2023-02-23_The_future_of_SS
00:00:00.000 | On March 6, 2019, I released a podcast episode entitled "Federal Debt, the Ticking Bomb
00:00:06.920 | that No One is Willing to Diffuse."
00:00:08.800 | It was episode 628 of the podcast.
00:00:11.560 | The following day, March 7, 2019, I released episode 629, which was called "In-Depth
00:00:18.000 | Version, Federal Debt, the Ticking Bomb that No One is Willing to Diffuse."
00:00:21.760 | I explained very carefully and in great detail the exact numbers of the fiscal situation
00:00:28.600 | in the United States.
00:00:30.200 | I closed those podcast episodes by explaining to you why I was actually taking so much time
00:00:36.960 | to explain it.
00:00:37.960 | I explained to you that it's my opinion that inevitably the U.S. government will default
00:00:42.940 | on its obligations.
00:00:44.800 | And by the way, default happens in various forms.
00:00:47.640 | I think the United States will continue to be strong, continue to be successful, but
00:00:51.000 | it will default on its obligations.
00:00:53.100 | But I explained to you why that's not a crazy outlandish theory.
00:00:56.940 | And I said, "Here is what the government will need to do in order to bring its financial
00:01:02.460 | situation back into a position of fiscal sustainability."
00:01:06.400 | I explained the numbers of exactly what you would need to see.
00:01:10.400 | That was four years ago that I made that podcast episode.
00:01:15.600 | And I thought it would be useful here, four years later, to talk about the improvements
00:01:21.140 | in the situation.
00:01:24.480 | Hopefully you just fell off your chair laughing.
00:01:28.220 | Short story is there are no improvements.
00:01:30.360 | Everything has gotten worse over these intervening four years.
00:01:33.320 | Of course, we've faced the COVID crisis and all kinds of things that have gotten worse.
00:01:39.100 | And in that episode I quoted extensively from Brian Riedel from the Manhattan Institute
00:01:43.160 | his paper called "A Comprehensive Federal Budget Plan to Avert a Debt Crisis."
00:01:49.020 | And in today's episode I want to begin with some comments from a recent op-ed that he
00:01:53.000 | wrote in the New York Times because he gives a good and accurate look, a very short and
00:02:01.660 | accurate look at the current numbers facing the US-American situation.
00:02:07.680 | The op-ed was entitled, published February 21, 2023, entitled "Biden's Promises on Social
00:02:13.480 | Security and Medicare Have No Basis in Reality."
00:02:18.100 | In his State of the Union speech this month, President Biden pledged to block any reductions
00:02:22.040 | in scheduled Social Security and Medicare benefits.
00:02:26.280 | He also promised that any tax increases would be limited to families that earn more than
00:02:30.760 | $400,000, roughly the top-earning 2% of American families.
00:02:35.760 | Together, these promises are almost certainly economically impossible.
00:02:41.280 | Over the next three decades, the Social Security system is scheduled to pay benefits $21 trillion
00:02:46.680 | greater than its trust fund will collect in payroll taxes and related revenues.
00:02:53.980 | The Medicare system is projected to run a $48 trillion shortfall.
00:02:59.120 | These deficits are projected to, in turn, produce $47 trillion in interest payments
00:03:04.600 | to the national debt.
00:03:06.540 | That is a combined shortfall of $116 trillion, according to data from the Congressional Budget
00:03:13.200 | Office.
00:03:14.200 | The inflation-adjusted figures trim by roughly one-third.
00:03:18.440 | These unsustainable figures result from demographics, rising health care costs, and program design.
00:03:25.560 | The ratio of workers supporting each retiree, which was about 5 to 1 back in 1960, will
00:03:31.920 | fall to just over 2 to 1 by the next decade.
00:03:35.680 | People who live until age 90, a fast-growing group, will spend one-third of their adult
00:03:40.320 | life collecting Social Security and Medicare benefits.
00:03:43.480 | Today's typical retiring couple will receive Medicare benefits three times as large as
00:03:47.920 | their lifetime contributions to the system, and also will come out ahead on Social Security,
00:03:53.360 | adjusted into present value, according to the Urban Institute and the Brookings Institution.
00:03:58.320 | Now, pay very careful attention to the next paragraph I'm going to read to you.
00:04:03.680 | I'm going to read it slowly so that you can follow the numbers in an audio format.
00:04:07.960 | Pay careful attention.
00:04:10.520 | The President's implication that full benefits can be paid without raising taxes for 98%
00:04:17.400 | of families has no basis in mathematical reality.
00:04:22.920 | Imagine that Congress let the Trump tax cuts expire, applied Social Security taxes to all
00:04:31.480 | wages, doubled the top two tax brackets to 70 and 74%, hiked investment taxes, imposed
00:04:42.280 | Senator Bernie Sanders' 8% wealth tax on assets over $10 billion, and 77% estate tax
00:04:52.320 | on estates valued at more than $1 billion, and raised the corporate tax rate back to
00:05:01.160 | 35%.
00:05:04.040 | Combined federal income state and payroll marginal tax rates would approach 100% for
00:05:12.200 | wealthy taxpayers, and America would face among the highest wealth, estate, and corporate
00:05:19.520 | tax rates in the developed world.
00:05:22.760 | Yet, total new tax revenue, 4% of GDP, would still fall short of Social Security and Medicare
00:05:32.960 | shortfalls that will grow to 6% of GDP over the next three decades, not even having the
00:05:46.080 | defense budget would close the remaining gap.
00:05:50.560 | More realistically, if these programs aren't reformed, the middle class will have to shoulder
00:05:56.080 | the burden, just as they do across Europe.
00:06:00.280 | And the burden is massive.
00:06:04.440 | Closing with taxes the aforementioned Social Security and Medicare shortfalls would more
00:06:09.540 | plausibly mean raising the payroll tax by 9 percentage points and imposing a 20% value
00:06:17.960 | added tax.
00:06:20.120 | Taxes haven't been raised that dramatically since World War II, back when tax revenues
00:06:25.440 | consumed a much smaller share of our economy and there were many more untapped revenue
00:06:32.560 | sources.
