Updated: May 3, 2013 12:14PM
Here's the headline from the new report on Hurricane Katrina: "Government should have prepared for Category 5 hurricane."
"New Orleans' levee system was routinely under-funded, and therefore inadequate to protect against hurricanes," an independent report recently concluded.
The report came as no surprise.
"You tend to get what you pay for," said Dave Rogers, a member of the team of academics who extensively studied the system. Duh! We knew that. Every Boy Scout knows "Be Prepared."
And the engineers on the panel sent this warning: "The next weakest link is the one you have to be worried about."
So what weak link should the federal government be preparing for now? Just insert the words "baby boomer retirement" in place of the word "hurricane." Then what you have is a Category 5 Baby Boomer Retirement financial hurricane on the horizon with barely Category 3 financial preparation on the part of individuals and the government to deal with this oncoming disaster.
The outstretched boomer hand
And if you think New Orleans looked bad, just wait until the baby boom generation starts aging into retirement, with hands outstretched, expecting to live on Social Security checks and government-financed long-term care in nursing homes.
Every single day, 8,000 baby boomers turn 60. Very few have saved anywhere near an adequate amount for retirement, much less the overwhelming costs of medical and custodial care in their old age.
The federal government has made Social Security promises that total $10.4 trillion, according to the program trustees. Medicare dwarfs the Social Security system, with $61.6 trillion in promised benefits.
In fact, by 2040, 67 cents of every dollar the federal government collects will be needed to pay for current promises to boomer retirees. And that statistic doesn't include the $16 trillion estimated unfunded liability of the new Medicare Part D drug benefit for seniors.
There certainly won't be federal or state money to pay for nursing homes for all those aging baby boomers. And if you think our children will accept increased taxes just as they're paying for their own children's college tuition, you're as deluded as those New Orleans residents who depended on the government to protect them.
A recent Fidelity survey found that American workers on average are on track to replace 57 percent of their income at retirement. In the "glass half empty" way of viewing the scenario, the average household will take a more than 40 percent pay cut in retirement.
Could you live on 40 percent less?
Of course, no household is average. That statistic lumps together a lot of people who have no savings, with some very wealthy people who will have far more than enough money to maintain their current lifestyle. Where do you fit in?
Almost half of the people who responded said they would work at least part time in retirement. A new survey by the MetLife Mature Market Institute found that 78 percent of respondents age 55 to 59 are working or looking for work, as are 60 percent of 60- to 65-year-olds and 37 percent of 66- to 70-year-olds, even though they might have previously "retired" from their jobs. Will that be you?
In the Fidelity survey, most guessed that out-of-pocket health care costs for a 65-year-old couple retiring today would be far lower than the $200,000 Fidelity has estimated they will need.
Have you factored spending at least $200,000 on health care into your retirement plans -- not to mention the cost of long-term custodial care, currently running at about $75,000 a year for full-time care at home or in a nursing home?
Bottom line: If you think the government can bail out baby boomers' retirement plans, better think again.
Tomorrow's unprepared retirees will either have to work longer or lower their standard of living in retirement. We can't wait until the winds are blowing and we're drowning to start making plans.
And there's no way the government can cover the costs of your retirement dreams, anymore than it was prepared to rescue all those trusting citizens of New Orleans. And that's The Savage Truth.
Terry Savage is a registered investment adviser. Distributed by Creators Syndicate.
Copyright © Terry Savage Productions