EDITORIAL: Social insecurity—Drunken sailors plan to bail with a teacup
By Bill Settlemyer
Executive Publisher
What do the nation’s major airlines and the federal government have in common? They both have a knack for staying in business while losing billions of dollars.
What do Americans have in common with both the air carriers and the federal government? They defy fiscal gravity by spending like drunken sailors, gorging on home equity loans and bloated credit card balances to sustain unsustainable lifestyles.
Of course, that’s not true of all Americans by any means. Millions live paycheck-to-paycheck, going without health coverage and all the glitz, glamour and luxury that millions of others enjoy.
The hourglass economy
An article several weeks ago posted on CBSMarketwatch.com talked about “the hourglass economy,” in which many people are moving up the financial food chain and becoming more affluent while millions of others are falling out of the traditional middle class and finding themselves on the ropes financially.
While it’s never wise to second-guess the overall strength and potential of the nation’s economy, the long-term picture is clouded by massive federal deficits and the growing international trade deficit, both of which threaten the dollar’s longstanding role as the world’s reserve currency. Just as airlines and consumers survive individually on borrowed money, our country is doing the same in the context of the global economy.
All of this has a strange resonance with the equity boom at the end of the last decade, only this time the boom is on the debt side of the ledger. The IPO craze that drove up stocks during the tech bubble was ultimately built on the “greater fool” theory, the hope that even though you paid too much for a stock, the next guy would pay even more.
We’re in the same situation now with the dollar. We are dependent on other countries, notably China, to keep lending us money even as our national balance sheet continues to deteriorate. Conversely, the rest of the world is under pressure to keep playing the role of greater fool so we Americans can afford to keep buying their goods.
Which, I guess, makes me a contrarian, since I’ve been focused for the last few years on reducing personal and business debt. Very un-American, I suppose, for someone who probably could borrow a lot more and spend a lot more.
In my defense, I’m only a few years from “retirement age,” though that’s becoming a moving target. So the question of being able to afford full retirement looms quite large for me, as it will in a few years for millions of baby boomers.
I want my Social Security!
Being a modestly successful small business owner, I have a better shot at getting my financial house in order for retirement than many, but it’s still a challenge. What I don’t have is access to a pension, other than Social Security. And boy do I want my Social Security!
Why? Let’s look at the math: If my wife and I draw our full benefits at retirement age (66), we would receive about $36,000 a year. How much do you need in a private savings account to cover that? The expert (and conservative) advice is to spend no more than 4% of your nest egg each year to make sure you don’t out live your savings. The returns on your investments in excess of 4% need to be added to principal to cover inflation.
Simple math reveals that it would take a “starter” nest egg in a private account of $900,000 to accomplish that. How many of you have an extra $900k around to replace your Social Security benefits? Quite a few, thanks to the demographics of our readership, but that’s still a big chunk of change. And by many reports, millions of boomers have little time and a lot of ground to cover to fund a comfortable retirement, even including full Social Security benefits.
Phony Social Security crisis
President Bush is out of the starting gate with his push to “reform” and “save” Social Security through privatization. I’ve read everything on the subject I can get my hands on, and I’m convinced this is a phony crisis. For a good explanation of why this is so, take a look at the book Retire on Less Than You Think by NewYork Times contributor Fred Brock..
Brock says that even under relatively gloomy economic forecasts, the program is “rock-solid for about four decades, until 2042.” He adds that, “With some minimal changes, it will be fine until 2077 or perhaps the end of the century.” Not exactly an imminent crisis that should be “solved” by creating private accounts and running up another $1-3 trillion in national debt to fund the transition.
Do you know what the real crisis is? I do. It’s fiscal irresponsibility—Alan Greenspan’s dirt cheap funny money (“Almost Zero Interest Down, You Pay Nothing for Years!”) that we’ve depended on for too long now, and the unwillingness of Congress and the president to balance the budget by levying enough taxes to cover expenditures.
Social Security will be fine if we put our national fiscal house in order, because the program is ultimately dependent on the full faith and credit of the dollar. If Americans and their government focus more on being producers and less on irresponsible spending, we can continue to fund bedrock social programs like Medicare, Medicaid and Social Security so we can take care of retirees, the disabled and those who fall to the bottom of the hourglass economy due to outsourcing and other dislocations caused by a shifting world economy.
In essence, we should follow Mark Twain’s advice: “Always do right—it will gratify some and astonish the rest.”
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