The Urban Institute, which predicted the rise in the over-65 population of 70% by 2030, also projected a rise in the size of the United States labor force through that period—a rise between 2010 and 2030 of just 4%!

Why is this considered bad news? Well, let’s take social security, a significant source of income for most retirees, for example. Social security benefits are funded by a national social security trust fund, which receives income from current workers that, along with investment returns to the fund, is theoretically sufficient to provide the assets required to pay out future retirees. And, indeed, the social security program, one of the most popular programs in our national history, has well served the populace since its introduction in 1935. Benefits, which are adjusted for inflation, as well as taxes, have risen over the decades—the original social security tax (1937) was just 2% of payroll per annum. It has since climbed to 12.4% (combined, worker and employer for the first $94,500 income, 2006, due to rise further in the years ahead).

The increased rate of taxation notwithstanding, the entire system appears to be gradually approaching disaster. In 1940, a 65-year-old man might anticipate living for an additional 12.7 years. In 2006, a 65-year-old man had an average additional life expectancy of 15.3 years, an increase of three years (23.6%) of benefit per retiree. Moreover and more significant, in 1965, there were four workers for every social security beneficiary. By 2010, it is anticipated that there will be three. By 2030, it is anticipated that there will be only two workers providing income to the social security trust for every retiree taking benefits. The major pressure on the system lies with the declining percentage of workers and contributors to the social security trust compared to the numbers of people receiving benefits.

The Social Security Administration has made the following projections, presuming that current regulations remain in effect.

In 2018, the social security system will begin to pay out more in the way of benefits than it receives in current income from social security taxes. Thereafter, it will have to use the income from securities that it holds (mainly U.S. government bonds) in order to meet its obligations.

By 2028, this income will not be sufficient to meet shortfalls. The system will have to begin to sell securities that it owns as well as use income from retained holdings to meet its obligations.

By 2042, all assets will have been sold. The system will then have enough revenue to pay only 73% of its obligations. Shortfalls will increase thereafter unless either benefits are reduced or new sources of income are located.

The federal government has already initiated processes of reducing benefits and raising taxes in order to keep the social security program solvent. Initially, the retirement age was set at 65, with an option to take reduced benefits earlier at age 62. The retirement age is presently set at 66 for persons born between 1943 and 1954. It is at 67 for persons born during 1960 or later. The option for reduced benefits at age 62 remains available. Proposals have been made to defer the age of retirement to 70.

There are factions in the United States government that would prefer to virtually dissociate the government from social security obligations altogether. Proposals are being made to “privatize” the social security system—to provide means by which beneficiaries can direct the investment of their assets held in the social security trust in various private equity or income investment vehicles, benefits secured from investment proceeds of these investments rather than from government-guaranteed levels of benefits.

In short, if you invest well, you may prosper during retirement. If you invest badly or should the stock and/or bond markets fail to perform during your period of capital accumulation...then what? Well, just don’t come knocking on Washington’s door.

It looks a little hit or miss. The government may be there to provide for our needs when we all turn old and gray. Or it may not. It might not be a good idea to count on it.

Pressures to remove the guaranteed nature of retirement benefits as a result of potential shortfalls in assets of pension trusts are not limited to the social security system.

Potential shortfalls in funds are likely to occur with committed retirement benefits. For instance, with New York City workers, pension costs, by mid-2006, represented one of the city’s fastest-growing expenses, rising from $1.1 billion in 2001 to $4.7 billion by 2006.^[1] Although other estimates are somewhat more sanguine, some projections have suggested that by 2008, New York City pension payouts might well grow to levels where they would represent one dollar of every ten dollars in the city budget.

The situation in New York City is by no means unique. Incipient shortfalls in a number of states, counties, and municipalities have been, to a greater or lesser extent, concealed by use of dubious accounting practices.^[2] It is estimated that state and local governments may be obligated to pay benefits to present and future retirees that amount to approximately $375 billion more than they have in current assets.

Fiscal problems are also likely to arise in major cities as a result of promises made by municipal governments to pay not only retirement benefits but also retiree health benefits from trust fund assets originally set aside to meet pension obligations alone.^[3] The usual culprits remain operative: underestimation of medical cost inflation, overestimation of income from investments, dubious accounting assumptions, and fear of antagonizing the public or municipal unions.

