If there is something that should be worrying everyone, besides the looming Social Security meltdown, it is the private pension system. The meltdown there has already started, and its only going to get worse.
Now everyone's first reaction should be, why should I care, I don't have a pension (at least in terms of a "defined benefit" pension, you know the kind where you are promised a set amount of dollars a month)? That may be, but in the years to come, sure as God made little green apples, you are going to be paying for other people's pensions.
People being hired these days generally don't get defined pensions, unless they work for the government. But in the old days all kinds of folks got pensions. These pensions were "guaranteed" by the Federal government, which has to pick up the tab if the pension money isn't there when its needed. The guarantee is supposed to be funded through contributions paid by the insured pension funds to the Pension Benefit Guarantee Corporation. However it is woefully underfunded, perhaps systemically so.
The underfunding has just become a bit more woeful, as a judge has allowed United Airlines to walk away from its 6.6 billion dollar pension liability, dumping the problem on the PBGC. This is just the start, there are lots of other "legacy" airlines out there that (1) are hemorrhaging cash, and (2) have fat pension plans that they can no longer afford. George Will notes that Delta is next up to the plate.
Of course, if it was just the airlines I guess it would be okay, but there are lots of companies that have expensive pension (and retiree health care) liability that will be looking at the same way out. Why do you think that GM, which has plenty of cash on hand, just had it's bonds downgraded to junk status? Its because of these looming legacy costs that it can't afford:
[S&P] also blamed much of the companies' problems on their huge financial commitments to its retirees, both in pensions and in medical benefits. Ford's pension liability was $12.3 billion and its medical liability $32.4 billion at the start of the year, S&P said, while GM's medical liability was $61 billion.
By my calculator that's over 100 billion (with a "b") just from two of the car companies. We are talking about real dough here. And guess what, sports fans? The government is either going to have to renege on these looming costs, or else it is going to have to pay them out of general revenues (i.e. the dough it takes from us each year as taxes).
And when you are looking at the government's future liabilities, make sure you take Social Security into account. Right now the system is expected to start running a deficit in 15-20 years, and because the trust fund has always been a sham (i.e. the govt. is "investing" the money by lending it to itself), we can expect that shortfall will also have to be paid out of general revenues. George Bush is trying to fix the problem but he isn't getting a lot of help, so don't expect him to be successful.
And lets not forget our other levels of government, which are busily adding to the problem. In California we have lots and lots of government employees who have defined pensions. These are starting to run at a deficit and the shortfall has to be made up out of--guess what--general revenues. This situation is also set to get worse, and while Governor Schwarzenegger is trying to fix that problem, he isn't getting a lot of help either.
So (relatively) fewer and fewer younger workers are going to have to pay a whole lot of higher taxes in order to keep the cash flowing to more and more retirees who are living longer and longer. The politics of what happens then will be interesting; the younger workers will be in the majority, but retirees vote in much greater percentages and generally can be counted on to vote their pocket books. I foresee interesting times (and I mean "interesting" in a bad way).
This is a problem caused by shortsighted (or dishonest, take your pick) politicians and businessmen who were willing to make long term promises secure in the knowledge that they wouldn't be around when the bill came due. And in 20 years when this whole thing starts melting down, Bush and Schwarzenegger won't be around either. You, however, will probably have a front row seat.