Monday, January 31, 2011

Baby Boomers Are Jamming Retirement Traffic – So What Now?

Baby Boomers Are Jamming Retirement Traffic – So What Now?

Basically, the story goes like this:

Between 1946 and 1964, a bunch of American parents got really busy, which resulted in an estimated 70 to 80 million babies being born. This baby boom has been very good for America as a whole. That’s because, as you’d expect, these babies needed things like food, clothing, toys, and education … and they grew up to become doctors, lawyers, police officers, teachers, factory workers, fire fighters … and they bought houses, cars (and SUVs), computers, clothes, as well as paying taxes – Uncle Sam definitely looked forward to that day.
That was a crash course in Macroeconomics, but it provides a fairly good idea about what an awesome impact the baby boomers (and all other generations, for that matter) have had on our economy.

The Looming Mega-Issue

However, if you do some quick math, you’ll realize that these 70 to 80 million boomers are starting to hit age 65. In fact, beginning January 1 of 2011, and for the next 19 years – continuously without a break – an estimated 10,000 baby boomers will turn age 65! That’s 1 boomer hitting retirement age every 8 seconds for the next 19 years straight! Here’s why this trend could cause huge tax problems for you.

By turning 65 years old, these baby boomers become eligible for Medicare. “So what’s the big deal?” you may be wondering. “They’ve paid into Medicare all their working lives for this very day.” You see, you’re correct on the part about their paying in. BUT the federal government has not been holding those payments in an account so that they can be used for Medicare payments once those who paid in hit age 65. That’s the theory in principle, though the reality in Washington, D.C. is actually quite different.

As a matter of fact, as we speak, Medicare is saddled with a $23 trillion (with a “T”) unfunded liability problem. That’s the difference between the benefits promised and the tax revenue actually being paid into the program today. As crazy as this may sound, the reality is that the federal government never kept those taxes that were deducted from these baby boomers’ (or anyone else’s) paychecks.

Just so we are clear, I’m not suggesting that these retiring boomers will be denied their benefits, because I don’t believe that even in the slightest sense. Regardless of which party is in office, they would just not let that happen. However, this leaves only one option – bringing in enough revenue today to cover the benefits for the enormous generation of retiring baby boomers. Here’s the thing: 100 percent of that revenue must come from taxes!

Now, in the face of this new reality, where would you think tax rates are headed? UP, of course! No honest, realistic individual would dispute this. Yes, we have an extension of the historically low tax rates for two more years. But what did the folks in D.C. (the ones who reached the historic compromise to extend those rates) call it? “A temporary extension.” Get it now? It would be very smart of you to take my word for it, but I won’t be offended if you don’t.

However, you would also have to ignore this conclusion in the Congressional Budget Office’s 2008 report on Medicare, Medicaid, and Social Security. “…At some point, policymakers will have to increase taxes…”

What About YOU, Specifically?

Do you, as an individual, have a plan to protect your retirement dollars from higher taxes? Could you postpone your taxes forever? You do realize that higher taxes means less money for you to live on in retirement, and waiting for tax rates to increase before trying to change gears is not even a remotely good idea, right? You see, whether you, your financial advisor, favorite TV host, or radio personality thinks it’s unnecessary at this time is completely beside the point – you should emphatically answer those questions for yourself.

Let me end with this saying: A word to the wise is enough.
If you'd like some help crafting a retirement strategy that is most tax-advantageous for you, please call us today at 301.949.4449 or visit us on the Web at

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