If trends continue in this direction, there will be little ultimate choice but for governments at all levels to back out of their commitments to meet current pledges of retirement benefits.

Private corporations have increasingly been curtailing both retirements and medical benefits to employees and even past retirees who have relied on corporate promises relating to pension benefits. A number of airlines have been particularly egregious in this regard, renegotiating pension benefits after the fact, securing concessions from employees with the threat of declaring bankruptcy.

For example, the number of Fortune 1000 companies that froze or terminated pension plans in 2005 rose by 59 percent to 113.^[4] The number of companies closing plans to new hires nearly doubled to 49. Among the well-known companies that have reduced or eliminated guaranteed retirement benefits are Nortel Networks and Verizon.

There have also been reductions in pension plan benefits to employees of companies such as IBM, General Motors, Lockheed Martin, and Motorola.^[5] The trend among corporations is to pay out existing pledges of benefits but to fail to offer equal benefit packages to new employees. Guaranteed pension plans have become extremely expensive in part because of lower interest rates in recent years, which have resulted in reduced income to pension trusts that invest in bonds to finance pension plans. This means that employers would have to set aside more money to pay future benefits equal to current payouts to retirees.

As a general rule, newly established retirement plans do not provide guaranteed retirement benefits but are of the 401K variety in which the levels of retirement benefits depend upon the success of employee determined investment selections.

These trends, incidentally, are not limited to the United States by any means. European countries such as Germany, France, and Italy, among others, are encountering difficulties in meeting social guarantees to aging indigenous populations as the ratio of younger workers to the elderly shows relative shrinkage. In Italy, as a matter of fact, the government has been paying bonuses to women who deliver babies.

Japanese births rose for the first time this decade in 2006.^[6] The previous year, 2005, had seen an actual shrinkage in the Japanese population of approximately 127 million people, the first on record. The falling birth rate in Japan, as elsewhere, threatens a severe labor shortage and difficulties in paying the health costs and pensions of the elderly in the population.

You probably get the picture by now. Insofar as retirement benefits are concerned, you may not be able to count on the federal government for too many more years. You may not be able to count on local governments for all that many more years as well. And you certainly cannot count on major corporations or other employers for any particular length of time at all.

In the end, you may be able to count only on yourself and your own investing skills.

“Americans worrying about health-care costs.” Investment News, September 25, 2006.

“...hard times ahead as more employers curtail pension and medical benefits for retirees.” Newsday, June 20, 2006.

“Medicare costs to increase for wealthier beneficiaries.” The New York Times, September 11, 2006.

If you are like most people, the preceding headlines probably come as no surprise.

Costs of medical care have been among the most rapidly rising of all costs, with annual increases ranging between 10–15%. Health care costs, rising faster than the rest of the economy, have been estimated to amount to approximately 16.6% of the gross domestic product, a very significant expense as well for a large percentage of American families.

As a result of increasing health care expenditures, health insurance plans have been steadily increasing premiums, often at a rate of 8–10% per year. Between 1980 and 1993, spending by employers on health care as a percentage of total compensation to workers rose from 3.3% to 6.6%.^[7] This trend has continued since. As a result of rising costs for health benefits, more and more businesses are opting out of or reducing their responsibility for employee health and medical insurance expenses as well as for retiree medical coverage. As a result of the preceding, an increasing percentage of families are finding that rising health expenses—which tend to increase with age in any event—represent a serious and worrisome burden as the years move along.

Medical expenses, unfortunately, frequently force families, already on the financial brink, to turn to their one source of easy, if expensive, money—the credit card—as a last resort at times when their friendly medical insurance carrier refuses to authorize a medically recommended treatment, or when co-pay requirements simply overwhelm their financial resources, or when they are not carrying insurance at all. A report, released in January 2007, indicated that nearly 30% of low- and middle-income families reported using their credit cards to pay medical expenses, often for serious illnesses.^[8]

Actually, medical expenses per capita in the United States have been by far the highest in the world, with no particular visible benefit in terms of life spans or general levels of health, in comparisons to countries such as Canada, England, or the Scandinavian nations.