00:06:34.240 | If such tax increases sound painful, Congress could close as much as two-thirds of the Social
00:06:39.280 | Security and Medicare shortfalls by increasing program eligibility ages and paring back the
00:06:45.840 | growth of benefits for non-poor retirees, according to my research at the Manhattan
00:06:50.960 | Institute.
00:06:52.280 | Perhaps the President assumes the federal government can just borrow $116 trillion over
00:06:56.880 | three decades, on top of the current roughly $25 trillion in federal debt held by the public.
00:07:03.760 | But who will lend the government this much money?
00:07:07.200 | China and Japan are already paring back their roughly $2 trillion in American debt holdings.
00:07:13.400 | It seems unlikely that other countries would step up to take on much more.
00:07:17.880 | The Federal Reserve is trying to reduce its own more than $5 trillion in Treasury holdings
00:07:22.760 | that temporarily soared during the pandemic, and cannot monetize $100 trillion in debt
00:07:29.120 | without hyperinflation.
00:07:31.880 | That leaves America's banks, corporations, and investors, which almost surely lack both
00:07:37.240 | the capacity and willingness to lend $100 trillion to a government that cannot control
00:07:44.280 | its own finances.
00:07:46.460 | At some point, the bond market will likely tap out, forcing Congress to finally confront
00:07:52.320 | its soaring deficits.
00:07:54.360 | The danger is that waiting for a debt crisis will make the inevitable reforms so much more
00:07:59.800 | drastic and painful.
00:08:02.040 | At that point, retired baby boomers will be too old to absorb benefit changes.
00:08:07.180 | The bloated national debt will bring colossal interest costs, and years of automatic benefit
00:08:11.820 | expansions will be even more politically difficult to pare back.
00:08:16.560 | The responsible alternative would bring Democrats and Republicans together and put everything
00:08:21.780 | on the table – Social Security, Medicare, taxes, and defense – to build a balanced
00:08:27.580 | solution that gradually phases in reforms and exempts low-income seniors while we still
00:08:33.560 | have time for this gentler solution.
00:08:37.360 | Social Security and Medicare sustainability is not merely a future challenge.
00:08:42.440 | Their annual program shortfalls – forecasted to rise from $426 billion to $2 trillion over
00:08:50.080 | the next decade – are the main driver of budget deficits, expected to head well past
00:08:55.400 | $2 trillion in a decade.
00:08:57.960 | Social Security and Medicare are vitally important programs that represent a commitment between
00:09:02.440 | generations.
00:09:03.700 | No White House has seriously entertained addressing their unsustainable costs since the 2011 deficit
00:09:09.840 | negotiations.
00:09:11.440 | Back then, Vice President Joe Biden courageously put all taxes and spending on the table in
00:09:15.880 | hopes of a grand deal on deficits.
00:09:19.060 | With the Social Security and Medicare trust funds headed toward insolvency within 11 years,
00:09:24.880 | that courage is needed again.
00:09:28.280 | And thus concludes Brian Riedel's Op-Ed from two days ago.
00:09:34.360 | I don't have a ton to say on this subject because my major intent is simply to keep
00:09:39.800 | you informed.
00:09:41.880 | In terms of solutions, I have none.
00:09:47.280 | There really aren't any.
00:09:49.800 | When you look at it, it's a fairly simple situation.
00:09:53.100 | Either you have to increase government revenue, increase the income for the government, or
00:09:59.380 | you have to decrease the expenses.
00:10:02.860 | And so, as I see it, there are four basic options.
00:10:06.280 | And these are the only four that I can come up with that will eventually be a pathway
00:10:10.740 | out of this situation.
00:10:13.420 | Option number one is raise taxes or government fees.
00:10:17.620 | The sources of revenue to a government are taxes, government fees, and inflation.
00:10:23.140 | We'll get to that in a moment.
00:10:24.140 | But it's taxes and government fees.
00:10:25.700 | So you have to either raise taxes or government fees.
00:10:30.620 | In terms of how to raise taxes, there are a couple of basic ways to raise taxes.
00:10:36.860 | Number one way is you can increase the rates of tax.
00:10:42.620 | The taxes are charged at increased tax rates.
00:10:44.980 | So you were going to be charged 35%.
00:10:47.580 | Now you're going to be charged 45%.
00:10:49.420 | That's the way, number one.
00:10:50.820 | A second way to raise taxes is to increase the base, the tax base that is charged on.
00:10:57.740 | So for example, right now, Social Security and Medicare wage base is, what's it, $120
00:11:01.940 | something thousand dollars?
00:11:02.940 | Just a little bit, somewhere in that range.
00:11:06.800 | And so that amount can be increased.
00:11:09.060 | You could say, well, all of your wages are now subject to Social Security taxes.
00:11:13.700 | And so previously you were making $400,000 a year and you were paying Social Security
00:11:19.060 | and Medicare taxes, employment taxes, on $100 something thousand.
00:11:24.580 | But now we're going to charge that on $400,000.
00:11:26.380 | So there's a major tax increase, but they didn't change the rates.
00:11:29.380 | They changed the base, the wage base.
00:11:32.060 | Alternatively, the government, in order to raise taxes, can impose new taxes.
00:11:37.600 | So you saw this with various, you see this with various surcharge taxes and special taxes
00:11:42.920 | that get levied on certain activities.
00:11:46.020 | Those are the three basic ways that you can increase taxes, is number one, increase the
00:11:52.740 | rates.
00:11:53.740 | Number two, change and increase the tax base.
00:11:56.220 | And then number three, impose new forms of taxes.
00:12:00.700 | Or you can raise government fees.
00:12:02.500 | And so for some services that government provides, the government can charge fees.
00:12:07.260 | This is negligible in the modern age, but it can be done.
00:12:12.300 | So either the country can raise taxes or government fees, or number two, you can lower government
00:12:15.900 | spending.
00:12:16.900 | So the government can choose to lower spending and say consciously, "We're going to reduce
00:12:22.320 | our spending."
00:12:23.980 | This is different than default, which is number four, but reduction of spending would say,
00:12:28.100 | "This year we were planning to spend a trillion dollars on this government program, but what
00:12:33.540 | we're going to do is we're going to cut that budget and beginning three years from now,
00:12:36.900 | we're going to spend $500 billion on this government program."
