World War 2 ended nearly 67 years ago, after which a large increase in the annual birthrate occurred world-wide for over 10 years, often called the post war baby boom. In the US alone there are about 77 million "Baby Boomers" ranging from 55 to 66 years of age. They are currently in their highest income earning and tax paying years, but the economic teeter-totter in our society is about to tip in a negative way.
This large group of economic contributors is starting to retire and become a large net liability, rather than a large net asset, in a compound manner; because they will not only stop paying into the tax receipts of government, they will also begin receiving tax income from government in the form of Social Security and Medicare. This compound swap in increased costs and decreased income to government is a demographic bomb that will likely collapse our economy; and any ensuing fights over these entitlements could destroy our society.
The ongoing reduction in our workforce, along with downward pressure on wages, is all eroding taxable income, which reduces government income, which will eventually reduce government payouts across the board. It is a common event for both blue-collar and white-collar employees, that when employees like the "Boomers" retire today, their replacements are promoted into their jobs at lower pay and fewer perks or benefits. As a nation we are becoming poorer, not richer; because our ability as a society to take care of each other is declining and will ultimately become every person for themselves with no form of insurance or government aide as a safety net.
The "Boomers" as a large group of citizens started entering the workforce in the mid-1960's and have paid into Social Security, Medicare and Medicaid their whole careers; now that they are beginning to retire, society is saying we cannot afford to support you like you supported your parents and grandparents. There is plenty of wealth, but we are not going to change how it is apportioned; you will just have to make do with less and less.
There is much to fear about the economic health of "Boomers"; there is more than a trillion owed to them as pensions that are unfunded and uncollectible corporate liabilities. Many "Boomers" are cashing in their 401K's and IRA's because they have lost their jobs and are for all intents and purposes unemployable; while others are working at low paying jobs and have taken out loans against their retirement savings and investments, leaving them vulnerable to even greater economic hardship in the future. The government has caused Social Security to begin running deficits, just when the "Boomer" population began retiring, because they chose to lower the FICA tax that funds Social Security and Medicare, rather than lower income tax or expand and increase FICA tax on incomes above $110,000 per year that would make it a fairer tax as well as bring in revenue.
Considering that the average 401K is only worth $60,000 and that pensions can, and many have, disappeared through corporate takeovers and corporate bankruptcies. The retiring "Boomers" will not be the consumers and economic force that they have been since the 1970's. The coming drag on Federal Medicare programs, state Medicaid programs and state welfare programs is going to consume most government liquidity and cause massive increases in government debt besides.
The alternative is to reduce services and abandon everyone to less or none of medical services, social services, education, police and fire protection, and less food and goods for consumption. In a crumbling infra-structure we cannot remain a superpower or even a first-world country when the "Boomer" bomb explodes; we will become a very internally stressed third-world country.
The massive debts of our Federal Government, states, counties, cities, corporations, pension funds, student loans, real estate debt, and personal credit card debt, are all dominoes that will collapse each other as soon as any one of them defaults; and the loss of cash flow from retiring "Boomers" is certain to result in defaults in a few of these debt obligations; remember, by law, debts have first feeding at the trough; budgets are cut, services are eliminated, income is reduced, all to pay past debts.
Our government is not capable of dealing with the "Boomer" bomb; it simply is too divisive in its political rhetoric to strive for the social equality necessary to deal with the coming avalanche of social problems arising from reduced income and increasing debt. Nor will Congress be able to act swift enough when social declension erupts into extreme social disobedience. Government has already failed; the bus has already driven off the cliff and is beginning a free-fall to destruction. Just because we can answer the question, "how is it going?" by replying, "so far so good", does not belie our certain fate.
With 77 million "Boomers" reaching retirement age over the next ten years, gives an average of more than 20,000 "Boomers" per day, 365 days per year. It is estimated that only about 10,000 people per day are actually retiring, because 10,000 people per day cannot afford to retire. This is tragic and likely to get worse because real estate is not recovering, savings are not compensated with interest, inflation is eroding the dollar's purchasing power, and social and medical services are being cut as well as going continually higher in costs. The government safety nets at all levels of our society are being shredded at the same time that poverty and destitution are increasing. The equity wealth associated with stocks and bonds, real estate, recreational toys, antiques, collectables of every kind, will decline across the board because there will be many more sellers than buyers. Even though the Federal Reserve continually indicates its willingness to purchase Wall Street equities for cash, that cash will be exchanged for goods and services whose prices will rise faster that the Federal Reserve can produce cash.
The fuse was lit on this bomb at the end of the baby boom, around 1956; it started exploding in 2011; and though it appears to be an explosion in slow motion; it will be relentless in increasing costs and decreasing contributions to our economy that will devastate and paralyze state and federal government. Right now 600,000 people per month are reaching retirement age and 300,000 people per month are actually retiring, which dwarfs employment statistics such as changes in unemployment monthly. With 3.5 to 4-million people retiring in 2012 means that millions are delaying their retirement for a few years; which will become 10 to 12-million new retirees per year in just a few years, because those that are delaying their retirement now will soon be forced out of the workforce by the effects of declining health associated with aging and reduced state and federal government medical benefits available to shore up that declining health.
How many people being hired in today's US economy (February 2012) are just replacing retiring "Boomers" and are not part of economic expansion? You cannot look at employment statistics only from the point of how many unemployed people have been rehired into the workforce over a specific time period, until you subtract out the number of people retiring in that same time period. Just replacing the "Boomers" in the workforce will create 70-million jobs over 10-years without expanding the economy or increasing government income.
Just to throw around a few cost numbers; in a few years when 10-million "Boomers" are retiring each year, they will stop contributing approximately 20 billion dollars per year into Social Security and Medicare; and they will start withdrawing at least 120-billion dollars per year in Social Security alone and many billions per year more in Medicare expenditures. This loss of revenue and increase in costs will be around 200-billion dollars per year in increased government debt and it will grow by 200-billion dollars per year for a few years until the "Boomers" are all retired and adding at least 1-trillion dollars per year in costs to government that we do not have at this time; and all of this will occur before 2020. Will we continue to have social entitlements? Certainly, as long as you are breathing you are socially entitled to your fate.
© February 2012
Craig D. Hanks
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