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Forge Your Wealth is meant for education and entertainment and should not be used for financial advice.
A disaster is coming. Unlike the recent novel Coronavirus Pandemic or an earthquake, it is not natural. This disaster was lined up by ourselves. The disaster I am talking about is the Silver Tsunami. The US population and many other developing nations are aging. If you look at the percent of people over 65 from 2008 to 2018 there was an increase of about 3%. The population of people under 15 has decreased by almost the same percent. More people are entering retirement than being born in the country. Interpretation: many public programs designed to ensure retirement will be threatened as more money is needed from the funds than going in. This is called the Silver Tsunami.
Social Security Will Be Stressed
What else is new. With many things going on I would not even be surprised if the government starts to shut down social security by the end of this decade. Social Security requires taxing 1/8th of workers salaries. Also employers match those contributions to make 1/4th of a salary contributed to social security every year. If there are fewer working people to retirees one of two things must happen. The government will either have to raise taxes, or lower social security payments. Either way, a demographic will have to change their lifestyles.
That is not the only trouble we will face. The expected retirement age has remained largely the same. Ever since 1950, human life span has increased by about 6 years and may not stop. People are living longer, and that means their retirement will last a few more years than expected. Unless you belong to the 50% of people with a retirement fund, social security may be your only retirement income. The Silver Tsunami may lower that income.
Medicare Needs A Little Boost
Medicare provides medical insurance for 44 million Americans. Like Social Security, Medicare is primarily funded by taxes. Similar to Social Security, if more funds are being withdrawn than deposited it will face financial trouble. Many people may complain about the costs of health care, but the primary complaint is the lack of transparency when it comes to those costs. Sorry folks, medicine does not come cheap, even the poorest quality medicine is not cheap. While Medicare may pay for much of the healthcare for retirees now, it is debatable if Medicare will be able to cover healthcare costs in the future.
The same solutions apply for solving Medicare as for solving Social Security. Either taxes will have to be raised or the benefits to retirees will have to be diminished.
Problems With Our System
The obvious problem with our retirement system is that we expect the number of people who supply the retirement programs with money to remain consistent. Obviously, the population is shifting. People are having fewer children than before, about 1.73 children per woman. This is not enough to keep up with retirement rates. If there are not enough people working and being taxed, there is not enough in these retirement programs.
Governments designed these retirement programs to try to produce wealth for retirees to live off of. As noble as that sounds, is that the primary goal of wealth, to provide for past generations? It is a question of personal morally, but I find providing for future generations more important than providing for past generations. At this point the choice is to tax future working generations more or to lower the benefits for future retiring generations. We have strained these programs too much to choose a middle ground. Our government has borrowed from Social Security and other programs making these programs less resistant to shifts in population. This will make the Silver Tsunami disastrous.
What Can We Do?
With the approaching Silver Tsunami, it would appear that Social Security and Medicare are not the appropriate answers. Social Security and Medicare rely on funds going in to fund retirement and health insurance. That is a zero sum game plan. It’s no wonder Social Security and Medicare are in trouble. If either the retirees or the workers face financial issues Social Security and Medicare are in trouble. Financial issues are not uncommon. In fact, sometimes it can be too common.
Social Security and Medicare are not bad ideas, they have just been strained and borrowed from. But it is pretty clear that even taking 1/8th of people’s salaries is not enough to maintain these programs. Considering the fact that people say even then these programs are not enough for retirement we cannot expect to take more from workers unless we want to take from what they spend on. One of which I might add is children.
We need to remove the idea that the zero sum game plan can provide people with adequate retirement money. I don’t know why this is hard. I learned of the troubles with Social Security when I was 8, almost 20 years ago. My parents always told me never to rely on the government for my retirement. That is why I have a Roth IRA. The most basic solution to eliminating the zero sum game plan is to improve financial education. Of course I would strongly support financial education, I even recommend teaching it to children before teaching them about the birds and the bees.
One other thing we should try is to encourage entrepreneurship. Most successful entrepreneurs start there business after 45 (I don’t necessarily like that statistic). But the reason this may be the case is because workers at this age tend to realize that maybe they did not do enough to stabilize their retirement. With drive and experience many people viewing retirement may want to start a business. I say we should do more to fuel this drive. Expanding programs involving low-interest loans for people close to retirement would be excellent fuel.
If we center retirement and medicare around a zero sum game it is doomed. Population demographics are bound to change and there is no “easy” solution which would leave each generation happy. If we lower retirement benefits the programs become more and more meaningless. If we raise taxes to supply these programs, it would be harder for workers to raise money to have children, fewer children means less retirement for the current parents. It does not matter how frugal you are, children and retirement require a very considerable amount of money.
Some of the best methods to make a sustainable retirement are already available. These include IRAs, which anyone can make, and 401ks, which the SECURE Act expanded. However, workers and employers still under-utilize these systems. We must adopt new systems that will make better use of these systems. This can be expanded financial education, or expanded business loan programs. We can utilize these programs to forge our wealth and help to ensure the retirements of a nation.