00:12:40.820 | So you can lower government spending.
00:12:43.020 | The third thing that you can do is inflate the currency.
00:12:47.340 | So when you inflate the currency, it allows government to satisfy its technical obligations
00:12:55.220 | to say, "Look, we paid our bills."
00:12:57.060 | But because you're paying those bills with inflated currency, you're getting a discount
00:13:01.340 | versus what you would have had to pay if the currency had not inflated.
00:13:04.780 | And then number four is you can default on obligations.
00:13:07.700 | Now for a limited time at Del Amo Motorsports.
00:13:10.460 | Get financing as low as 1.99% for 36 months on Select 2023 Can-Am Maverick X3.
00:13:17.260 | Considering the Mavericks taking home trophies everywhere from King of the Hammers to Uncle
00:13:21.740 | Ned's Backcountry Rally, you're not going to find a better deal on front row seats to
00:13:26.540 | a championship winner.
00:13:28.140 | Don't lose out on your chance to get a Maverick X3.
00:13:31.220 | Visit Del Amo Motorsports in Redondo Beach and get yours.
00:13:34.820 | Offer in soon.
00:13:35.820 | See dealer for details.
00:13:38.340 | And default can take many forms.
00:13:41.020 | So it can take the most drastic form when a government just doesn't make its interest
00:13:44.540 | payments on its debt.
00:13:45.540 | I think that's unlikely for the United States, but it has happened all around the world with
00:13:49.700 | many governments all around the world.
00:13:50.820 | They just simply flat out default.
00:13:52.420 | They don't pay the interest payments on the bonds that they owe.
00:13:57.660 | Default can take other forms as well.
00:14:01.040 | So default can include things like raising the age of retirement.
00:14:05.780 | When you started working as a 20-year-old worker, you were promised that at age 65 you
00:14:10.060 | would be able to retire.
00:14:11.180 | But now the laws have changed and you have been promised that now your age of retirement
00:14:17.900 | is now 75.
00:14:19.340 | I consider this to be a form of default because it's a changing or renegotiation of promises.
00:14:26.020 | There are other forms of default that are also again softer.
00:14:29.180 | So a number of years ago on the podcast I profiled an extensive article on Medicaid
00:14:35.460 | beneficiaries in Maine.
00:14:37.840 | And these are people who are entitled to government benefits to pay for their health care.
00:14:42.300 | The problem is quite simply the rates that the government is willing to pay to nurses
00:14:48.000 | to provide the care.
00:14:50.140 | The market conditions do not make it possible for there to be health care workers available
00:14:57.320 | on those systems.
00:14:58.840 | And so although technically the government says, "We'll write the checks," there's
00:15:02.540 | no one who wants to work and there's no one willing to do it.
00:15:05.140 | And so the person who is eligible for benefits doesn't get those benefits.
00:15:10.100 | And this is again another form of default.
00:15:12.500 | There are other things as well.
00:15:13.900 | Basically default means government renegotiating its commitments, changing the terms of the
00:15:19.780 | alleged contract.
00:15:20.780 | Because there is no contract.
00:15:22.020 | Remember that what the government says and does is not a bilateral contract.
00:15:27.980 | They're not obligated to do it.
00:15:29.980 | It's a unilateral agreement where they set up a program and they say, "This is what
00:15:34.420 | we're going to do."
00:15:35.500 | And then if they want to change it 10 years later, they change it.
00:15:38.040 | And other than a ballot, a vote in the ballot box to vote for one representative over another
00:15:44.300 | representative, you have no say in the matter.
00:15:45.820 | You can't affect it or change it.
00:15:48.020 | So those are the options, right?
00:15:49.940 | In order for the United States government to deal with its fiscal problems, or any government,
00:15:55.260 | they have the option to, number one, raise taxes or government fees.
00:15:58.020 | Number two, lower government spending.
00:15:59.940 | Number three, inflate the currency.
00:16:01.260 | Number four, default on obligations.
00:16:02.260 | And so you say, "Well, what's going to happen?"
00:16:04.940 | None of us know.
00:16:06.160 | We are in genuinely uncharted territory.
00:16:09.060 | We don't know.
00:16:10.500 | And what I find very difficult is while the fiscal situation of the US government is bad,
00:16:17.060 | it is by no means worse than many other governments in the world.
00:16:20.100 | There are many, many major leading governments that are in far worse shape.
00:16:25.100 | Simultaneously, while the US fiscal situation is bad, the US economic situation is better
00:16:33.380 | than, again, virtually anywhere else in the world.
00:16:37.300 | And so I myself don't know how to reconcile this paradox.
00:16:41.740 | All I know, what I believe, is that the fiscal situation is a separate and while connected,
00:16:49.740 | it's not a directly influential force on an economic situation.
00:16:54.740 | The fiscal situation does matter, but the economic situation is a separate animal.
00:17:01.420 | And so I don't try to connect them.
00:17:03.340 | I recognize that they influence one another, but I don't try to connect them directly and
00:17:07.940 | say that because the US fiscal situation is bad, that that automatically means that the
00:17:13.140 | US economy is heading into the tank.
00:17:15.060 | To me, that's an unwarranted claim.
00:17:18.540 | What can you do to protect yourself?
00:17:20.780 | Well, the first thing you can do is be informed.
00:17:23.620 | That's why I'm trying to inform you about the situation.
00:17:26.660 | If you understand the facts, the mathematical facts, without even touching on things like
00:17:31.500 | the whole concept of trust fund, right?
00:17:32.780 | There is no trust fund.
00:17:33.780 | It doesn't, the money doesn't exist.
00:17:35.220 | It's a bunch of IOUs traded between government entities.
00:17:39.700 | There's no money.
00:17:41.180 | It's all made up in the first place.
00:17:43.940 | So first is understand.
00:17:45.940 | Understand that no matter what the politicians say, the politicians are trying to get elected
00:17:50.700 | and gain power.
00:17:52.140 | The math is undeniable.
00:17:54.300 | It's inescapable.
00:17:56.220 | And the math is devastatingly bad.
00:18:01.220 | So as once you know it, then you can press forward and provide for your own solutions.
00:18:07.700 | As I see it, that's the starting place.
