Rating: 
Summary: Good Book, Kind of Sad
Review: "The Coming Generational Storm: What You Need to Know about America's Economic Future" by Laurence J. Kotlikoff and Scott Burns discusses the financial crisis Americans face due to the combined aging of America and generously-promised, but economically-unrealistic, Social Security and Medicare benefits.
We learn that two-thirds of older Americans get over half of their income from Social Security. Nearly 40% of poorer, older Americans get essentially all of their income from Social Security. The authors calculate the value received by an older American from Social Security is approximately equivalent to a portfolio worth about $600,000.
Further, the benefits provided by Medicare significantly exceed the value of Social Security to elderly America. Reduced Social Security and Medicare benefits would financially hurt most older Americans, especially poorer Americans.
However, Kotlikoff and Burns point out the level of promised future benefits is unfundable. According to the economists who created the Federal 2004 budget, America faces a fiscal gap of $51 trillion (the gap was $45 trillion before the Medicare prescription drug benefit.), or about $159,000 per American. The bulk of this liability is promised Medicare benefits. We can compare this to the current federal debt of $4 trillion, or about $14,300 per American.
According to the authors, to cover these promised liabilities, we'd need to raise taxes by 69%, if we hope to keep tax rates constant for further generations. Otherwise, future tax rates will need to increase by more than double for future generations. These conclusions were in the Federal Budget for 2004 (until they were removed).
Kotlikoff and Burns tell us President Bush felt these facts might dampen support for his third round of tax cuts, so this information was deleted before the 2004 budget was widely distributed and posted on whitehouse.gov (Page 67). Of course, tax cuts only add to the problem.
This brings us to the crux of the problem. If Americans made significant sacrifices now (lower benefits, increased taxes) the problem could be made manageable. However, the authors say politicians don't want to tell Americans the truth and deal with the problem. Instead, they want to make Americans believe there isn't a problem, because it helps get them elected and serves their personal interests.
Politicians are putting their own well-being above that of America and future generations will suffer because of it.
Because our political leaders won't deal with the problem we are facing "The Coming Generational Storm." While much of the book is insightful, the chapter that most interested me was "Securing Your Future" which offered some practical advice for how individuals can deal with the situation.
Kotlikoff and Burns make several basic predictions. First, eventually, tax rates will need to go up. A lot. Second, Social Security and Medicare benefits will need to be cut. A lot. Third, before this happens, America will face tremendous economic stress when the government starts printing more money to pretend the liabilities are manageable.
America is fortunate because the U.S. dollar is the world's currency. The authors argue foreign investors will be less willing to hold dollars when the U.S. currency faces devaluation. (We've already seen a significant shift in the value of the U.S. dollar relative to the euro. This is attributed to foreign investors lacking faith in America's fiscal policy.)
The authors suggest individuals hold a small percentage of their investment portfolios in non-U.S.-dollar-denominated investments. For example, they mention EverBank.com as a source of foreign certificates of deposit. So, you can hold euros or Chinese yuan, if the U.S. dollar goes kaput. They suggest considering international bond funds which don't hedge currency risk, and, of course, international equity funds (Vanguard International Total Stock Market), precious metal funds, commodity funds (T. Row Price New Era) and health care funds (Vanguard Healthcare fund).
Kotlikoff and Burns point out that it's important to keep your investment costs low, by favoring index funds or low management expense funds. Portfolio survival is discussed. This is an area made better known to the public by Scott Burns, who is a financial columnist (ScottBurns.com). In particular, if you sell shares from a portfolio that drops in value, you might wind up selling so many shares during a down market that you destroy your portfolio.
The authors also suggest you consider your "health capital." In other words stay healthy, because you won't be able to afford aging otherwise! (They also mention the contrarian position: "Live hard. Die young.") Sites like livingto100.com can help us estimate our life expectancy.
Kotlikoff and Burns say we should reevaluating 401(k) contributions. They argue with future tax rates likely higher and with extra taxation of Social Security benefits with rising income during old age, 401(k)s can lead to paying higher taxes in the future.
However, I'd argue many upper income earners would rather have $1 million to $2 million in a 401(k) rather than worry that they might have their Social Security taxed, because they have too much income during retirement! In other words, when you do your financial planning, you might consider the effects of your decisions on your Social Security or you might just proceed as many semi-affluent and affluent do--assume no Social Security at all. If you get it, great. But, don't readjust your plans because of Social Security. (You probably could maximize your estimated Social Security in the future by having no other future income. Not the best plan!)
