When Federal Reserve Chairman Alan Greenspan speaks, people listen. And well they should. Greenspan is a powerful and respected official who signals in many ways what our financial future will bring. This week Greenspan repeated what he's been saying for a while - the Social Security system is promising more than it can deliver for millions of Americans nearing retirement age. His words and the reality of Social Security will undoubtedly bring some radical changes in the not too distant future.
The problem, according to Greenspan, is the 77 million baby boomers born in the two decades following World War II. As this generation approaches retirement, Social Security benefits and Medicare expenses will empty the coffers of the Social Security system unless some changes are made. It's a highly unpopular political discussion but nonetheless, it's a reality.
The plan gathering the most favor seems to be a gradual increase in the age to receive full Social Security benefits. Currently, recipients can receive full benefits at age 65. That will likely be increased to 67 at some point in the future.
Now don't be misled. This change will not come in the near future. But it will come because the workforce cannot afford higher Social Security deductions to pay for the retirement benefits. The only real question is when the changes will come.
One aspect not addressed by Greenspan involves abuses to the system that will save money and stall an inevitable change. SSI benefits, for example, now increasingly are provided to parents who have discipline problems with their children. I've been told countless examples of problem youngsters who are signed-up for SSI benefits because they are classified as "disabled". In many cases, these benefits are just an extension of welfare funding. Nothing more, nothing less.
And before changes occur, the Medicare system needs examination as well. And while we're at it, Medicaid will soon take more of your tax dollars than virtually any other government expenditure. So reform will occur, but a full accounting of current expenditures must come first.
The fact of the matter is that many of our past notions of what government should provide simply must change. The dynamics have changed and the percentage of the dependent population has also changed. Combined, these elements have made old models obsolete. In short, the bill is finally coming due and it's time to pay.
Means testing for Social Security is unpopular. But those wealthy Americans - though their numbers won't have a major impact - should not necessarily receive Social Security benefits. The Bill Gates of the world don't need that monthly check even though they have paid much more than their fair share.
Rest assured, you may not hear much about this topic in the current political season. But in the years ahead, few topics will generate as much attention as the impending changes to the Social Security system. And given the stakes, those arguments should be interesting.