Update: The Federal Deficit Is Much Bigger Than We Realize
The big headline dominating issues as of late have been the 600 billion dollar fiscal cliff, the debt ceiling, and the issues of the 2013 budget. Occasionally, we hear about the 1 trillion dollar yearly budget deficit that is associated with President Obama’s first four years of presidency. What we aren’t hearing about is the massive deficit related to entitlement spending. In 1994 it was predicted that unless something was done to curb entitlement spending then Medicare and Social security would either be bankrupt or have severe benefit cuts. Today, 18 years later, nothing has been done to address entitlement spending. Why? Because entitlement spending doesn’t make it on the budget reports by the U.S. treasury, because voters don’t want entitlements cut, and politicians want voters to vote for them. As a result, entitlement spending has gotten out of control and has crept up on us over the years and is now way out of hand.
What Are The Unfunded Liabilities That Threaten To Worsen The Federal Deficit?
As I already mentioned, the U.S. Treasury does not include unfounded liabilities on their balance sheet. Therefore the issues of social security, medicare and other obligations have slipped through the cracks and have not drawn the attention of lawmakers. If you were to include social security, medicare and the federal employees future retirement benefits, the spending would already exceed 86.8 trillion or 550% of GDP. So now, who’s worried about being 16 trillion in debt?
How Much Taxes Would We Need to Raise To Cover Entitlement Spending?
In 2011 the cost of just Medicare and Social Security was 7 trillion. There is some misconception that there is a fund with a surplus specifically for covering Medicare and Social Security expenses. That is a fallacy. In actuality, the coffers are empty. Any spending that occurs for those entitlements is all on borrowed money. Meaning the 1 trillion reported budget deficit is actually only 1/5th of the real budget deficit we are operating on. This is compounded by the issue that the Baby Boomers are retiring at the rate of 10,000 a day. This will only raise the expenses. In order to avoid going deeper into debt, not even considering the current deficit, the IRS would need to collect another 8 trillion dollars in taxes. To give you an idea of how huge that is, that would be the IRS collecting 100% of gross income in the U.S. and even then it would not be enough to fund the 8 trillion a year in liabilities.
That’s the bottom line, the picture that we painted is awfully bleak, so how does it affect me? The truth is, if you are near retirement, in retirement, or one day hoping to retire, then you will not be able to count on Social Security and Medicare to fund your retirement. You will have no choice but to diligently prepare and save to completely fund your own retirement. If this strikes a chord with you because you haven’t been so diligent in saving, then I would highly encourage you to speak to a redhawk advisor about the options available to you to get yourself ready for retirement. Speak to a redhawk advisor near you today.