Of course, the argument of using low-cost index funds outside of tax-deferred retirement accounts also makes a certain sense, especially with current tax rates.
Overall, I thought "The Coming Generational Storm: What You Need to Know about America's Economic Future" was a great read.
Rating:
Summary: Excellent Book - It Confirms What Many Think
Review: Contrary to some I do not think the US is going bankrupt. Having said that this book points out the disconnect between the performance and the promises of our politicians and government bureaucrats and the financial reality. It is always difficult to predict future demographics, spend in habits, taxes, etc. but this book presents a convincing argument.This book is well written and presents a strong case for immediate tax and spending reform. Will that ever happen? Probably not. But it might move in that direction if enough people read this book. In any case I think there is an even darker scenario. The US remains highly addicted to cheap foreign oil. Also in recent years we have moved many services and manufacturing jobs offshore. These cannot be supported with the current large negative trade imbalance. We need a sharp increase in exports - which seems to be too optimistic to expect. This imbalance is something that cannot be sustained. If left to only market forces, it will drive the dollar down further in value increasing the cost of oil and the imports. So I think the future could be even worse than painted here. 5 stars. Highly recommend.
Rating:
Summary: great read
Review: For more great recommendations, please visit:
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Rating: 
Summary: outstanding but not perfect
Review: For those who are not already familiar with the problem, this book is an outstanding explanation of this simple fact: the USA is effectively bankrupt. Massive economic upheaval will result from our leaders' inadequate planning, and given the manner in which our political system operates, you can be guaranteed there will be inadequate planning. I found the authors' specific investment recommendations somewhat lacking in both effectiveness and creativity. For instance, they suggest that the best asset to hold is one's primary residence, because capital gains are excluded up to $500,000 (per couple) and therefore are free from the (much) higher tax rates that are to come. There are at least two major problems with this suggestion. First, $500,000 is an inadequate retirement nest egg for one couple; and in order to access that money, the residence would have to be sold (inconvenient, to say the least). Second, they don't deal adequately with the obvious drawback that "rules can be changed." There is nothing to prevent the government from reducing the cap. gains exclusion on primary residences to $250,000 or $0, or whatever the situation demands. For those who think such changes impossible, recall that private ownership of gold was outlawed during the Depression, so there is precedent for drastic measures in drastic times. Similarly, the authors canonize the Roth IRA because earnings and principal are always tax-free; but those rules could be changed as well. In addition, many moderately high income workers are not eligible for Roth IRAs. The book could have devoted more space to international investing, physically sending assets overseas, or even moving to other countries. Those small concerns not withstanding, the book was quite well-written, minimally partisan, and factually right on-the-mark. A must-read book, especially for Generations X and Y.
Rating:
Summary: The Truth, But No One Will Act
Review: Instead of commenting on the authors' viewpoints and providing a synopsis of this book, I will relate the facts and theme of the book and how they relate to the current 20 and thirty-something generations. There is a touch of gloom in this book and it is justified. The often neglected concept of intergenerational account was well done in this book. The facts, figures and demographical trends provided by authors Kotlikoff and Burns speak for themselves. There is no debunking these statistics. No denying them. No, "what iffing" them. However....there is socio-economic opportunity in America and generation X and Y will still be able to retire like previous generations if they are creative, frugal, invest wisely, plan ahead, and most importantly: Think OUTSIDE of the box. Meaning, that working in the pre-information age traditional work environment will not nearly be enough. Spending years accumulating a corporate pension (the 401K disaster) and/or a government pension, will not provide enough for one to stop working when one is older. Other investments, and income streams will have to be realized, and should be acted upon in a person's 20s and thirties. As for the theme of the "Coming Generational Storm," most of generation X and Y are oblivious to what is happening, and what will happen. The few that are aware will moan and complain but not really act. I know many people who thought they would live the financial lifestyles of their baby boomer parents. I see them finally realize their reality now, as my cohorts in their mid-thirties are wondering why all the over-time and dedication to their company got them fired, downsized, laid-off, or plateaued, leaving them with a battered 401k, that is so far behind that they won't ever financially catch up with the boomer Joneses. My question is, why did they want to be like the boomers in the first place? An entire generation is working for nothing. At best, a 401K that places one's entire financial future on the market.
