Fixed income retirement plans are well on their way out as the norm for most Americans. Pension plans were an incentive to attract workers to manufacturing and public sector jobs 50 years ago. This is not to say they are a bad idea; it's better to say that executives and mutual fund companies have pitched a convincing argument to managers that these plans are a better way for workers to retire. Most new hires these days are put on some sort of 401k or IRA retirement plan in which the worker gradually buys stock in a dollar cost averaging scheme. This has worked out well over the last two generations as the stock market has generally gone up with significant returns. One major advantage is that generally, these plans give gains that outpace inflation so that a worker actually earns money on their investment over time.

However, we in the U.S. are still left with an enormous pension plan – Social Security. We have no choice but be enrolled, and the benefits we ostensibly will receive are based on the money we make during our working life. Furthermore, one reason private retirement plans are seeing success is because of the backstop effect social security has on our retirement mindset. How strong is that backstop though? Is it a net, a fence, a brick wall? Social security faces problems in the coming years – increased life span, longer retirements, and smaller percentage of the country's population working.

As far as increased life span, this column could go over statistic after statistic of how much longer Americans are living than 80 years ago. In 1930, the average age ofdeath was 60; now it is 78. This is nearly a generation longer life span. Better medical care and healthy consistent food supplies account for some of the increase; safer work environments and temperature control contribute greatly as well. The average has leveled off recently and we can probably be safe in saying that 75-80 is a safe guess for the average for many years to come.

Social Security could even be a motivation to live longer for some – you get the money as long as you are alive! What better motivation for a senior who doesn't spend all of the money they earn just by drawing in breath. And it's not as if the money just disappears when the person passes – inheritance is often a significant windfall for those in midlife. Basically, social security combined with private retirement plans earns profit for retirees.

The demographics of the baby boom are really starting to catch up with us though. This column from theWall Street Journal highlights how the recession has magnified problems that we already faced. The Labor Department's “employment to population ratio” has been modified and adjusted so much it no longer means what it should. To rephrase, I mean that what really matters is how many workers it takes to support non-workers. Looking at ages 16-54, we see how it looks like just a 4.7% drop in the working population. 4.7%; not that bad right? Let me show you how big a drop 4.7% really is

Subtract the % of workers from 100 and you get the % of non-workers, right? By dividing the number of non-workers by the workers, we get an actual ratio, which I have dubbed the 'support ratio”. This ratio shows how much of a “worker” it takes to support a non-worker. In 2007, the support ratio was .579. By 2013 it has jumped to .706. Thus, 12.7% more of our work goes to support those who aren't working now as compared to 2007. And the ratio itself has increased by 22% (the difference between .706 and .579, .127; then divided by the original .579) I would argue that the closer this number gets to 1, the greater trouble our retirement scheme of social security faces. At 1, it requires one person working just to support the non-worker. At that rate, savings are virtually gone and we begin facing all sorts of other societal problems.

There's still cause for good news. 76.1% of “prime” working age (25-54) folks have jobs. This is down only 3.9% from 2008. I would attribute these job losses to technological change in addition to the recession. Also, families have considered quality of life issues besides money, and have switched to lifestyles that have a parent at home to save childcare costs. We've found computer programs and statistics to increase productivity and target work where it is needed. However, what I would like to debate is whether 54 is a good age to end someone's “prime” career. Those above 60 are increasingly in good physical shape and health and can have at least a part time job. Why would we discount those who are able to work from statistics on employment? In fact, they are so healthy that I question whether the Fed uses this statistical trickery to make the picture look rosier than it is.

We saw the Department of Labor jobs report yesterday. 113,000 jobs added with an unemployment rate drop to 6.6% The numerator went up by a smaller than expected number, but the denominator went down much more, so the rate drops. This is why I advocate looking at a different number than the diluted and filtered unemployment rate. With such a glut of retirees on the horizon, we have to account for things differently.

I do not question whether we should be providing for seniors – this pension for some is their only income and allows them to pay minimal living expenses and stay independent. Younger families benefit from seniors being taken care of so that the “prime” workers may focus on work and their children. What I do question is the age at which people receive social security payments. When many people are living well past 90 and begin drawing social security at 67½, our society pays for one-fourth of that person's life. Especially because the trustfund has been borrowed against by Congress through inaction and the Treasury by law to pay for other obligations, it is in our best interest to reduce the amount leaving that fund.