00:18:09.740 | So be informed about the situation.
00:18:12.660 | And that none of the policies or proposals that I see recommended currently are in any
00:18:19.220 | way mathematically sound.
00:18:22.020 | You hear someone say, "I'm going to come out."
00:18:23.580 | Or you hear that the government just changed something and they increased it by 1%.
00:18:27.700 | Just ignore it.
00:18:28.700 | It's all noise.
00:18:29.700 | If at some point in time you get a bipartisan collaborative effort to make significant changes
00:18:37.100 | on government spending or on these programs, pay attention.
00:18:41.020 | And then go and look for an appropriate analyst who will look and say, "What kind of impact
00:18:45.460 | do these make?"
00:18:46.460 | Again, I find Brian Riedel to be an extraordinarily knowledgeable, useful analyst.
00:18:52.660 | And he has plenty of information available for those who wish to dig into the numbers.
00:18:57.020 | So if something like that comes along, great.
00:18:59.260 | But as you heard in the paragraph that I read in his op-ed, and as you heard in the podcast
00:19:07.500 | episodes four years ago, these proposals need to be very, very significant in order to move
00:19:14.100 | the needle in a meaningful way.
00:19:16.580 | So pay attention.
00:19:17.580 | Number two, don't expect any government promise to be there for you.
00:19:23.980 | It'll be nice if they are.
00:19:25.900 | And if you're 70 years old, file for Social Security and take it, obviously.
00:19:31.500 | But if you are 40 years old, don't expect the government to hold good on its promises.
00:19:40.660 | Which means you have a responsibility to provide for yourself those things that previous generations
00:19:47.580 | voted that the government would take care of them for themselves.
00:19:51.220 | What are they?
00:19:52.220 | Well, the big ones are health and health care.
00:19:54.360 | You have a responsibility to take care of your health so that you will be in good health
00:20:01.340 | in your old age.
00:20:03.020 | Remember that Medicare and Medicaid are not health care programs.
00:20:07.380 | They are health cost payment programs.
00:20:13.740 | Getting access to Medicare and Medicaid is not going to be the key thing that helps you
00:20:19.380 | to be healthy.
00:20:20.740 | No question that they can pay for many things that will help you to enjoy a stronger quality
00:20:26.740 | of life.
00:20:27.740 | But you need to focus first and foremost on developing and maintaining your physical health.
00:20:33.860 | That's the fundamental thing to begin with.
00:20:36.960 | So if you go into old age as somebody who has lots and lots of health conditions and
00:20:44.140 | is dependent upon a government program to gain access to a doctor and gain access to
00:20:48.900 | a doctor, there's a very strong chance that you're going to die much earlier than
00:20:52.820 | otherwise you would.
00:20:54.420 | But if you're someone who goes into old age in vigorous personal health, able to enjoy
00:20:59.940 | all of the benefits of good sound health, being free of sickness and disease, etc.,
00:21:05.780 | then you can enjoy your old age regardless of what government programs are doing or not
00:21:11.940 | doing.
00:21:12.940 | So we all have a basic limit to our experience of life and genetic potential and health history,
00:21:21.860 | etc.
00:21:22.860 | But today you should be focusing on maximizing your personal health to the highest degree
00:21:28.300 | possible.
00:21:29.300 | Assume that you're not going to receive any health care from others and recognize
00:21:35.780 | that you need to care for your own health.
00:21:39.180 | That's to me the fundamental thing.
00:21:42.860 | Related to that, with regard to government income from government pensions, be it social
00:21:48.180 | security or be it other forms of government pensions, just pretend that those things don't
00:21:53.940 | exist.
00:21:54.940 | I don't think it's warranted to discard 100% of it.
00:21:59.180 | To me that seems extremist.
00:22:01.580 | I wouldn't tell somebody who has a military pension, "Oh you should just pretend you
00:22:05.060 | don't have one."
00:22:06.060 | No, to me that's silly.
00:22:08.340 | Social security is much more questionable, but again I think there will always be some
00:22:14.580 | expression of social security because our entire country in the United States has systematically
00:22:21.340 | – number one, we accepted and voted for these programs, we voted for the politicians
00:22:25.220 | who established them, and they've become so interwoven in the American fabric that
00:22:30.980 | this is a fundamental part of what it means to be American, is to have access to these
00:22:34.860 | welfare programs that there's no serious politician or no widely accepted politician
00:22:40.860 | who is seriously running on the idea of discarding these things.
00:22:47.140 | So if you're a hardcore libertarian, no government programs, no welfare programs,
00:22:51.540 | it's a pipe dream.
00:22:52.740 | Get out of here.
00:22:53.740 | It's not going to work.
00:22:54.740 | It's silly.
00:22:55.740 | I'm with you ideologically, but practically there's no point in even talking about
00:22:59.940 | it.
00:23:00.940 | These programs are here to stay, but they're not going to be as significant to most beneficiaries
00:23:07.500 | as they once were.
00:23:08.500 | There's going to be some form of default.
00:23:11.140 | So you're going to be expected – you're not going to retire at 65 or 70 years old.
00:23:15.700 | You're going to be expected to work from 70 to 80 and then file for social security,
00:23:20.940 | etc.
00:23:22.020 | And in order for that to be successful, you will need to accomplish a couple of personal
00:23:26.420 | things.
00:23:27.420 | One, you need to increase your personal health so that you can work effectively.
00:23:31.260 | Number two, you need to pay careful attention to your career choices and you need to choose
00:23:36.180 | a career into which you can grow and flourish for the long term.
00:23:41.960 | And so that career should have a few basic features.
00:23:44.780 | Number one, it should not be a career that's physically damaging to your body.
00:23:48.860 | It should not be a career that grinds you down and you're going to reach 50 years
00:23:52.500 | old and you can't do it anymore physically.
00:23:54.980 | So if you're in a career that is grinding down your body, dump it.
00:23:58.700 | Number two, it should not be a career in which you will be subject to heavy, unrelenting
00:24:05.340 | pressures of ageism.
00:24:07.280 | The most accepted forms of discrimination in the United States today involve discrimination
00:24:13.840 | based on age, ageism, discrimination against the young and the very young and discrimination
00:24:20.660 | against the old and the very old.