The information in "The Coming Generational Storm" has been available for over 30 years. If there was a ever a motivation to deal with the situation, action would have been taken decades ago. It's too late for that now. Any legislation at the federal and state level would be putting a band-aid on a bullet wound, and this action would only take place for cosmetic political reasons. Why? Because the people in power have theirs. Baby Boomers lament and pine those on "welfare." Rightfully so. But these very same people will be the biggest welfare blood-suckers in the history of the United States. Medical technology extends their lives, and they will drain Medicare with prescription medication, hospital bills and convalescent centers, which extend a life that is honestly not even worth living. Who's going to pay for it? Us.
Rating:
Summary: The Coming Generational Storm : What You Need to Know about
Review: Kotlikoff (economics, Boston Univ.) and personal finance writer Burns paint a bleak picture of the future U.S. economy. They claim that a "generational storm" will occur when baby boomers start to retire, leaving fewer people in the workforce to support the massive programs on which the boomers will be depending. Focusing on three programs that they feel are ailing-Social Security, Medicare, and Medicaid-the authors argue that administrations past and present have misled the public on the health of the economy and that our children will be left with a huge financial burden if the government continues on its course of fiscal irresponsibility. The first chapter details the aging population, and the entire text is heavy on statistics and calculated financial scenarios. The authors end by outlining their own solutions to the troubled economy. This is a sobering look at an impending crisis with implications for all of us. Recommended for all collections
Rating:
Summary: The Coming Generational Storm : What You Need to Know about
Review: Kotlikoff (economics, Boston Univ.) and personal finance writer Burns paint a bleak picture of the future U.S. economy. They claim that a "generational storm" will occur when baby boomers start to retire, leaving fewer people in the workforce to support the massive programs on which the boomers will be depending. Focusing on three programs that they feel are ailing-Social Security, Medicare, and Medicaid-the authors argue that administrations past and present have misled the public on the health of the economy and that our children will be left with a huge financial burden if the government continues on its course of fiscal irresponsibility. The first chapter details the aging population, and the entire text is heavy on statistics and calculated financial scenarios. The authors end by outlining their own solutions to the troubled economy. This is a sobering look at an impending crisis with implications for all of us. Recommended for all collections
Rating:
Summary: Good, but limited, analysis
Review: Laurence J. Kotlikoff and Scott Burns do an excellent job of outlining the demographic deluge that is threatening America. They delineate the number of future retirees compared to the number of future workers, paying into the Social Security System. And, they propose some thoughtful solutions. However, they fall short in explaining the main reason why this nation (and many economically advanced nations)faces such a dire future. They do not explore the impact from legalized abortion. Certainly, we have too few young workers. That's because millions of them have been aborted in the past thirty years. The crisis has been predictable for decades.
Rating: 
Summary: Plausible, but not the only possibility
Review: Like other reviewers I was intrigued by the author's argument but distracted by their attempts at "with it" prose. Granted, scholarly language is tedious, but this example of trying too hard is worse. Their analysis, which is largely derived from drawing trend lines out to 2050, is not unbelievable, but omits some likely possiblities. As others have noted, immigration seems to be the x-factor in demographic trends, and the US is a prime target for increased inflow of younger citizens. I was also struck by the fact that they never entertained the idea that SS and Medicare would become means-tested, an answer with some political appeal. I grew weary of their constant and incorrect reference to "printing money", as if the money supply is solely dependent on the amount of currency available. I mean, think about it. If the Treasury did just print more money, how do you put it into circulation - hand it out at street corners? The economic euphemism of printing money does not mean literally speeding up the presses, but thanks to authors like these, many people believe it does. I do think their advice to pay income taxes now to be the soundest counsel they offer. As a friend of mine once said, "Once you pay the taxes, you get to keep everything that's left." Who knows how those 401's will be viewed by politicians in the future, or where the tax rates will be. This class of literature - armageddonomics - may become increasingly popular. I can only hope the dismal scientist/authors can hook up with better editors.
Rating:
Summary: A must read book.
Review: One of the best books I have read in years. Kotlikoff clearly describes the US demographs and illustrates how it impacts the retiring generations to come. The book describes solutions and briefly have we should prepare for the storm.
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