Lawmakers will look back on 2011 as the year the U.S. started down into a financial Grand Canyon, because the first baby boomers turn 65 this year -- the front edge of a tidal wave of baby boomer retirements.
"Over the next 20 years, around 10,000 baby boomers will be retiring each day," says Andrew Biggs, an analyst at the American Enterprise Institute. "That means more people collecting social security, more people collecting Medicare, more people collecting Medicaid as well,"
That also means the members of one of the most affluent generations will slow down in buying cars and homes and consumer products of all kinds, as they pass their peak earning years and head into retirement.
That could hurt the economy, but it is clearly a financial disaster for the federal government as those 79 million boomers shift from paying taxes into social security and Medicare and start collecting benefits from them.
"The federal government's going to be bleeding money as the baby boom retires," says Doug Holtz Eakin, a former director of the Congressional Budget Office. "We know we can't pay all the Social Security and Medicare benefits that we promised. There isn't enough money in the world to do that so we know we're going to have to make cuts," Biggs says. "But politicians are afraid to make the choices to do that."
The two programs need tens of trillions of dollars to pay all the benefits promised. And analysts say that when all the boomers are collecting benefits, the government would need one of every three dollars earned by those still working just to support social security and Medicare. Charles Blahous, a trustee of Social Security and Medicare, notes that younger Americans are " going to have a much, much higher share of their paychecks going to the federal government to support not only the federal budget in general, but specifically entitlement programs for the elderly."
There are lots of proposals to repair the finances of the two programs. But they're politically difficult, and the longer lawmakers wait, the harder and more painful the fixes get.
"There is an implicit bipartisan consensus," Blahous says, "that we're not going to suddenly cut benefits of people once they're receiving them. So we're not going to pay that 85 year-old widow $2,000 in January and then jerk her back to $1,800 in February. We're just not gonna do that."So every year that passes puts more seniors on the rolls, making their benefits politically untouchable -- meaning more and more of the solution has to come from tax increases.
Young taxpayers would no doubt complain, but people over 65 are the most reliable and determined voters, which means lawmakers would be wary of taking anything away from them.