Protect Your Lifestyle From Broken Promises

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Posted by The Savvy Retiree on September 9, 2016 in Money Saving Strategies, Personal Finances

Gary A. Scott writing on financial freedom

We live in an era of broken promises. Defaults could ruin most average retirees and even investors. Few will financially survive.

The big broken promise is Social Security and Medicare.

The most recent Social Security trustee report shows that the programs will begin to spend more than they earn within just three or four years. The Medicare hospital-insurance trust fund, could use all its reserves by 2028. They face insolvency over the next 20 years because Social Security runs totally out of money by 2034.

This is a bigger problem than it may seem because it creates an even bigger broken promise concerning the U.S. dollar.

Medicare and Social Security already account for 41% of federal spending. That was the expenditure last year. This is not a static problem. Each year that percentage is growing worse. This creates a special risk for the dollar because Social Security’s reserves are not really assets at all. The purported assets are simply IOUs from the U.S. government.

Social Security assets are a liability of the government, so eventually the money comes from the same place as all other government expenditure, taxes or federal debt. This means that if Social Security has to sell an asset, then the government, already overburdened by debt, will have to borrow the money from somewhere else.

If the Fed cannot raise enough money to pay Social Security only two options are left, devalue the greenback or don’t pay.

If Medicare stops working, then all that’s left for backup is Obamacare and the private insurers in the plan.

This is another broken promise.

When United Health Group, the nation’s largest health insurer, recently announced that it was pulling out of Obamacare insurance the public learned that it will face higher premiums. Many will need to choose a new plan, change doctors and hospitals as well. United Health is not the first or only insurer to quit. A dozen nonprofit health insurance cooperatives shut down just last year. The giants Aetna and Blue Cross Blue Shield are even considering a drop out.

If Social Security and health care promises are broken that just leaves our pensions. Right?

Yet, if we look at the website, we see hundreds of corporations that have reduced pension benefits including the likes of Honda Motor Co., Ltd., Allstate Corp., Coca Cola, Boeing, Caterpillar, Kraft Foods, Hewlett Packard, Fedex GM and GE to name a few of over a hundred.

This problem is not limited to corporate pension. An Economic Budget Issue Brief issued to Congress from the CBO (Congressional Budget office”) says:

By any measure, nearly all state and local pension plans are underfunded, which means that the value of the plans’ assets is less than their accrued pension liabilities for current workers and retirees.

The report shows that even five years ago the short fall of State and Local Pensions was over three trillion dollars, more than all other state and local debt.

That leaves the Pension Benefit Guaranty Corporation (PBGC) as a safety net.  In the 2015 PBGC’s annual report the Director’s message says:

One of the most important functions of PBGC is assuming responsibility for pension plans when their sponsors can no longer keep them going. We insure the benefits of more than 40 million workers and retirees. Currently, we pay more than 800,000 people each month. An additional 585,000 workers are scheduled to receive benefits from PBGC when they retire.

But if you look at the first paragraph of the Financial Report in that annual report you see:

PBGC’s combined financial position decreased by $14,577 million, increasing the Corporation’s combined deficit (net position) to $76,349 million as of September 30, 2015 an all-time record high from $61,772 million as of September 30, 2014.

Every step along the way we see shortfalls, debt with little hope of repayment and an economic overhang that will eventually create broken promises at every level from the pensions, healthcare, Social Security and most from a falling U.S. dollar.

These facts will ruin the life styles of millions, but not all.  For the next year, my mission is to share my 50 years of experience in international business, investing and living to make ourselves happier, healthier and wealthier. You can visit my website at

Image: © Keating