, the program still is not fully funded long term – it’s a bum pension. The tax rates to pay for this stuff are outrageous – no one wants to talk about this, but the MATH DOESN’T WORK. There will be too many old people soon with too few young people to support them. Just for illustration on potential costs, the current tax rate for social security and Medicare is 15.3% – that’s BEFORE you start paying income taxes. It’s obscene and I don’t blame the people who go underground with their income! Wait til the worker/retiree ratio drops closer to 2:1 from its current 3:1 ratio -maybe 20-25% payroll tax?
Such poor financial planning by politicians going back to the BEGINNING of the baby boom, when economists could have forecast high future expenses for these programs (BUT DIDN’T), has led to future problems are CERTAINLY higher taxes or reduced benefits (or the DC compromise, BOTH). In a way, it’s almost unfair that some of us have to pay these ridiculous taxes due to poor planning – and since the majority seems to vote for politicians (like the one who’s been around for 40+ years in my state) who did and are doing nothing about it, I don’t feel bad for most of you. You deserve what you vote for. The frugal practical minority in this world pays for those mistakes though.
Bottom line – this whole social safety net, which provides good protection for many people, costs way too much due to poor planning. And when Roosevelt put this program in place, he made promises that were later broken by his successors (e.g. taxation of social security benefits – thank the Democratic Congress who created two brackets to tax social security in 1986 and 1993). And he put in a plan of which the future could not be predicted. Couple these rising costs and potentially higher inflation figures with all the money we just spent bailing out the financial system, and couple that with our inexcusable history of never balancing a budget, and you have a recipe for huge financial trouble that makes the current mess look tame by comparison.
And I mean specifically, US debt ratings dropping to junk status as our ability to pay interest gets strained (already about 20% of tax revenues pay interest), foreign countries buying less and less of our bonds due to the risk (meaning we would have to change our entire financial structure radically – less consumption), and in a worst case scenario, a complete lack of trust in the “full faith and credit of the US Government.” I don’t think this was part of Roosevelt’s plan but what did he care, he would be long dead before any trouble hit. Let’s just hope we don’t get there.
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