00:24:22.820 | And so recognize that you, as you age, are going to face significant levels of discrimination
00:24:28.380 | and you need to make sure that your career is one in which your wisdom and your judgment
00:24:35.020 | and your skills and your faculties, etc. will become more valuable as you age rather than
00:24:41.620 | less valuable.
00:24:43.060 | A career that involves you being able to use your physical body and be stronger and have
00:24:49.380 | better eye-hand coordination, etc., this is not a career that has a good long-term potential
00:24:55.340 | for you.
00:24:56.340 | On the other hand, a career that involves perspective, judgment, wisdom, etc., is a
00:25:02.380 | career that does have a long-term potential for you.
00:25:06.660 | So there's plenty of time for you to orient yourself and orient your long-term career
00:25:10.540 | thinking in the direction of something that you will succeed with until you're very, very
00:25:17.220 | old.
00:25:19.340 | Another important component of your career choice needs to be for you to choose a career
00:25:24.940 | that you find personally fascinating with the goal of being engaged in it over a long
00:25:31.000 | period of time.
00:25:32.820 | And there are many careers that are so vast in their scope that you can press forward
00:25:38.640 | and continue to learn and develop other things and explore other aspects of it.
00:25:45.020 | You don't want to have a career that maybe if you're not mastered it today, let's say
00:25:48.860 | you're 40 years old and you look down and you recognize that at the age of 50 I'm going
00:25:53.020 | to have mastered this career and there's going to be nothing left for me to learn.
00:25:55.860 | Well, that's a problem.
00:25:57.100 | So now you need to create something that's going to put in place for you a 30 or a 40
00:26:00.900 | or a 50-year learning scope so you can be engaged with it and interested in it and be
00:26:06.460 | challenged in your career in a significant way.
00:26:09.820 | So those are some things you can consider on the income side because the most obvious
00:26:13.860 | way to thrive when government pensions are breaking down is for you to have private sources
00:26:21.940 | of income.
00:26:22.980 | Work is the most reliable way for you to handle that.
00:26:27.780 | On the expense side of things, you want to take careful thought for how you can protect
00:26:32.820 | yourself against needing a lot of money.
00:26:35.380 | I've already mentioned health care expenses, which wind up being a significant factor in
00:26:40.820 | most retirees' budgets.
00:26:43.020 | And if Medicare or Medicaid or other, whatever the replacement government programs are, if
00:26:48.180 | those programs are insufficient to pay for your health care expenses, then you need an
00:26:52.700 | alternative.
00:26:53.700 | And again, I've emphasized, do everything you can to achieve and maintain the highest
00:26:59.020 | personal level of health possible to minimize your need for physicians or medical intervention.
00:27:09.460 | You also want to control your other personal expenses so that you have money available
00:27:14.580 | to purchase outright and directly the kinds of medical care and intervention that you
00:27:20.220 | need.
00:27:21.460 | So put yourself in a situation where your need for money is much less significant.
00:27:27.940 | Most of us have an actual need for money that is very low.
00:27:32.420 | But what we do is we make lifestyle choices that result in our needing higher amounts
00:27:37.100 | of money.
00:27:38.100 | And so it's important that you recognize these are choices.
00:27:40.980 | These are choices that we make.
00:27:42.660 | We could live very comfortably in a simple one-room cabin on a little parcel of land
00:27:49.460 | somewhere with very, very modest expenses as an individual or as a couple.
00:27:55.760 | We could live that way.
00:27:57.200 | But most of us don't choose to live that way.
00:27:59.720 | So you might want to have multiple plans that result in your being able to live a life of
00:28:07.140 | very low expenses if you needed or wanted to.
00:28:11.420 | I consider it a sign of weakness for a man to not be able to adapt very comfortably to
00:28:18.540 | multiple lifestyles.
00:28:20.360 | If you're in a situation where you just have to spend the amount of money you spend right
00:28:23.180 | now and there's no way to do it, I cannot possibly spend less than $15,000 a month,
00:28:28.100 | then that's a sign of weakness.
00:28:31.020 | Strength means that you can live very well on $15,000 a month and you can live very well
00:28:36.820 | on $1,500 a month and you can live well on $150,000 a month.
00:28:41.300 | As human beings, we can adapt both up and down the scale of hedonism.
00:28:48.340 | And what I think is a very rewarding thing to do is to create multiple lifestyles in
00:28:54.220 | your mind that you would be very content and happy living.
00:29:00.060 | And find your version of that.
00:29:02.980 | To me, if I had a little cabin or if I lived in a little RV or something like that, just
00:29:08.620 | the amount of intellectual goals and hobbies that I have that are unfulfilled are things
00:29:14.460 | that could occupy me very happily for years and years and yet cost no money.
00:29:22.060 | And so I could happily live in a little one-room apartment somewhere or a little studio somewhere.
00:29:27.520 | Maybe I'm taking care of, living in my RV, watching A Christmas Tree a lot during the
00:29:34.360 | season to make a little money or maybe I'm a building super.
00:29:40.320 | I become the little old guy that sits at the front of an apartment building and says, "Welcome,"
00:29:44.000 | and make sure that everything's okay with the building.
00:29:46.560 | But give me a stack of books.
00:29:48.980 | Maybe you want to learn math and you just are frustrated and upset so you buy yourself
00:29:53.000 | a stack of math textbooks that you're going to spend five years working through or reading
00:29:57.400 | all the classics or whatever your version of that is or mastering anything that you're
00:30:01.960 | interested in, but mastering it.
00:30:04.440 | And in our modern world, you can live well on little money.
00:30:07.720 | And so put yourself in a situation where you can do that.
00:30:11.160 | In addition, I think you should think very carefully about family structure and about
00:30:14.760 | community.
00:30:15.760 | Again, my ambition when I'm old is basically the same as what my dad has always said.
00:30:21.720 | He's like, "If I can't live well alone, just give me a tiny little bedroom in your house
00:30:26.200 | and I'll be happy."
00:30:27.240 | To me, that's the thing as well.
00:30:29.240 | At this point, I have five children.
00:30:30.240 | Assuming my children survive to adulthood, if I have a little room in my children's houses
00:30:36.240 | and I bounce around among them, I'm happy as a clam.