Every day we hear talk of the bad economy, the recession, and what are we doing to solve the problem. Meanwhile, every day, workers are retiring with the guarantee for payments for the rest of their lives, regardless of their capability to work. Current workers spend one hour of every day paying for this support. It is only fair that we shore up the system we have in order to make sure that current workers can get the same benefit later in life. It may sound like I'm arguing for generational warfare. I am. Those who are now 67+ had the opportunity to fix these problems years ago. This problem has been acknowledged since the mid 80s; it's about time we fix it.

State of our broken financial system

One could read the previous four posts here and get a sense of what we, collectively, own in the United States. The President spoke during the State of the Union of many strengths our country has, similarly to what I point out here about our assets. We need to look at what our president says not just in understanding his goals and his agenda. We need to hear his speech and realize what is influencing our political dialogue. Both political parties give an ovation to a wounded soldier and generally agree that America is great. Wonderful. I can get behind that. Who can't?

When the two sides talk numbers regarding Veterans Administration budgets, it's a different story. Why is it we can agree that the recovery and presence of one veteran is great but that treatment of all of them is problematic? Indeed, it should be far cheaper to treat those with less severe injuries than Cory Remsburg. Furthermore, it's easy to just throw a blanket over all veterans and just SAY we should take care of them when they leave the service. It's almost unheard of someone proposing tax to PAY for this care. There is somehow a disconnect between our sense of moral obligation and our fiscal duty.

This blog will not advocate for Democrats or Republicans. I am here to talk about our country's finances and not about political squabbles. But recently the two subjects have intersected (collided?) When the arguments over our budget reach a point where our government shuts down non-essential offices for half a month and approaches fiscal default, the process has broken down. It's even more broken down when Congress's only agreement during the shutdown is to pay the people who can't legally go to work even if they want to volunteer. The only person who bore the brunt of the shutdown was the American taxpayer.

This is relevant to the state of the union now: Boeing is applauded and encouraged to stay in Seattle with the help of millions in local, state, and federal spending. But this nets zero to America as a whole. It's really just an issue of whether the jobs are in Seattle or St. Louis. But of course, the people physically building the planes have little say in the matter. Sure, the union has a seat at the table, but this is really a negotiation between Boeing and various levels of government. The union only really has power in the form of their members' votes.

Employee unions harmed themselves when their corruption was revealed. They could still be a legitimate place for workers to organize and have their interests represented politically. But they have lost their battle by being corrupt and being representatives not of greater good but their own cottage industry. The American workforce became more mobile and less likely to stay in a single job for decades; union options did not adapt to the changing work climate, and therefore union membership is on a steep decline. What's more, unions were the check on corporate management interests. Without workers' voices being effectively represented, corporations have achieved a lot of federal benefits subsidized by the American taxpayer.

Life in America has changed since the 1950s, but we have a tax system that still understands people as living in that structure. Rent is not tax deductible; mortgage interest is. Capital gains are taxed at 15%; income is taxed at 20, 25, 30%, even more. Retirement contributions are tax deductible; people who live paycheck to paycheck are then completely dependent on a Social Security system that is in disrepair. Even the tax brackets themselves are narrow because when they were created, the dollar was worth more and those income brackets made sense to that dollar's value. Whether you make $450k or $4,500k a year, you pay the same taxrate.

Herman Cain was onto something. He is not someone who knows a lot about foreign policy, but as far as tax policy goes, he thought outside of this 1040 box that we just keep checking, year after year. Does it make sense to have an income tax “rate” and then have an accountant work games to get you into a lower bracket and make that rate lower? Do we really know that the taxpayer contributing to that “non-profit” is not benefiting from that non-profit's work? Does it make sense to encourage people fresh out of high school to get tax credits for their parents and simultaneously get them to take out student loans that they will be paying back until they are well into their thirties? Does a tax benefit to procreate make logical sense?

I disagree fundamentally with the idea that we should use tax policy to encourage or discourage behavior. We should pay our government's bills, and we should pay them every year. We should all pay them, at an equal percentage of our total income. It's a tax policy that would be shorter than this blog post. Take the annual budget of our government, and add a payment schedule for our national debt: we seem to like 30 year mortgages. Divide that budget by the number of individuals and business entities in the United States (remember, corporations are people my friend). Then we figure out a percentage of everyone's income in which that total is then met. That is everyone's tax rate, and there are no deductions. Income is money that goes into an account in your name that year. Say the number is 22% - then everyone pays 22%.  It's simple. It takes a few minutes and a calculator to figure your taxes. Sorry accountants, I can do this myself.

Where is the mention of tax reform? And are there people serious enough about it to get something done? Not right now, because these politicians have created a system which they benefit from. It's a classic conflict of interest, and the only people who can do something about it are us.