Life expectancy in 1935, in the United States, for example, was 76.9 for men. Workers relying on the plan for retirement would not receive much each month and were not expected to live long enough to drain the system.

When Social Security was founded, the typical US worker at age 65 could expect to live another 11.9 years. But if today’s official projections are right, by the year 2040 the typical 65-year-old worker can expect to live at least another 19.2 years. If the normal retirement age had been indexed to longevity since 1935, today’s worker would be waiting until age 73 to receive full benefits and tomorrow’s workers even longer.

In a report called “Demographics and Capital Markets Returns,” Robert Arnott and Anne Casscells argue that the crisis is not in Social Security, but in demographics. “When an entire society ages,” suggest Arnott and Casscells, “…the thing that matters most is the ratio between the workers to retirees. Unfortunately, the aging of the baby boom generation, which is a significant bulge in population, will cause a dramatic increase in the ratio between workers to retirees, one that will put enormous strain on society and cause friction between generations.”

In the United States, as in other developed countries, the unfunded benefit liability for public pensions amounts to 100 percent to 250 percent of GDP. It is a ” hidden debt ” far greater than official public debt. Unlike in the private sector, these debts are not amortized as expenses over 30 to 40 years. And it may be worth pointing out that under normal conditions economies do not run such crushing deficits. They only do so in crisis mode.

The annual cost of Social Security benefits represented 4.4 percent of GDP in 2008 and is projected to increase to 6.2 percent of GDP in 2034, and then decline to about 5.8 percent of GDP by 2050 and remain at about that level.

And to the retiring boomers’ other doubts and insecurities, we might add that US health care costs are expected to rise by 7 percent of GDP over the next 40 years – a rate that is more than twice as fast as other developing nations. The “old old,” – those aged 80 and over – are predicted to rise sharply through 2050 and will dramatically increase long – term care costs as well as disability, dependence, and health care expenses.

In fact, by official projections, in 2030, the US government will be spending more on nursing homes than it spends on Social Security today. “Although people justifiably worry about Social Security,” says Victor Fuchs, an economist who studies the health care industry, “paying for old folks’ health care is the real 800-pound gorilla facing the US economy.” Adding projections for Medicare and Medicaid ’s expenditures to those of Social Security could raise the total cost to more than 50 percent of payroll taxes.

The fiscal kickers of health cost inflation and political demand for more long-term care benefits threaten to raise public spending dramatically in the United States. Between 2005 and the fall of 2008, we spent two and a half years chronicling the efforts of David Walker, the former comptroller general of the United States, and Bob Bixby, executive director of the Concord Coalition, to reign in reform and shore up the Social Security and Medicare systems. The project yielded a feature length documentary film, which earned us a trip to the Sundance Film Festival in January of 2008 and another to the Critic’s Choice Awards in Los Angeles a year later. We published a best-selling companion book of the same title in late 2008. You’re encouraged to delve into the numbers we presented in the film and book. They’re truly mindboggling. But in many ways the project was dated the moment we released it to the public.

The credit crisis that reached a fever pitch developed in 2008 pushed the date of insolvency of these programs ever closer. On May 13, 2009, the Medicare Trustees warned that the fund they tap to pay for beneficiaries’ hospital care will be insolvent by 2017 – two years earlier than trustees had predicted the year before. The program has been paying out more than it collects in taxes and interest since last year, in part due to a recession well underway. Medicare would have to deposit $ 13.4 trillion – $ 1 trillion higher than last year’s estimate – into an interest-earning account today in order for the hospital fund to pay its scheduled benefits over the next 75 years. The program’s total unfunded obligation, which includes doctor and prescription drug benefits, is $37.8 trillion. The trustees estimated that in coming years, Medicare spending will rise faster than workers’ earnings or the economy as a whole.

Trustees say that while the financial standing of Social Security decreased more sharply than Medicare last year, the health program remains at greater risk of insolvency. The financial difficulties facing Social Security and Medicare pose serious challenges, the report concluded.

For Social Security, the reform options are relatively well understood but the choices are difficult. Medicare is a bigger challenge. Its cost growth can be contained without sacrificing quality of care only if health care cost growth more generally is contained. But despite the difficulties – indeed, because of the difficulties – it is essential that action be taken soon, particularly to control health care costs.

After the revised Social Security and Medicare announcement the world began to wonder: Can the US hold onto its AAA credit rating?

