Note: I try my hardest to keep politics off of Young and Frugal, but this is an issue that I think transcends political beliefs. This is a real problem that needs to be dealt with soon and I’m trying to take a non-partisan approach to it.
Bernard Madoff is a name that you should know (unless you live in a bubble). A simple Google news search reveals that in the last month over 33,000 news articles have been published about him, all relating to his $50 billion dollar Ponzi Scheme, the largest in History… or so they say.
As you all know by now a Ponzi Scheme is a “fraudulent investment operation that pays returns to investors out of the money paid by subsequent investors, rather than from profit” (Wikipedia). On the surface it seems like a decent concept, until you think about how it only works as long as there are new investors to pay off the old ones; then when new investors dry up, the whole thing crashes to the ground and the newest investors are the ones who end up with nothing.
People are baffled at the concept. We comment on how immoral and unethical it is. We ask how did no one realize what was happening? How were major red flags not looked into? Wasn’t Sarbanes-Oxley supposed to make sure this stuff didn’t happen? How did $50 billion just disappear?
$50 billion dollars is no small sum, but in reality it’s pennies compared to the Ponzi Schemes that Gen-Y is the “new investor” in. That’s right my friends, whether you like it or not, if you work in America, you are paying into the largest ponzi scheme in the worlds history, probably never to be overtaken. They are known as Government Entitlement Programs, but you know them as Medicare, Medicaid, and Social Security.
These entitlement programs are underfunded to the tune almost $100 Trillion dollars. (assuming the programs go on…) This works out well for the boomers who will most likely be the last generation to actually receive payouts from these programs, but Gen-Y is the one left holding the bag. As a side note, I do find it ironic that boomers complain that we are the “entitled generation,” but they are the one’s eating up all of these programs.
In 2004 Medicare began paying out more in benefits than it receives in taxes, and Medicaid and Social Security are soon to follow.
Where is the outrage over this? Gen-Y, where do we stand on this? Are we just apathetic because we think there isn’t anything we can do about it? Gen-Y is widely regarded as the reason Obama is in the White House, so where is our force regarding this issue?
Here is my proposal. We bite the bullet, we take one for the team, and we jump on the grenade. It sucks, but any way you put it, we are left holding the bag in this ponzi scheme. The boomers are soon becoming unproductive members of society, and will be receiving what they are “entitled to” whether we like it or not, so let them have it and end the programs. There is no reason why we need to leave our children and grandchildren holding the bags, and there is no reason that we should further bankrupt the country for them.
I think we should set a series of cutoff dates, that leaves Gen-Y, and possibly some young Gen-Xers holding the bag for our parents and grandparents. We will pay into the programs until they aren’t needed anymore… and we will receive nothing in return. We will be responsible for our own health care and funds when we retire. Once we know there are enough people paying for the boomers entitlements (and not getting anything in return) we stop the next generation from paying in.
On top of this, we ask the boomers who don’t need the money to not take it, and in return they get massive tax breaks to compensate once they reach 65.
It sucks, but it’s what is needed, and most of us realize that we won’t be getting anything out of it anyway, so we are planning accordingly. And if you haven’t planned? Then you still have time.
Please share your solution and maybe we can solve this once and for all.
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13 Comments at "Bigger than Madoff: Entitlement Programs"
I have been talking about this for months, and even today my co-workers and I were actually discussing how there should be a way for the wealthy to elect not to take SS.
I also agree that there needs to be a cut-off date based on age. I want the federal gov’t to tell me NOW that I won’t recieve SS or medicare so our generation can have the time to plan for it.
Those three social programs are over 50% of the federal budget every year! It’s ridiculous.
You are right on the mark.
@ Corey, yeah, 50% of the federal budget is scary, and it’s going to be growing as a percentage into the foreseeable future!
@Ontrider… Thanks! (Aren’t you Canadian?)
yes… but I’m well aware of the flaws with a lot of your social programs and how politicians like to ignore them, haha.
Social security will always be there for every generation. Medicare and Maid have to be looked at separately.
Point one: my generation, boomers, will not retire at the the rate they expect but, as myself and my friends, will continue to contribue to social security until our mid-70′s.Therefore the projections will be proved to be wrong.
Point two: a raise in the payroll tax for soc security will solve 80 % of the problem for us and succeeding generations. When you poll Americans this is the preferred solution.
POINT three: most Americans over 65 have only that check to survive on
Point four: we will all die and the system can be readjusted at that time, possibly means tested with a much better 401k supplement.
