More Than $1 Million per Taxpayer Owed – and Climbing

It seemed tragic back in October 1981 when the federal debt reached $1 trillion. How would we ever pay back $1 trillion?

The real tragedy, though, is what’s happened since then

In early December, the federal debt is expected to exceed $20 trillion. More troubling, though, other unfunded U.S. government debt obligations now total $107 trillion, according to the U.S. Debt Clock.

The cost of unfunded liabilities is difficult to estimate. Unknowns such as future interest rates, inflation, population growth and mortality rates must all be considered, so estimates range from around $80 trillion to more than $200 trillion. These unfunded liabilities come from programs we’re written about in recent weeks – Medicare, Medicaid, Social Security and government pensions.

Economics professor Antony Davies and James R. Harrigan, CEO of Freedom Trust, noted recently in U.S. News & World Report that total U.S. government debt exceeds even the approximately $120 trillion in debt you get by adding the federal debt to the cost of unfunded liabilities. They estimate the total at $135 trillion.

“U.S. state and local governments officially owe $3 trillion and have another $5 trillion in unfunded liabilities themselves,” according to U.S. News & World Report. “Federal agencies and government sponsored enterprises owe another $8 trillion, which is not included in the federal government’s numbers.”

To paraphrase the late Senator Everett Dirksen, a trillion dollars here, a trillion dollars there, and pretty soon you’re talking about real money.

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Social Insecurity: Another Reason We’re Going Broke

Except for recent contributions, all of the money that you’ve contributed to the Social Security system throughout your lifetime has already been spent.

That’s because Social Security is a pay-as-you-go system. Contributions from people working today go to people who are retired today. Your contributions will be long gone by the time you retire.

And, depending on your age and whether the folks in Washington can get their act together, there may not be enough money available for you to cash in when you retire.

Going Broke

While the Social Security system currently is solvent, trustees of the Social Security system’s two funds, which support retired and disabled workers, project in their recently released annual report that the funds will be depleted in 2034. As trustees of the programs noted, the funds “fail the test of long-range close actuarial balance.”

Trustees project that annual benefits paid out will exceed the Social Security taxes workers and employers pay beginning in 2022.

And the trustees may be overly optimistic. The Congressional Budget Office, which tends to make rosy predictions about government programs, estimates that the funds will be depleted by 2030. After that, the amount Social Security pays out every year will exceed what it takes in by more than $400 billion.

“Current benefits for retirees already exceed the system’s payroll-tax receipts,” Martin Feldstein wrote in The Wall Street Journal. “Benefits are therefore payable under current law only by drawing on the so-called trust fund, an accounting record of previous Social Security surpluses.”

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How to Retire Early – Part Two

In part one of “How to Retire Early,” we focused on the need to reduce expenses and control debt.  Doing so can create the foundation for a retirement plan by making money available for investment.

What should happen next?  Here are a few suggestions:Retirement 4

Consider all sources of income.  Typically, retirement income comes from a combination of an employer pension, personal savings and Social Security income.  Compare what you are eligible to receive with what you will need.

If you have a shortfall, consider all of your options for making it up before you retire.  You may decide to work part-time.  It you have a marketable skill, you may even be able to develop a base of business that provides you with enough income to meet your needs without dipping into your retirement savings for a few years.  Or maybe you have space you can rent out to produce more income.

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Only a Half Trillion Dollars

It’s a sign of how much trouble we’re in when a budget deficit of a half trillion dollars seems like fiscal restraint.

It is progress, given that annual budget deficits were running above $1 trillion a year throughout President Obama’s first term and have been as high as $1.4 trillion.  And it could have been worse.  Recall the effort made by President Obama to stop the automatic spending cuts that took place when sequestration was adopted.

But a half trillion dollars is still a mountain of money.  It helps to give the number some context.CBO Chart

To reach a half trillion dollars, you would have to spend $8 per second beginning with the year 0 and continue spending through today.  If you had a stack of $1 bills adding up to $500 billion and were able to put them one on top of another, the stack would be 34,000 miles high.

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How Baby Boomers Can Benefit the Economy – Keep Working

If baby boomers decide to postpone their retirement, it may not solve all of the country’s economic problems, but it will help address most of them.

So it’s good news that a growing number of boomers are postponing retirement.  Today, almost 18% of people older than 65 are still working and the number is climbing.  In 1993, only 11% of people older than age 65 were still working, according to the Bureau of Labor Statistics.

Of course, many boomers will be forced to keep working, because they have not saved enough or because the performance of their retirement portfolio has not met their expectations.

Others, though, will keep working simply because they want to work.

So how will it help the economy if boomers keep working beyond 65?

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Bust-Proof Investing For Boomers

We’ve been focussing on the “senior bust” that many baby boomers will face as they approach retirement. 

So how can baby boomers avoid the senior bust?

The starting point is to understand your finances.  You’ll need to know your current assets and have a good idea of how much you’ll need to live off during retirement.  Assuming your current retirement is not adequate, you’ll need to save more and invest wisely.

Some alternatives include:

Delay retirement.  The longer you work, of course, the more you can save and the longer it will be before you need to draw off of your retirement funds.  Assuming your children are grown and your expenses are minimal, you can probably save a great deal more for retirement than you could when you were younger. read more

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