Demographic Tsunami

Many of the fiscal threats the U.S. (and other developed nations) face in future stem from what the comptroller general of the United States refers to as a "demographic tsunami." That is, inexorably aging populations and the impending retirement of millions of baby-boomers.

Aside from the direct financial impact (e.g., the rising costs of retirement-related programs such as Social Security and Medicare), there are likely to be significant social costs, including rising cross-generational conflict and political polarization. Although there's still time before the full bore of the storm hits, a Reuters report, "First U.S. Baby Boomer Applies for Social Security," reminds us that the day of reckoning draws ever closer.

Retired school teacher Kathleen Casey-Kirschling on Monday became the first ripple in a "silver tsunami" of retiring baby boomers applying for pension benefits that threatens to overwhelm U.S. government finances.

Casey-Kirschling was born one second after midnight on January 1, 1946, and will receive her first Social Security check in February 2008 as the first wave of baby boomers turns 62 next year and becomes eligible for early retirement benefits.

Social Security Commissioner Michael Astrue said the agency is bracing for some 80 million Americans to apply for retirement benefits over the next two decades.

"We are already feeling enormous pressure from baby boomers being in their peak disability years and now we're preparing for so many of them to file for retirement," Astrue said at a press conference with Casey-Kirschling.

The system also includes benefits for disabled workers.

Part of that preparation is to encourage boomers to apply for benefits online at www.socialsecurity.gov/onlineservices. Astrue said the roughly 40 minutes it takes to apply from home is more convenient and less time-consuming than traveling to the local Social Security office.

Because Casey-Kirschling is retiring early, her monthly benefit is reduced to 75 percent of what she would have received had she waited for full retirement at age 66.

The age of full retirement for Social Security is gradually rising from 65 for those born before 1938 to 67 for people born after 1959 under a 1983 law that was enacted to shore up the pension program's finances.

Social Security, which referred to the looming crisis as a "silver tsunami," is facing enormous financial pressures from the generation born in the aftermath of World War Two. The latest report by the program's trustees said by 2017, Social Security will begin to pay more benefits than it receives in taxes. By 2041, the trust fund is projected to be exhausted.

Lawmakers have been talking about fixing the problem for years, but failed amid partisan bickering over a plan by President George W. Bush to partially privatize Social Security.

"There is no reason to have any immediate panic," Astrue said. "I and most people who are really familiar with the situation are confident that there will be some pain along the way, but we will get there and Social Security will be there for future generations."

Casey-Kirschling, who taught food and nutrition to seventh-graders in New Jersey, said she is also confident lawmakers will eventually tackle the retirement program's long-term financial problems.

"I do think they will come up with a solution," she said.

Budget-watchers in the U.S. Congress have been contemplating forming an independent bipartisan commission to review ways to fund the growing number of pensioners. So far the idea has not gotten off the ground and no decisions on program changes are expected at least until the next president takes office in January, 2009.

Comments

[Contrarian Investors' Journal]

This reminds me of the book written by Ludwig von Mises, Human Action: A Treatise on Economics (pg 847-848):

"Paul in the year 1940 saves by paying one hundred dollars to the national social security institution. He receives in exchange a claim which is virtually an unconditional government IOU. If the government spends the hundred dollars for current expenditures, no additional capital comes into existence, and no increase in the productivity of labor results. The government’s IOU is a check drawn upon the future taxpayer. In 1970 a certain Peter may have to fulfill the government’s promise although he himself does not derive any benefit from the fact that. Paul in 1940 saved one hundred dollars.... The trumpery argument that the public debt is no burden because ’we owe it to ourselves’ is delusive. The Pauls of 1940 do not owe it to themselves. It is the Peters of 1970 who owe it to the Pauls of 1940.... The statesmen of 1940 solve their problems by shifting them to the statesmen of 1970. On that date the statesmen of 1940 will be either dead or elder statesmen glorying in their wonderful achievement, social security."

[eh]

[He receives in exchange a claim which is virtually an unconditional government IOU.]

Regarding the US Social Security system, this is true if "unconditional" means non-binding. No one has a legal right or claim to SS benefits, no matter how long or how much he has contributed in taxes -- the courts have ruled this way several times. The taxes (FICA) you pay, and the benefits you receive, are set by laws the Congress passes. They can change the laws at any time.

[Boom2Bust.com]

Funny that you mention that, eh. Yesterday, David Walker, the comptroller general of the Government Accountability Office, was quoted on Fox News' website as saying that despite the term "entitlements," which comprise about 62 percent of government spending, government payouts are nowhere guaranteed in the Constitution.

Furthermore, the U.S. Treasury Department reported last month that a combination of reduced benefits and increased taxes will need to be considered to permanently fix the trust fund.

Yet, we continue to break out the earmuffs whenever the issue comes up.

[Bruce]

America is beyond the point of redemption. We've had it too good for too long, we've lived way beyond our means, and we've partied long and hard, but the curtain is about to come down I'm afraid. And we only have ourselves to blame for this entire mess. It's going to get A LOT uglier. By the time this whole ordeal blows over, America will be a VERY different country with a VERY different set of priorities. Enjoy what's left of this once-proud nation...