The situation is very political and can not be touched bec when you poll Americans of ALL AGES they do not want to work forever and the polling is highly in favor of soc sec.
The cost of Health care is another isssue that can only be solved, long term, by all of us being in the pot and contributing. This is not favorable to me bec i am covered, however, it is criminal that our country is the only major Western industrialized nation that does not have national health insurance.
Social security will defininitely be there for generation X and Y and claims to the ocntrary do not take into account the solutions (see AARP). Most
Americans are not rich.
Kathy,
Thank you for your response, and you are definitely entitled to your opinion, however I disagree with you on a fundamental level. I do not believe that National Health Insurance/Coverage is a right, and in no way do I think it’s criminal to not have it. In fact I believe it’s why we have the best standard of care in the world. Look at Canada and Europe, with their socialized medicine they have to wait in line for months in order to see a Doctor (who has no motivation to be the best, because they limit his pay), and when something bad happens (like cancer), they still have to wait for months to get treatments. The Europeans go to India and pay cash to get better treatment, and the Canadians come to the US to pay cash for better treatment. Most members of these “major Western industrialized” nations do not go to the Doctor for regular checkups because they can’t get in to see one, which means preventative medicine is not happening, yielding higher treatment costs for issues that could have been prevented in the first place.
Then, on top of that, why should I have to pay extra in taxes for someone who doesn’t take care of their body? Adult onset (type II) diabetes is running rampant through our country, and THIS is criminal because it’s completely preventable with education. Obesity is running rampant through our country, and it is preventable with education.
Like I said in the post, I’m fine with paying into it until I retire, but I don’t want any of it. I’m planning my finances so that I won’t need the government to support me, I don’t want to be a burden to other people, and I don’t want my generation to be a burden to other generations.
With regard to Social Security, when I taught at a community college years ago, I paid into a Public Employee’s Retirement Fund not SS. The same is true of all Federal, state and county workers including our lawmakers. If we could force them all to join SS, it would probably be the most robustly funded entitlement of the bunch.
Daniel, those other countries have higher life expectancies and spend less of their GDP on healthcare. Your argument about socialized medicine and lower-quality care just isn’t true.
As far as Canadians and Europeans going elsewhere for care, those are just anecdotes. If arguing about the merits of healthcare systems involves trading anecdotes, do you really want to be on the side of defending the US system?
While I understand your desire to get your own financial house in order and make your own arrangements, the healthcare system in the United States going bankrupt will affect more than just boomers using Medicare and the Gen X and Gen Yers who pay into it. Healthcare costs have been rising faster than incomes and GDP for over a decade. No one is immune from that, not even younger people, especially if they buy insurance on their own in the individual market. What about health savings accounts and other similar arrangements?
Forget about it. A stay in a hospital ICU can cost several thousand PER DAY. No matter how frugal and prudent you are with your finances, costs like that will wipe anyone out in less than a month.
No serious change to the United States’ healthcare system will hurt boomers in 5-6 years (Medicare’s trust fund will go bankrupt by 2015 or 2016) but they won’t live as long to see the consequences as Gen Y will. Not in the short term, but in the medium-long term.
Iam all for tweaking our health care system, but not a complete overhaul thatBarak Obama (BO) is forcing on us. The people have spoken, and the majority do not want the change he proposing. It amounts to yet another entitlement program that we can not afford. In his response to being asked if the U.S. Post Office would survive if it was part of the private sector,Michael Moore said to Hannity a few months ago on his tv show that “who says they have to show a profit”.Hannity did not have an answer,well I do. If they don’t need to show a profit, then why do they charge us for their services. Stamps should be free! Heck, by paying for the stamps, the Post Office is actually double charging us aren’t they. I mean its our tax money that runs the post office in the first place!
And if nothing was done?
Hello I am a Boomer
My opinion is always about fairness.
Medicare/Medicaid do not work as a business would, looking for greater and greater efficiencies. HP inkjet fabs ran their million dollar machines 24/7 to extract as much benefit out of the capital costs as possible. In Eastern Europe if you don’t show up for your MR scan at 3:00 am on Sunday night then someone else will take your place. In America old foggies complain if they have to wait for an extra 20 minutes to start their scan. Like its a Friging Chevy coming for an oil change. Its a complex $2,000,000 dollar machine. Forget about running a scanner after 5:00 pm on a weekday. Nobody would show up. Medicare/Medicaid can solve the problem of costs overnight, simple cut the reimbursement to 1/3 of what its is now. The surviving clinics would have to run 3 shifts to cover the volume and there would not be 3 times too many imaging systems in America.
