A release generated by Moody’s, a renowned credit agency recently revealed that the US government has fewer funds than the required amount to pay off the retirees. Apart from the retirement benefits like FEHB, other programs like Medicare program and social security are also facing a shortage of funds. This shortage of funds can be a serious crisis for the US citizens.
The Hard Facts about Retirement Benefit Shortages
The release generated by Moody’s on Wednesday claims that all governments (federal, state and local) have $7 trillion dollars less than the required amount needed to pay off the upcoming pension payments. The unfunded liabilities of the assorted federal employee pensions systems come around to $3.5 trillion, which is about 20% of US GDP.
The pension systems cover both, military employee benefits and civilian employee benefits. The rating agency also announced that the amount of unfunded state and local government pension plan liabilities is also alarmingly high as it brings the total shortfall to 40% of the US GDP.
Unfunded Social Security and Medicare Programs
The liabilities related to social security and Medicare programs are also high. The social security gap is over 13 trillion, which is 75% of the GDP. On the other hand, the unfunded amount from the Hospital Insurance component of the Medicare program is more than 3 trillion, 18% of the GDP. The overall shortfall of funds for retirees comes down to over 20.4 trillion, which is quite scary.
The Hidden Crisis
Experts like Tony James, Blackstone President, and COO have started raising their opinion on the shortfall and termed it as a “hidden crisis” facing America. He thinks that the shortfall would compel the young people to invest in 401(k) plans that unfortunately are not earning too much. This shortfall may also lead to dire consequences like people having to work until the age of 73 or not retire at all.
The Big Challenge for the Federal Government
A Senior Vice President for Moody’s, Mr. Steven Hess has pointed out that as the aging population is increasing and the sustainability of social security and Medicare programs is highly doubtful, the government would have to face sharp widening budget deficits after 2018. These deficits would not only ensure that there aren’t many funds to pay retirement benefits, it will also harm the recovering US economy.
