With the first of the Baby Boom generation having reached the traditional retirement age of sixty-five in 2011, the number of retirement age individuals is expected to grow by 10,000 each day for the next fifteen years.
By 2030, when the last of the Baby Boomers will have turned sixty-five, an estimated 18% of the US population, or sixty-five million Americans, will have reached retirement age.
Up In Smoke provides a startling examination of the status of each of our nation’s retirement systems and explores how a pending retirement crisis could threaten the US economy. Those nearing retirement, as well as generations to follow will increasingly be seeking an understanding of how we arrived at this difficult place and what hope lies ahead. Up In Smoke provides those insights.
Richard DeProspo is an investment professional with over 30 years’ experience advising state and local governments throughout the country. An expert on public employee pension management, he has lectured widely on the topic and advised numerous municipalities and public pension funds on the proper management of employee retirement liabilities.
Mr. DeProspo holds B. A. and M.B.A. degrees from the State University of New York. Up In Smoke in his first non-fiction work.
The Presidential campaign of Bernie Sanders has generated a heightened interest in Social Security and what should be done to preserve the program for future generations. By the Social Security Administration's own projections, the Trust Fund supporting Social Security will become insolvent by 2033. But even this estimate doesn't reveal the true nature of the Fund's underlying assets and liabilities and the factors that undermine its future.
Up in Smoke
In 2010, the Social Security system ran one of its first ever deficits of $49 billion, with monies withdrawn from the Trust Fund to cover the shortfall. As previously mentioned, deficits are now running in the range of $75 billion per year and are projected to continue an upwards trajectory. Each of these deficits of the Social Security Trust Fund is being met by an additional and equal US Treasury obligation or bond. So while Treasury bonds were issued in surplus years to allow Congress to raid the cash surpluses of the Social Security Trust Fund, now in the lean years the Treasury is again relying upon the issuance of bonds to fund deficits in order to avoid directly funding the shortfalls with cash. It’s little wonder then that the largest holder of US Treasury bonds isn’t China or Japan, or even the Federal Reserve Bank. It’s the Social Security Trust Fund.
Social Security now holds roughly 16% of the $18 trillion of the nation’s debt, or approximately $2.8 trillion. The problem with this approach is that Treasury bonds are simply promises to pay cash from future resources. Since the vast majority of the government’s resources are taxes, principally individual income and payroll taxes, that means you and I will need to help the government make good on its promises to pay Social Security. But that tax burden, few may realize, is without restoring Social Security’s solvency. Rather, additional tax revenues will be necessary just to pay the US Treasury bonds already held by the Trust, without impacting the Trust Fund’s current projected date of insolvency.