I am routinely asked, “Is the U.S. headed for a financial crisis? And, if so, what can we do to get ready for it?”
I get the feeling some questioners expect me to reply, “Buy 40 acres and some livestock, plant a garden, and stock up on gold and ammunition.”
While that isn’t what I advise, the fiscal problems we face are real, and the solutions aren’t simple.
Our country faces significant challenges in three areas: debt, demographics and decisions.
- Debt. No one is surprised to learn that the U.S. spends more than it takes in in tax and other revenue. Here are the rough numbers. We have a $27.5 trillion economy, but $32.9 trillion of national debt. Last year alone, at the federal level, our government spent about $6.3 trillion, but took in only about $4.9 trillion. Do the math. That’s a budget deficit of $1.4 trillion. In one year.
To bring such astronomical numbers down to earth…we could pay off our national debt today if every citizen (including kids) sat down and wrote Uncle Sam a check for just $98,000!
History shows us that when a nation’s debt exceeds its entire economy, the long-term outcome is never good.
- Demographics: Do you read the statements Social Security sends you each year? If you’re like most people, you glance at your anticipated monthly benefit and think “Wow… that’s barely enough for me to make it through one week in retirement!”
Here’s the grim news: You may not even see that much.
The Social Security Trustees tell us that because of our aging population:
“The Old-Age and Survivors Insurance (OASI) Trust Fund will be able to pay 100 percent of total scheduled benefits until 2033, one year earlier than reported last year. At that time, the fund’s reserves will become depleted and continuing program income will be sufficient to pay 77 percent of scheduled benefits.”
One of the difficult lessons our nation (and our world) is going to have to learn is “One day, you have to pay for the all things you’ve promised.”
Well, that day has come. The fiscal guarantees that we have made to current and future Social Security, Medicare and Medicaid recipients now exceed $100 trillion. I know…that number is far too vast to wrap our tiny minds around.
- Decisions. We know we can’t keep spending money we don’t have (debt) and making promises we can’t keep (demographics). But nobody wants to make the hard calls necessary to address the issues.
At this point, the government has three choices: Raise taxes, decrease promised benefits, or “monetize” the issue.
If Congress raises taxes, you have less money to spend. If they decrease the benefits you were expecting to receive, you also have less money (because now you have to replace the benefits you’re no longer getting).
By “monetizing” the problem, I mean the Treasury just “prints” more money. This approach triggers inflation. And when everything costs more, it lowers the value of whatever government benefits you are receiving—and whatever money you’ve saved. In short, your resources just won’t go as far.
None of this is pretty. Next week, we’ll take up part two of this issue. What solutions can you and I pursue for ourselves?
Until then…if you’re in your 50s or 60s and have concerns about your plan (or lack of a plan) for retirement, email me at firstname.lastname@example.org.
I’ll send you my free list of 30+ questions every soon-to-be-retiree needs to ask and answer. (It can help keep you from spending life’s next chapter fretting 24/7!)
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