00:30:39.880 | And to me, the importance of community is a very important thing for you to consider.
00:30:46.340 | So that may involve having children.
00:30:48.840 | If you don't have children, then you need to pay very careful attention to how you can
00:30:55.080 | build and cultivate that community.
00:30:57.360 | It takes years to build community and you're going to need to build community across generational
00:31:02.320 | boundaries.
00:31:03.560 | You can't just be friends with a bunch of people who are your age because when you're
00:31:07.400 | all old and half your friends are dead, you need someone who's going to care for you.
00:31:11.120 | So you need younger friends, which means you're going to need to find people to sow into and
00:31:14.400 | mentor and care for, etc.
00:31:17.200 | I don't think that children are the guarantee to community in your old age.
00:31:22.620 | Those without children can do that, but you do need to be intentional.
00:31:26.240 | You need to be intentional about finding young people and mentoring them and loving them
00:31:30.120 | and sowing into their lives.
00:31:32.520 | And with luck, they'll reciprocate and care for you as you age.
00:31:40.160 | The growth of government welfare programs has enabled many of us to walk away from the
00:31:47.440 | community binds that sustained us in the past.
00:31:52.040 | Being a single man or a single woman in the world has only truly become possible with
00:31:57.960 | the growth of welfare to provide for you.
00:32:01.080 | So if welfare is under attack and welfare is not working as well as it once did, that's
00:32:10.680 | where it will be increasingly important to provide for yourself and also to revert to
00:32:17.280 | the ancient practices of living in community.
00:32:20.840 | So you want to develop that.
00:32:21.940 | If you have children, you need to make sure that you have a relationship with those children
00:32:27.240 | that will stand the test of time.
00:32:30.680 | And if your children watch you not care for your parents, then there's a good chance
00:32:35.540 | that you have modeled for them what they're going to do for you.
00:32:38.760 | If you don't have a close and warm relationship where they want to be with you, there's a
00:32:42.560 | good chance that they're not going to want to be with you.
00:32:45.200 | And so as a parent, it should be an important focus for us to focus on building those values
00:32:50.800 | and developing the relationship with our children so that in our old age and potentially in
00:32:56.320 | our poverty, we have the ability to live out our years in love and in community.
00:33:06.600 | With regard to other things, I think it behooves you to make backup plans.
00:33:12.200 | And so I've talked a lot about backup plans.
00:33:14.720 | Remember that these particular issues that we've discussed are primarily related to the
00:33:22.240 | country of the United States, the fiscal situation of the United States.
00:33:27.080 | And so I think it makes sense to diversify out of one specific country.
00:33:33.040 | And again, this is hard because I believe that of any country in the world, the United
00:33:36.240 | States probably has the best potential future.
00:33:40.120 | But I think it makes sense for you to not be reliant on one country.
00:33:44.960 | And so if you're a high income earner and you expect taxes to increase, you obviously
00:33:48.800 | want to do everything you can to protect against that with normal traditional financial planning.
00:33:53.180 | And I think you'd protect against that by being able to escape the US tax net entirely.
00:33:57.880 | I don't expect there to be large and significant changes in US taxation broadly.
00:34:04.480 | It's my opinion.
00:34:06.300 | It's a studied opinion.
00:34:07.300 | I have arguments for it, but it's my opinion that the US government won't make significant
00:34:12.480 | changes with regard to tax collection.
00:34:15.560 | And primarily, I think this is due to simply market pressures.
00:34:19.600 | And in an increasingly mobile world, and in a world where there are much, much lower tax
00:34:26.200 | jurisdictions, I think that if the US government increased its tax collections beyond what
00:34:32.560 | it is now, there would be increasing levels of pressure and increasing amounts of people
00:34:38.680 | just simply leaving and escaping the US tax jurisdiction.
00:34:43.080 | The US government, I think, has done a remarkable job of dialing in its spot on the Laffer curve.
00:34:49.480 | The Laffer curve is the curve that illustrates where the optimal level of tax collection.
00:34:56.120 | You want to tax your citizens as much as you can in order to receive the maximum revenue,
00:35:01.740 | but not tax them so much that they actually do something different and leave and go somewhere
00:35:05.800 | else or change their behavior in order to minimize taxation.
00:35:10.120 | And I think the US has pretty well dialed that in.
00:35:12.040 | And so I think that if they increase tax rates much or made big changes other than the small
00:35:20.060 | changes they always make at the margin of satisfied political support, then I think
00:35:25.160 | that they would lose tax revenue significantly.
00:35:29.440 | But I always want to have a backup plan.
00:35:31.120 | And so I want to make sure that I have the ability to go leave the United States, go
00:35:34.880 | to another place if that were smart for my business, etc.
00:35:38.860 | And so you can think about that and engage in international planning.
00:35:42.560 | By the way, internationalescapeplan.com is your starting point.
00:35:44.960 | I have a course on this and most of the course is dedicated to a plan B. It's not dedicated
00:35:50.560 | to saying, "I'm going to teach you how to leave the United States and move to Dubai
00:35:52.800 | today."
00:35:53.800 | It's more about, "Wouldn't you like to have a backup plan?"
00:35:56.440 | Although I don't live in the United States at the moment myself, I think that it's very
00:35:59.960 | probable that I myself will return to the United States in coming years.
00:36:04.720 | Because I think economically and etc., I think the United States has the most to offer from
00:36:10.280 | most places as compared to most places in the world.
00:36:14.060 | But what I feel very good about today that I didn't feel very good about five years ago
00:36:20.160 | was that now that's an option.
00:36:21.800 | I'm not stuck in the United States like I was five years ago.
00:36:25.320 | Today I could leave and I could sever my relationship with the country at any point in time.
00:36:29.920 | It's not always free to do that.
00:36:32.480 | There are exit taxes etc. that have to be planned for and considered.
00:36:37.000 | But to me that has helped me to be much more relaxed and sanguine about this entire situation.
00:36:43.400 | And I would encourage you, so if you'd like to know how to create a plan B, go to internationalescapeplan.com,
00:36:48.020 | take my course and I'll explain it to you very carefully.
00:36:50.480 | It's something that everybody should do.
