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by Michael Rogan
Special to Tropical Breeze
This month, I hope to once again interrupt
some of the financial and economic stories you've heard with some
facts. In a past column, I explained the reality of America's
negative "savings" rate by explaining that it was simply a case of
poor government math (at the risk of being redundant).
This time, let's tackle the issue of
Social Security and its impending demise. Few people -- especially
including politicians in election years -- have ever taken the time
to understand what goes into the future projections for Social
Security. Without going into eye-glazing detail, essentially the
projections must take into account future population growth, future
inflation and future economic growth. Obviously, this requires lots
of "educated" guesswork. But we need to agree that the board of
trustees of the OASDI (Social Security) is the expert on this
topic, or there can be no discussion at all.
Each year, that board issues its annual
report on the health of the Social Security fund and makes its
prediction for when the money will finally run out. It bears noting
that at the beginning of this decade, their prediction was 2032 for
Social Security's demise; today it's 2041. What's changed? Well,
for one, they underestimated economic growth for the last eight
years. But it also bears noting that they actually make three
estimates each year. The one we all hear about is the "middle"
estimate.
This "middle" estimate currently uses a
forecast for economic growth that is far less than we have actually
experienced over the past 50 years. I suppose the argument would be
that they need to be conservative, but this skews the results
dramatically. It's one thing to err on the side of caution, it's
quite another when you shout warnings about the skewed results
without disclosing the details. Why should the U.S. economy grow
only two-thirds as fast over the next 80 years as it did for the
past 50?
Even the most "aggressive" estimate from
the board of trustees forecasts economic growth substantially
slower than the past half a century. But, if you look at this
estimate -- which assumes we grow 15% slower going forward -- the
Social Security system NEVER goes broke! My goodness, what would
happen if we simply maintained our long term growth? What if we
grew faster?
Well, that couldn't happen, because we
all have read all of the stories about how we are falling apart as
a nation. We can't save any money (oh wait, that's not true), we
are all awash in credit card debt (but there's over $7 in bank
accounts for each dollar of credit card debt), we're in a
recession (except the economy is still growing)...
As I like to say, turn off your TV set and
make sure you watch the sunset. Maybe then you'll feel better
about things and enjoy life more. And whatever you do, spend those
magic stimulus checks from your Uncle Sam!
Michael Rogan is president of Rogan &
Associates Financial Planners, a locally-owned financial planning
brokerage firm based in Safety Harbor. He brings nearly two decades
of financial expertise to the local airwaves on the radio show,
Financial Planning for Life, heard at 11 a.m. weekdays on AM 1250
WHNZ. For more information, call 727-712-3400 or visit
www.RoganFinancial.com.
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