Cassandra was a creature from Greek mythology that was given the gift of prophecy, but cursed by never being believed, even though her predictions were always correct. The closest thing we have to a living Cassandra is financier Peter Peterson, who has been warning for decades about an impending fiscal calamity from unchecked entitlement spending. His latest book on the subject, Running on Empty, has just been published.
Peterson points out that our long-term fiscal situation was dire even before the Bush Administration took office. It is a fantasy to think we could have preserved budget surpluses if only Republicans hadn?t cut taxes, engaged in an unnecessary war, or increased Medicare benefits. These things have all worsened our fiscal situation, in Peterson?s view, but even taken together they represent only a small part of a much larger problem.
That larger problem is essentially demographic, coupled with poorly designed entitlement programs. As long as we had a relatively young and growing population, the burden of paying for entitlements like Social Security and Medicare was manageable. But with the aging of the giant baby boom generation and a labor force that is growing much more slowly, all of a sudden the day of reckoning is within sight.
The first baby boomer becomes eligible for early retirement at age 62 in just 4 years. If members of that generation take early retirement in the same percentages as the current generation of retirees, then almost 60 percent of them are going to start drawing Social Security benefits the minute they can. Thus we will simultaneously see a sharp reduction in the labor force and an increase in government spending that must be paid for by a shrinking pool of workers.
Not only is this bad for taxpayers, but it is bad for retirees. Boomers taking early retirement will get 30 percent lower Social Security benefits for life than they would get if they only waited until age 66. Moreover, if they try to work after taking early retirement, they will lose $1 in benefits for every $2 they earn above $11,640. Those above age 66 can earn as much as they want and lose no Social Security benefits.
As Peterson notes, most baby boomers don?t have enough saved for a comfortable retirement even if they wait for full Social Security benefits at age 66. This is especially so given the rapid increase in life expectancy. If more than half of baby boomers foolishly condemn themselves to 30 percent less benefits, many are going to find themselves impoverished by the time they reach their seventies.
Bruce Bartlett is a former senior fellow with the National Center for Policy Analysis of Dallas, Texas. Bartlett is a prolific author, having published over 900 articles in national publications, and prominent magazines and published four books, including Reaganomics: Supply-Side Economics in Action.
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