“The US government has had a triple-A credit rating since 1917,” David Walker, now president and CEO of the Peterson G. Peterson Foundation, commented in the Financial Time s following the release of the Trustees report, ” but it is unclear how long this will continue to be the case. In my view, either one of two developments could be enough to cause us to lose our top rating.

“First, while comprehensive health care reform is needed, it must not further harm our nation ‘ s financial condition. Doing so would send a signal that fiscal prudence is being ignored in the drive to meet societal wants, further mortgaging the country’s future.

“Second, failure by the federal government to create a process that would enable tough spending, tax and budget control choices to be made after we turn the corner on the economy would send a signal that our political system is not up to the task of addressing the large, known and growing structural imbalances confronting us.”

Of course, we must note that the whole credit rating biz is…well…corrupt. The agencies that are responsible for dishing out sovereign credit ratings (S&P, Fitch, and Moody’s) are the same ones that left us all out to dry in 2007. (Of course, mortgage – backed securities get a AAA…housing prices never fall!) Rest assured, if Wall Street can buy its way into AAA, Uncle Sam surely can, too.

But even Moody’s is starting to hedge their bets. They’ve since created three subdivisions within their AAA rating: resistant, resilient, and vulnerable…a corporate way of saying the good, the bad, and the ugly. While the United States isn’t in the worst of the bunch, it’s certainly not the best.

Source: Social Security? Not Exactly

This is from Today’s Financial News:

Carmax (NYSE:KMX) has been soaring of late. Good that our HSC members had a running start on this American demographics play!

On Dec. 22, 2008, I issued an HSC Alert to our Hot Stock Confidential members that I called: “This stock is going to rebound in spring due to this U.S. demographic mega-trend”.

Since they safely got in at $7.46 a share (or better), I can make my learned opinion available to a wider circle… considering the stock closed at $9.14 today, after trading as high as $9.30.

Here’s what I wrote back then:

In 1989, the number of live births in the United States surpassed four million for the first time since 1964, one of the last years of the Baby Boom generation. Since then, for almost twenty years straight, four million Americans have been born every year.

They are called the Echo Boom generation and by now represent over 70 million consumers in the United States. This year, the four-million strong segment born in 1990 finished high school and scattered across the nation’s campuses. And every year hereafter, another four million will be hitting the road… literally… in cars provided to them by the most indulgent parental generation in history.

My own son, High School Class of 2011, is already dropping hints that it’s high time for him to take driving lessons.

I suspect he’ll start ogling cars in about six months.

If it weren’t for the effect of parental buying behavior on the businesses catering to this demographic, I’d be inclined to ignore his automotive ambition. But age-appropriate spending on these kids can be tracked by following the stock price highs of Disney, Toys ‘R’ Us, McDonald’s, Apple throughout the 1990s and the first decade of the 21st century.

And after Aladdin and Toy Story, Happy Meals, iPods and Abercrombie and Fitch pre-torn pants, a car seems to be as inevitable to this generation as the Amen at church.

Of course, there’s a recession going on. And few parents may go and buy little Pugsley a brand-spanking new Mustang as a graduation present. My bet is that, notwithstanding a glut of new hybrids and SUVs, a wholesome percentage of this generation will get their first car at a used car lot.

At a place like CarMax Inc. for example. Sure, KMX-NYSE has taken it on the chin, reporting a $21.9 million loss during the third quarter as sales sank 23 percent for the quarter.

The company has imposed a hiring freeze at its headquarters, will temporarily stop store growth, and reduce staffing by natural attrition.

Since CarMax’s financing arm was hurt by a $23.8 billion write-down in the value of the company’s bonds and $16 million for loan adjustments on bad loans, I doubt the company will be extending liberal credit.

But since bicycles are a pain, especially for cross-country drives, and part of the parental generation’ dream is to cut down on your second job as unpaid taxidrivers, I believe a combination of winter attrition, 16th and 18th birthdays, high school graduations, and college-bound freshmen will kick-start the used-car business in the second quarter of 2009.

Time to start looking at buying cheap now. KMX is currently selling at around $7.40 a share. I’d say buy under $8 and use price dips to and below $7 as additional buy-in opportunities in the coming weeks. I do believe 20-30% gains by May are a distinct possibility.

Well, today I advised our members to set a stop-loss at $9, to lock in better than 20% gains should the stock fall as unexpectedly as it rose today. I still think there’s some upside left.

After all, my son is now willing to barter: A driver’s license in exchange for the remaining merit badges required for Eagle Scout.

Can a used car be far away?

Source: Carmax is up over 20% on our HSC American demographics play!