To some extent, these costs represent increasing use of newly developed and expensive medical technology. They also represent inefficiencies in the United States health distribution system such as the various layers of insurance administration, and to some extent higher prices set in the United States for various drugs in comparison to drug pricing overseas. For whatever the reason, costs of medical care and, perhaps, ultimately home or nursing home care, have to be seriously considered in your long-range financial planning. (Approximately 18% of lifetime medical expenses are estimated to be incurred during the last year of life.)

Senior citizens no doubt find it interesting in a suspicious sort of way to notice an increasing amount of articles in newspapers and magazines on the subject of whether popular forms of medical treatment are really worth their costs.

Heart bypasses? After countless numbers of such procedures, the medical establishment seems to finally be seriously questioning their cost-effectiveness and value for many patients.

Medicated artery stents? These are also coming into question because of potential stroke risks arising from the use of these as compared to much cheaper unmedicated stents.

Questions are being more frequently raised regarding the necessity of certain medical examinations, blood tests, prostate treatments, mammograms, various surgical procedures, and so forth—with increasing reference to the cost effectiveness of these medical procedures.

In other words, there seems to be an increasing trend to relate potentially life and death medical management decisions to cost and expense. This is not necessarily evil. There may well have been, and perhaps still are, excessive predispositions in both the medical and medical business establishments and among patients for the latest and most sophisticated, if not always necessarily the best and most required, diagnostic tools and treatments. Careful cost re-evaluations were and probably still are inevitable given the aging of the population, the stress of this older population on the medical delivery system, and possibly an inevitable need to ration medical care in one form or another sooner or later.

The social and philosophical implications of whatever form this rationing might take are complex, grave, and potentially unfair in many ways. It has seemed only a brief pause between the celebration of increasing life spans and concern that there may be too many people needing retirement benefits and health services for too long a time for the good of society.

It may be true that in some—perhaps many—cases, more expensive than required medical treatment is proposed to patients by the medical establishment. In other situations, this is definitely not the case. Patients are denied needed medical treatment because of limited finances.

If you are moving into your senior years without ample resources to provide for your own living expenses and for your own medical expenses, you may find that in one way or another, the powers that be may be inclined, actively or by passive neglect, to blow you right off the planet.

Don’t let them do that to you.

Your best defense is to become as self-sufficient, economically, as you can and as soon as you can.

According to Saul Friedman, retiring is likely to be boring, lonely, unhealthy, contrary to good sex, and likely to rob your life of meaning and caring except for caring about whether you have enough money left to survive.^[9] Mr. Friedman advises workers who are retiring from a job to immediately seek out new employment.

A similar theme was echoed by Liza N. Burby, who expects problems will be created for many retirees by the loss of job identity, the loss of the status created by earned income, and by loneliness resulting from the separation from work companions and business associates.^[10]

If the truth be told, post-retirement depressions and problems in adjusting to retirement might, indeed, be the norm—they certainly do occur frequently.

People who own and operate their own closely held businesses seem to be the most reluctant to close shop. They tend to identify with their businesses, to enjoy their work, to remain excited by its challenges, and often end their working lives late and with considerable reluctance. Still, after just a few months of acclimation, these independent operators appear to generally transfer their energies to renewed education, travel, sports if they are still able, physical fitness, concerts—you name it. People with constructive energy during their working years tend to remain interested in life during retirement, only this time with the hours and days available to pursue a broader range of interests.

People who work for other people more often retire quite readily with a sense of relief and to very much enjoy the experience of being masters of their own fate on a daily basis rather than taking orders.

Some professionals—psychoanalysts, for example, and certain other medical specialists—more frequently seem to retire with great reluctance, often quite late in life, with retirement delayed not out of necessity but because of their love of and involvement with their professions.

Back to the other side, for many senior couples, retirement provides opportunities for travel for which there was rarely time prior to retirement, to be with adult children and grandchildren, to pursue new avenues of education, and to be with each other in a way that was not quite possible when life was busier and more externally scheduled.

All of the preceding is simply to say that retirement may be to your liking. It may not. You may want to continue working for as long as you can. You may prefer to be free to do many of the things you have wished for so many years to do. Retirement may take you out of your business loop but it may also provide the time and opportunity to allow you to sample and become involved with many new areas of life.

Wouldn’t it really be best if the choice was yours?