At the core of the medical issue is the fact that the medical care you could receive in 1960 costs no more today. It is common knowledge that technology and sophistication has increased exponentially in the past 50 years, and rightfully too the costs.
Now here is a scientific fact that people don’t want to consider. When a complex system gets so distorted, poluted, or disorganized that it requires more energy to restore it than to simply start new then that is the time to let it go.
Nature has adhered to this law since the beginning and its called death. Personally, even if money were free, I would never want to sentence another person to wipe my old butt for years on end. How humiliating and degrading for both of us, God have some kind of integrity. I used to worry about this and losing control
of my life, until I heard about a retired Marine, he had enough, lost all his friends, wife, family, children, everything he cared for had passed. He simply quit eating, they found him kneeling in prayer next to his bed at home.
It has taken me a year to accept the change in my mental model of Great America. The America I grew up with had no limits, my limit of making money was always self imposed, it was never that important to me and I felt there was always more if I wanted to work for it. That model still exists to a great extent, but I started watching YouTube and life and work in India and China factorys. Free trade, of course American jobs will go overseas.
I see that soon the business dynamics will dwindle with the money here in the states. Sure theres plenty of Dollars being floated into the system but those dollars are paid to China for fast depriciating consumer products. Its over, the working class live it and the middle class is in decline. When 60% of the population is on some kind of entitlement and the rich are taxed into expatriation. Then Congress may start to listen and agree on changes. The only option now or later is efficiency. The young will have it hard because of the lost hope of the situation.
The old will have it physically hard because the entitlements
have to be cut. But a entitlement exists solely from the will of the giver not the receiver. American soldiers are asked to give their lives for this country, surely old people can sacrifice things they should have paid for themselves. For anyone who brings up the idea that old people did pay thru SS and taxes, the reply is “exactly” I paid in my 1975 taxes and SS and should receive the
corresponding amount back with interest. That means I get 1975 level medical care and thats it, anything more and I am being blessed.
Admiral Richtover of the USN gave a graduation speach in 1960, It was profetic. He analyzed the oil use in America compared to human labor of ancient kingdoms. As such when I fly from NY to LA I have consumed to labor of 40,000 slaves for a day. Up until 1972 American was the worlds biggest oil exporter. 1972 was the year Nixon tool America off the gold standard. America became a Fiat currency country and a empire in decline at that point. The real
free flowing wealth from oil had peaked, Look at Saudi Arabia and you see the same kind of free money philosophy. Oil is a opiate.
The mental model of America for the past 70 years has always been an expanding model, The currency, the infrastructure, it still is,
every major airport in America is in renovation and expansion.
Philly, Phoenix, Durham, in the past 5 years. Money is being spent on expansion when the countries real wealth is being exported.
This requires living on debt and the huge national debt show it.
The sooner America realizes that its in decline and makes decisions as such the better it will be for all. But thats not how it will work, complex systems seem to go until catastrophic failure.
The housing bubble was the failure of private investment capital saved by public debt. The next time it will be the government that
will default on promises or inject dollars as now. Entitlement programs only prolong the inevitable of having to work for survival or less wages as the Eastern countries workers have. Robert Reich has some good models of the future, the educated class will be world wide and ubiquitous, as will be the lower class. As it is now if your lucky enough to be plugged into the economy with a good job then your fine, if not then you struggle with a bad job, or
for awhile you take entitlements until they are voted out of exsistance. I know now I will never be able to retire, my best bet is to find a job that I enjoy and can handle at 75 or even 80.
Not to bad, better than the life of some people India or China.
At worst case you can still buy a old sailboat for $500 fix it up and bug out to the Carribean and eat fish all the time. No taxes, no bills. But this blog is about what the young should do, If I were 23 now, I would of course just stay in school or study until
I had aleast a masters in a discipline of engineering or chemistry, something with real monetary legs. Definitely not liberal arts of any kind, get that degree after you have secured your future. Besides if you manage a 15 credit hour science program of any type then you can ace 32 credit hours of liberal art courses easy, I did.
There is a very good reason liberal art graduates get paid little, its because the did little work to graduate. Not that studying Plato and ancient greeks is not gratifying, its just not profitable.
If you ever get to see a world class engineer work, and how many hours they have to work to develope a project then you have little wonder why then lose communication skills.
I know for sure the entitlements must end, the young will have to work equivalent to the working poor in China and India for similar pay and to plan for a declining America. The longer the politicians keep pumping Keynsian dollars into America the harder the fall will be.
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