As 77 million members of the Baby Boom generation begin to retire, America is about to experience one of the most dramatic economic, sociological and demographic changes in its history. The institutions we have relied upon in the past are completely unprepared for what lies ahead.
Politicians, the national news media and the general public have become increasingly aware that our federal entitlement programs are about to be swamped. Social Security, Medicare and Medicaid have made trillions of dollars of explicit and implicit unfunded promises. In fact, by 2030 (about the midpoint of the baby boomers' retirement years), we will have to double every tax rate or cut every benefit in half.
But our problems do not end there. Federal, state and local governments have made $5 trillion in promises (many of which are unfunded) to civil service workers. Corporate America owes about $450 billion in pension promises and $350 billion in post-retirement health care promises that are also unfunded.
To make matters worse, the instruments we have created to help individuals save for their own retirement - principally through 401(k) accounts — are also not working well. In general, people are not saving enough, and they are not prudently investing the funds they do save.
Behind our inadequate institutions are inadequate public policies. For example:
* On balance, the tax law encourages current consumption, but discourages saving for consumption during retirement.
* Even more important, the tax law encourages overconsumption of health care before retirement, but discourages saving for what are likely to be greater health needs later in life.
* The American answer to the European-style welfare state has traditionally been employer-provided benefits. Yet:
* Unwise public policies are encouraging large employers to abandon pension and post-retirement health care promises made to their employees.
* Other policies are preventing employers from helping employees make their own provision for income and health care during the retirement years.
* The policies that are most inadequate for the baby boomers' retirement years are those affecting early retirees. In general:
* People who retire early will find that their opportunities to save are much more restricted than those available to people still in the workforce.
* They will find that health insurance is not only more costly when purchased by individuals, but the insurance (unlike insurance obtained at work) must be purchased with after-tax dollars.
* Once they begin drawing Social Security, they will discover that if they earn additional income, say by working part-time, they will face draconian effective tax rates - taking as much as two-thirds of what they earn.
* And even if they don't work for wages, they will discover that the tax rates on their pension income and IRA withdrawals are much higher than the rates paid by younger taxpayers at the same income level.
2007-10-26
08:28:16
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10 answers
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asked by
mission_viejo_california
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Politics