Last week, the trustees of the Social Security and Medicare trust funds released their annual review.
They found that Medicare's expenditures are highly uncertain going forward, and future cuts might be the only way to bring the cost structure in line.
Social Security itself is also worse off than last year.
Social Security is now projected to run out of money three years earlier than last year (2033 versus 2036).
As I have written before, that does not mean Social Security benefits will disappear at that time.
This report re-confirms that the cash flow (payroll taxes coming in versus benefits going out) will still cover approximately 75% of benefits due through 2086.
For those over age 55 (there is no magic to picking this age; maybe it is 50), I believe benefits will be largely unchanged.
This age group actively votes in elections so Congress would be shy about upending the apple cart.
But for those under this age, I think we will see increased taxes in the near-term (by increasing the cap on the amount of wages subject to Social Security taxes; currently it is capped at $110,100) and possibly decreased benefits in the long-term (either an increase in the retirement age for full benefits or reducing benefits for higher incomes and/or a reduction in cost of living adjustments).
When politicians say that our children and grandchildren will foot the bill, this is what they mean.
Depending on how these changes are made to Social Security, our children and grandchildren will get less in benefits.
But Social Security is not the only problem.
All retirement programs are having trouble.
Last week another bit of news came out of Ford Motor Company.
Ford too is having trouble with making the numbers work in its pension plan so the company announced that it will give a voluntary lump-sum payout to its 90,000 employees and retirees in an effort to shore up its longer-term risks (this is short-hand for getting them out of the pension plan forever).
It is clear that the actuaries are telling us that something has to change, whether we are talking about Social Security or private companies.
So what does all this mean to today's retiree? To me the message is clear: More and more of the responsibility is going to be put on the individual's shoulders to plan their own retirement.
This might seem obvious and I am sure you have heard it many times.
The implication though is that saving a couple percent (maybe even more if your company has a match) into a 401(k) at work is not going to be enough.
The implication is starker than that: It means a lower standard of living today (smaller house, less fancy car, no debt, less eating out, etc.
) so that you can save more, along with contingency planning (Health Savings Accounts, long-term care insurance, Medicare/Medigap coverage, and life or disability insurance while working), and hiring professional help.
(Yes, this is self-serving, but mistakes made in this area can have large ripple effects that materially affect your retirement picture.
) We are seeing a metamorphosis of the entire retirement system.
The shift though is so slow that many do not see the trends that are developing.
Pay attention to them so that you, as well as your children and grandchildren, can have the flexibility and choices that bring happiness.