00:36:52.960 | Even if you say, "Joshua, for the rest of my life I'm going to live in the United States."
00:36:55.960 | Great.
00:36:56.960 | I'll probably be there with you in the future.
00:36:59.480 | But still you should go and you should do the stuff that I explain in that course.
00:37:04.160 | It makes all the sense in the world and it's really, really important.
00:37:08.120 | And it will bring you a sense of freedom.
00:37:10.320 | You won't care about politics nearly so much.
00:37:12.440 | You won't argue about this stuff nearly so much once you know that it's all optional.
00:37:16.680 | Your participation in it is optional.
00:37:18.940 | So making a long-term plan in terms of taxation could be important because if government raises
00:37:24.960 | taxes that could cost you quite a lot of money.
00:37:28.600 | In terms of spending, again I don't think the government is going to lower spending
00:37:32.900 | much until it has to.
00:37:35.080 | But remember that default is always an option.
00:37:37.640 | They could default.
00:37:38.640 | And so if there are things that you yourself are particularly concerned about, you may
00:37:42.700 | wish to establish redundancy.
00:37:45.200 | So if you think that Medicare and Medicaid are facing really bad situations, then it
00:37:50.880 | might behoove you to go ahead and make a plan to have access to another government's welfare
00:37:56.880 | programs.
00:37:57.960 | So I think it makes a lot of sense to be a dual citizen of the United States and Canada.
00:38:02.480 | And that way if the welfare system in the United States is breaking down, you gain access
00:38:07.580 | to the welfare system in Canada.
00:38:09.720 | If you're not getting the treatment that you want in the welfare system in Canada, then
00:38:14.440 | gain access to the United States.
00:38:16.160 | At the moment, and then the other thing is in addition to government welfare programs
00:38:20.220 | or government health care programs, etc., health insurance programs that you may gain
00:38:24.120 | access to, you might want to consider the place of medical tourism.
00:38:29.920 | And so in North America, we basically have this perfect trifecta at the moment where
00:38:36.060 | you can get incredible medical care at a much lower cost in Mexico.
00:38:40.320 | So you can go to Mexico for medical tourism.
00:38:43.640 | You can gain access to all the benefits of the United States.
00:38:47.440 | And then if you also have access to Canada, you've got a great trifecta.
00:38:50.240 | You've got two governments with strong welfare programs that if you satisfy the relevant
00:38:56.120 | requirements and laws, etc., that can provide you with the government benefits that are
00:39:00.960 | useful.
00:39:01.960 | And then you can gain access to Mexico, which does not have a strong government welfare
00:39:07.680 | program, but does have a great private market for you to simply pay for the care that you
00:39:11.360 | need.
00:39:12.360 | And so you may want to think about some form of diversification for that.
00:39:16.240 | I've worked with many clients who, for example, have maintained Canadian residency for this
00:39:20.440 | purpose.
00:39:21.640 | And I think it makes a lot of sense for you to consider what are those things that I would
00:39:26.180 | need and how do I provide for them.
00:39:29.240 | And again, internationalization is not the only thing, but it can be an important thing.
00:39:32.880 | Maybe you live in a downtown area in the United States, but you go ahead and you buy a humble
00:39:36.880 | cottage in a rural area knowing that if I couldn't maintain my expensive lifestyle,
00:39:42.160 | this would be my backup lifestyle.
00:39:43.880 | I think many people overestimate the benefits of retiring to a so-called cheap country,
00:39:49.720 | but there is no question that many people have improved their lifestyle by making that
00:39:54.520 | move.
00:39:55.520 | So as long as you have community and your consumption needs are modest, having a plan
00:40:00.560 | for an international retirement to a lower cost of living place where you can get better
00:40:04.800 | health care, etc., I think is a smart move.
00:40:08.600 | There is a bustling retirement, basically we call it retirement tourism, medical tourism
00:40:15.960 | market in many places.
00:40:18.160 | Some in Central and South America, in Southeast Asia, there is a bustling market where you
00:40:22.800 | can go and for very modest amounts gain access to basically a continuing care retirement
00:40:28.920 | community, etc., that's beautiful and luxurious and where you have care that you need and
00:40:33.080 | good medical care, but the cost differences between those countries and the United States
00:40:40.280 | are so significant that you can really afford it in a strong and excellent way.
00:40:46.080 | So these are the basic strategies to think through and then watch the situation over
00:40:53.480 | the coming years.
00:41:23.440 | I'm not a skilled prognosticator or predictor of events, but it sure seems to me that at
00:41:34.120 | the moment in the US system, we don't engage in much excellent long-term strategic planning.
00:41:43.640 | And so until we get to the point, and because the baby boomers hold so much political power
00:41:50.760 | and because the younger generation, which is increasingly a sizable voting bloc, tends
00:41:56.560 | towards big government left-wing thinking, I don't expect these programs to be cut in
00:42:03.800 | advance of, I don't expect them to be cut proactively.
00:42:09.560 | It's just so obvious, right?
00:42:11.000 | President Trump, or former President Trump, forgive me, I don't like to refer to former
00:42:18.040 | politicians.
00:42:19.560 | Presidency is not a kingship, so forgive the slip.
00:42:22.560 | You're not a president for life.
00:42:24.000 | Former President Trump, who's been, I guess, campaigning recently to be re-elected, represents,
00:42:32.120 | I think, the perfect kind of populist argument to say, "No, we're not even going to talk
00:42:37.400 | about cutting Social Security, Medicare, etc."
00:42:41.240 | I don't expect, I haven't heard of any kind of right-wing Republican who's even been willing
00:42:45.860 | to propose anything like this.
00:42:48.000 | And then on the Democratic side, the idea of cutting these kinds of programs is just
00:42:54.360 | a non-starter.
00:42:55.680 | So maybe at some point in time, there could be some cuts in defense spending, things like
00:43:00.000 | that.
00:43:01.000 | Who knows?
00:43:02.000 | But at the end of the day, Medicare and Medicaid and Social Security are the huge issues, and
00:43:07.920 | since there's no political will to trim these, I don't think there'll be any meaningful political
00:43:13.480 | action until we get into a crisis point.
00:43:17.800 | And at that point in time, who knows?
