LTC Bullet: The Perfect Generational Storm is Coming

Wednesday, April 28, 2004

Santa Fe, NM--

LTC Comment: If you care about retirement and health security, not to mention long-term care, get and read "The Coming Generational Storm," a new book on America's dismal demographic destiny by Kotlikoff and Burns. Reviewed after the ***news.***

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*** LATEST DONOR-ONLY ZONE CONTENT: Here's the latest Zone content followed by instructions on how to subscribe so you can receive these critical epistles daily by email.

The LTC Reader #4-016--Age or Youth: Which is the Bigger Demographic Problem? (Burgeoning numbers of militant youth in poor countries may trump the demographics of aging.)

LTC E-Alert #4-024--Sight Unseen: Vision Loss as an LTC Driver (Understanding the risk of vision loss may help people "see" the need for LTCi and the help it can provide.)

The LTC Data Update #4-019--GAO Announces $43 Trillion in Public Program IOUs (Corroboration just two weeks ago of the scary numbers in "The Coming Generational Storm.")

The LTC Reader #4-017--Home Equity Will Pay for LTC One Way or the Other (Like it or not, most people without LTCi will use their home equity to pay for LTC in the future.)

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LTC Comment: If you think we've got problems now with long-term care--and you're right, big problems--just wait thirty years. By then, Social Security and Medicare will approach their actuarial nadirs just as boomers are moving heavily into the ranks of long-term care users. Medicaid, at least as the primary payor for most long-term care in the U.S., will be a distant memory.

Do you think we still have a window of opportunity to prepare for the worst? Think again. Most of the people who will drive the impending demographic disaster are already born and marching relentlessly toward senescence. (That includes you, me and that guy behind the tree that we'd all rather tax than us.) It's hard to imagine how America, much less Europe or Japan where the problems are much worse, will adapt. Public programs like Social Security, Medicare and Medicaid are unlikely to be much help in the future, even if they are forcefully means tested. And the financial burden of salvaging anything from these insolvent colossi will fall on smaller generations of boomer descendents who will pay with their life's blood, through onerous levels of taxation.

The best approach toward these problems for public policy is to encourage private investment and insurance as a means to reduce the fiscal pressures on social programs. The only hopeful strategy for individuals and families is to save, invest and insure as aggressively as they can for their own retirement, health and long-term care security. At least people who do that will help themselves and not be as big a burden on others.

But don't take our word for this cheerless scenario. Following are excerpts from and a link to a review of the new book by Laurence J. Kotlikoff and Scott Burns titled "The Coming Generational Storm: What You Need to Know about America's Economic Future," The MIT Press, Cambridge, Massachusetts, 2004. We ordered online, but copies will be showing up in bookstores soon if they aren't there already. So wake up, confront the facts, and pass the message on. Help as many people prepare as you can before it's too late.


Liz Pulliam Weston, "The Truth about Social Security Is Ugly," MSN Money, .

"Arguing over Band-Aids like delayed retirement or increased immigration completely misses the point: Disaster is looming, and [the] only real fixes are drastic and painful. . . .

* There's a $45-trillion gap, in present value terms, between the future money the government is expected to take in and what it's promised to pay out, with Social Security and Medicare accounting for virtually all of the shortfall. That's according to economists Kent Smetters and Jagadeesh Gokhale, who studied the issue for the U.S. Treasury Department. . . .

* To put this mind-numbing figure in perspective, the Federal Reserve estimates the total net worth of every person in the U.S. to be around $40 trillion. Our massive U.S. national debt is about $7 trillion.

* Net tax rates would have to double to pay for all the benefits promised, Kotlikoff and Burns say. If you think you pay too much now, think about handing over twice as much.

* Just dealing with the Social Security deficit would require a 4.5 percentage point increase in payroll taxes, the authors say. Such an increase would take the combined Social Security tax to nearly 17%. (Currently Social Security takes 6.2% of workers' checks while employers contribute another 6.2%, for a total of 12.4%.)

* All these calculations were made before Congress passed the prescription drug benefit for Medicare. That's expected to add another $6 trillion to the gap.

* Waiting to fix the system just makes matters worse. The gap could grow to more than $76 trillion if lawmakers delay reforms another 15 years.

"Our kids' world: higher taxes, inflation, instability

"In other words, each year that we stall, we put a bigger burden on the back of today's children. The world they'll face, as painted in grisly detail by the authors, features much higher tax rates, stunning deficits, massive inflation and political instability, among other ills. . . .

"There aren't any easy fixes; Kotlikoff and Burns argue persuasively that most of the ones routinely offered -- delayed retirement, increases in productivity due to technology or more immigration -- won't come anywhere close to realistically solving the problem. . . .

"Of course, the odds are depressingly good that nothing significant will be done to reform Social Security anytime soon. Nobody wants to pay more taxes, or suffer benefit cuts, or actually think about what we're doing to our kids.

"Given the world we're setting up for them, twentysomething workers should be marching on Washington right now with pitchforks and torches. The reason they aren't is probably because, like most everybody else, they just don't get it.

"At least not yet.

"Liz Pulliam Weston's column appears every Monday and Thursday, exclusively on MSN Money. She also answers reader questions in the Your Money message board."