Lesser Spending Power from Retirees: Another Huge Threat to the Economy

For decades, the United States of America has been a major economic player and the only remaining superpower in the world. Despite of this highly respected status, the US economy has slowly but steadily declined with the recent economic recession creating havoc among financial institutions and business entities. Another troubling fact is the continuous rise in unemployment levels all throughout the nation. Massive layoffs implemented by big and small companies have contributed to lesser consumer income and spending. Lesser revenue collection while overspending on various government programs that resulted in a huge budget deficit have only made matters worse.

Despite the recent failure of the government to stimulate economic recovery, there is another looming problem which will eventually pose a bigger threat to the already suffering economy. In the years to come, a whole lot of people will eventually retire without having enough savings. With the devastating effects of the global recession that has continued to plague businesses, workers born in between the years 1946 to 1964 will have less money during retirement. The problem here is that these retirees will eventually spend less because of their lack in savings.

The financial crisis has affected not only the cash savings of individuals but also the value of their house as well. Close to zero interest rates on house mortgages benefited house buyers while leaving retirees to suffer from not having enough financial resources. It is expected that about 36 million Americans will be turning 65 in the next decade. With lower bond yields and a falling stock market, these retirees are facing a bleak and struggling future. Lower asset values will easily translate in lesser money for retirees to spend during their time of retirement.

Research showed that as of the year 2008, people aging from 65 to 74 were already spending 12.3% lesser than they did 10 years earlier. There was a 46% drop in car spending, 35% drop in home and household furnishings and 27% drop from eating in restaurants or food chains. Despite of this, they eventually spent 75% more on health care and 131% more on health insurance. This clearly showed how older people are now faced with the serious task of retiring without having enough money to buy basic commodities and enjoy life.

These implications are not only limited to people who will be retiring during the next decade. Younger people of today will now have to save more money by reducing consumption in order to ensure a brighter future. Without appropriate jobs for everyone, more people will eventually suffer poverty as they grow older. Also, the economy will be at a standstill if consumer spending is reduced. Economic recovery will only be achieved if the consumers are given back the capability to spend and buy goods and services. Job creation should really be the primary focus of the government if they want to save America and avoid double-dip recession.

Social Security Cuts are Indeed Unfair and Unreasonable

Social security is one of the major programs offered by the US federal government. The Social Security Act itself encompasses various programs such as benefits for those unemployed, retirement insurance benefits, the Medicare and the Medicaid. The primary goal of the act was to uplift and protect the social welfare of every American citizen. It is interesting to note that the program is considered the largest government program in the world being also the largest expenditure in the federal budget of America.

The program has been viewed as widely successful for years now and millions of Americans have already benefited from it. Just recently, the Social Security Program was being threatened by numerous politicians including the President himself. There have been extensive rumors about the impending benefit cuts and a change in retirement age policy. From 66, the proposed increase in retirement age is either at 67 or even at age 70. Previous benefits for retirement and unemployment are all in danger of being reduced or worst scrapped.

Politicians and lawmakers who favor these benefit cuts argue that the program itself is now experiencing crisis with its financial future going bleak. There is the assumption that the federal budget cannot fully shoulder the cost of the program and thus would need to cut on its cost resulting in benefit cuts. What they don’t realize is that the Social Security program actually has a trust fund which is estimated to last until the year 2037 or might even last for more years.
Financially, the program is self-sufficient and will not need any help from Congress.

Politicians also argue that the rapid increase in retired and unemployment individuals may also increase the overall cost of benefits offered by the program. Over the course of 20 years, the recent cost of these benefits that is about 4.8 percent of the GDP will significantly increase to 6.0%. It is intriguing to note that these politicians actually noticed the smaller increase in Social Security spending while ignoring the bigger increases in defense spending. The people need these benefits to survive especially at this time of crisis and economic turmoil.

The age 70 retirement policy isn’t viable at all. It may still be reasonable for those who work in comfortable office-related jobs. But imagine the millions of Americans who work in harsh working environments or those blue-collar workers. These cuts in Social Security will deeply affect most Americans in one way or another. In this time of economic recession, more and more Americans will suffer when these cuts will continue. There is a huge need for politicians and lawmakers to realize the real situation of its citizens and set their priorities right.