00:43:19.480 | Who knows what happens?
00:43:21.620 | Could tax rates change?
00:43:22.620 | Of course they could, but again, I think that if they changed, they would be fairly short-term
00:43:29.080 | in change.
00:43:30.760 | When you look at some of the examples that we have around the world, whether it's the
00:43:35.160 | Connecticut millionaires tax or the Massachusetts millionaires tax or what the French tried
00:43:39.200 | when they said, "We're going to raise all these taxes," the big money has global options
00:43:43.760 | in a way that never before existed.
00:43:47.200 | And while the United States is a great place to make a lot of money, it is not the only
00:43:52.400 | place that offers a great lifestyle.
00:43:54.860 | And so big money has tons of global options today that never before existed.
00:44:00.640 | And in an increasingly connected world, it's incredibly possible.
00:44:06.480 | And there's so many great lifestyles that you can live tax-efficiently, that I think
00:44:10.760 | that if they doubled tax rates or doubled tax collection in some way, I think that would
00:44:15.840 | be a major flaw.
00:44:18.560 | And of course, it would have massive economic harm, etc.
00:44:21.160 | So I think the most likely solution is various forms of default and inflation.
00:44:29.080 | That to me seems like the most probable scenario, because you can justify various forms of default,
00:44:38.280 | trimming back programs, etc.
00:44:41.280 | And I think most people are willing to accept that.
00:44:45.920 | If you talk to most retiring millionaires, and you said, "We're going to impose means
00:44:51.920 | testing on Social Security," I don't hear strong rebuffs against that, at least in my
00:45:00.640 | personal conversations.
00:45:02.360 | Regardless of someone's political convictions, I say, "Yeah, you know, that makes sense.
00:45:05.200 | These programs are to protect the poor and indigent.
00:45:07.900 | So if I don't get mine, that's fine."
00:45:10.520 | That seems to be more common in terms of what I hear.
00:45:12.760 | And then inflation, broad levels of mass inflation will also reduce the bill for the government
00:45:19.120 | over time.
00:45:20.340 | But your guess is as good as mine.
00:45:21.720 | That's the situation.
00:45:22.720 | Those are Brian's, Brian Riedel's current up-to-date numbers on it.
00:45:27.280 | I will link in the show notes the previous episode, if you want to go back and listen
00:45:30.280 | to what I did on this subject four years ago.
00:45:32.360 | I don't think that this means that an economic crisis is upon us.
00:45:36.640 | I don't even think it would stimulate a broad-scale economic crisis.
00:45:42.640 | I think that these are long, slow-moving targets, and I'm just focusing on building a life that
00:45:49.160 | is independent of these programs, and hopefully I'll be able to be in a strong enough situation
00:45:55.800 | to then help some of the poor people who wind up getting hurt the most.
00:46:01.140 | To me, what is, I think, most harmful about these programs is we see, if there were a
00:46:08.920 | collapse, and I try to hesitate using that word, but what happens, why is that so destructive?
00:46:16.260 | These forms of welfare programs build an expectation into people's lives that relieves them of
00:46:24.620 | personal responsibility.
00:46:27.620 | And I've known many people who lived exclusively on Social Security, and they said, "Why should
00:46:31.460 | I save money?"
00:46:32.460 | "Oh, because I've got Social Security."
00:46:34.460 | And so they start to count on Social Security being that thing that's going to provide them
00:46:38.460 | with their income.
00:46:40.200 | And so what was a well-meaning program winds up creating more demand for its program.
00:46:48.740 | And so there are people who just don't save money proactively.
00:46:52.300 | Maybe there are indeed fewer poverty-stricken people living on the street in our communities
00:46:57.260 | because Social Security is there.
00:46:58.900 | Maybe that's the case.
00:47:00.420 | I think it's probably the opposite, though, meaning that, yes, they can live on Social
00:47:04.060 | Security, but there would have been more people who would have taken responsibility for themselves
00:47:08.620 | previously.
00:47:09.860 | In addition, these government programs cut down on localized community levels of charity.
00:47:18.060 | And people say, "Well, I'm not going to.
00:47:19.300 | Why should I give?"
00:47:20.500 | If you go to the United States, where social welfare programs are abundant, and you see
00:47:25.340 | people begging on the side of the street, at least a lot of people I hang out with say,
00:47:29.740 | "Well, that guy is just there to make money.
00:47:31.340 | He doesn't need it.
00:47:32.340 | There's plenty of stuff available to him."
00:47:33.580 | Or you go to places with a strong welfare state where there's guaranteed—I guess the
00:47:38.500 | Swiss maybe, I'm not super informed—but places like Switzerland, where there's clear
00:47:42.380 | government programs, I don't think the Swiss give a lot of money on a personalized basis
00:47:48.140 | to local people because they know that if somebody genuinely doesn't have it, the welfare
00:47:55.300 | program is there, and it's strongly run by the government to alleviate those situations,
00:48:00.020 | and I pay taxes and that cares for it.
00:48:02.900 | Now flip that on its side, and you can see in other places where those programs don't
00:48:07.060 | exist, then people are much more giving in terms of, "This is my charity giving.
00:48:11.860 | I need to make a donation to this poor person because clearly he has no legs.
00:48:14.980 | He can't work," or etc.
00:48:17.740 | And so while I think it certainly feels more comfortable for most of us to not be in a
00:48:22.660 | situation where there are beggars, that lack of local community expertise and skill of
00:48:30.900 | taking care of poor people, etc., I think leads to a lot of hardship over time.
00:48:36.180 | So at the end of the day, I don't worry myself much these days about having opinions at all
00:48:43.620 | on these broad scale levels because not my circus, not my monkeys.
00:48:49.060 | I can't do anything about it.
00:48:50.540 | But what I can do is try to take care of my family, myself, prepare as I've told you.
00:48:55.820 | I can inform you about it, and then you can do it, and then that'll have a ripple effect
00:48:59.900 | through some other people, and at least our families can get through the hard times.
00:49:05.980 | And if we can get through the hard times, then we may be able to reach out a helping
00:49:09.020 | hand to those who need it as well.
00:49:10.540 | So I hope this information is useful to you, and I wish you well.
00:49:14.100 | Be back with you soon.