Who REALLY Killed our Golden Goose...

"Thinking to get at once all the gold the goose could give, he killed it and opened it only to find – nothing"

Aesop

 

I have been thinking quite a bit of late about the financial mess we are in. Not only the size of the mess, but more importantly why more people (especially the young) are not screaming bloody murder. Our "entitlements", which are at the heart of our financial mess, truly make up the proverbial Golden Goose. My objective in this article is to find out who killed (or cooked) our goose.

One of the reasons I was so against the recently passed health care plan, it was just another entitlement. It was ironic as we were discussing the pros and cons of the Affordable Health Care Act (ObamaCare), the press was disclosing information the Social Security and Medicare fund were even less solvent than what we had thought a few short years ago.  What I found most interesting was that both of these funds had been set up to succeed, and yet many times "patches" had to be put in to guarantee solvency. I decided it was time to do some research of my own and find out just what happened.

In April 2012, the WSJ published the following: "Social Security’s trust fund could be exhausted three years sooner than predicted last year. The combined assets of the Old-Age and Survivors Insurance and Disability Insurance trust funds will be exhausted in 2033, according to the Social Security Board of Trustees. At that point, there should be sufficient non-interest income coming in to pay about 75% of scheduled benefits. Over (the next) 75 years, the trust funds would need $8.6 trillion in additional revenue, in present-value dollars, to pay all scheduled benefits."

When the Social Security Act was first established in 1935, there was some debate in Congress this new law might be Socialism. Putting that debate aside, it was a great system. The average life expectancy for a male back then was 58; for a female, 62. If you could just beat the odds and outlive the average, at 65 you could start to draw Social Security from this fairly stable and well funded account. However, if you died earlier than 65, and contributed in to Social Security your entire working life, too bad, so sad. If you were single, all the money you kicked in would go to someone else, not of your choosing. If you were married, your surviving spouse would get a percentage of your benefit until death. Then, assuming there are no minor children, any unused benefit would go back into the fund to be used for someone else, not of your choosing. It was a great system if you had longevity in your genes - if you did not, the fund looked a bit like Socialism.

Today, thanks in large part to a multitude of medial and pharmaceutical advances, people are living longer, much longer. That is the good news and the bad news. Good for us, bad for the rapidly shrinking Social Security fund. Couple that fact with the decline in our birth rate. Then add in the fact that many people utilize the fund when they have contributed very little to nothing, such as older immigrants and SSI (disability) recipients. Finally, for good measure lets not forget the politics. The employee portion of the Payroll Tax (the only funding vehicle for Social Security) has been cut in half as a "tax cut" to help the Middle Class. Mix all these ingredients together and you come up with the perfect storm for a huge crash.

Hold on - it gets worse. In April of this year, the Daily Finance published the following:
"The news for Medicare is even more dire. Its trust fund will run out of money in 2024 under current projections. That's the same as it was last year, but fully five years earlier than estimates from two years ago."  2024 is less than 12 years from now. We are so impregnated with this program, that all major insurance companies offer nothing but "gap insurance" when you are 65 or older. If we lose Medicare with no acceptable and affordable replacement, we all are collectively "screwed".

Medicare, which became law in 1965, was to be funded in a similar fashion as Social Security - the Payroll Tax. As with Social Security, the biggest enemy of Medicare is math. Currently there are almost 50 million people enrolled in the program. It is estimated by 2030 there will be close to 80 million. As with any equation, in order to get valid results you need as many constants as possible. The fly in the ointment in the Medicare as well as Social Security equation is the birth rate. When both of these programs were conceived in the 1930's and then the 1960's the birth rate was much higher than the 1.9 it is today.

So who killed our Golden Goose? We all did. Many of us have practiced benign neglect for decades as we have known these programs lie somewhere between a Ponzi Scheme and Socialism. Neither of these programs are sustainable. All the sophism and deceit can no longer outrun pure math and statistics. Even knowing what we know about entitlement programs, in 2010 we added the grand daddy of them all - ObamaCare.

So this our sad good bye to our faithful companion, our savior from financial ruin in our elder years. You were with us in our entire working life, we believed in you, we cared for you, and we fed you countless billions of dollars. We will miss you our faithful Golden Goose - but not that much, as you were never real in the first place.