Monday, January 31, 2011

Will BushÂ’s reform of the retirement system crash the bond market?

Will BushÂ’s reform of the retirement system crash the bond market?

George W. Bush recently announced his plan to overhaul the Social Security and Medicare systems. Like most industrial countries, US faces the huge gap that will soon open in the funding for its retirement system.

(PRWEB) November 19, 2004

George W. Bush recently announced his plan to overhaul the Social Security and Medicare systems. Like most industrial countries, US faces the huge gap that will soon open in the funding for its retirement system. With baby boomers nearing retirement age, the Medicare hospital insurance fund will face bankruptcy in 14 years, and the Social Security program trust fund will be on the rocks in 38 years. A drop in the population growth rate and rising health costs aggravate the problem.

Analysts estimate the government may have to issue huge amounts of debt to patch up unfunded future liabilities of $43 trillion projected for both programs that could send bond rates up to double-digit numbers.

Analysts express concern about the necessity to cover the liabilities combined with BushÂ’s intention to cut Social Security taxes. His proposals include reducing existing payroll taxes by 2% to fund private accounts, managed by retirees themselves. However, the creation of these accounts will require an estimated $104 billion to $1 trillion, and the funding will come either from the cut in benefits or a tax hike. One more option is to raise the mandatory retirement age.

Some experts suggest that shifting funds from Social Security to private accounts will increase the fees of the Social Services industry without proving better guarantees for employees. A lot has to be done to increase employee participation in retirement plans that now is at 42%.

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