Why Social Security Cuts Are Inevitable

For decades, people have predicted that Social Security won't be able to meet the demands of an aging population without cuts in benefits. But now that those pessimistic calls have become the majority view, it has paradoxically become easier for lawmakers and other government officials to consider making those cuts, thereby turning dire predictions into self-fulfilling prophecies.

Confidence in Social Security is falling
The recent Retirement Confidence Survey from the Employee Benefits Research Institute examined a number of the financial aspects involved with retirement issues. One area of the survey focused on attitudes that workers and retirees have about Social Security and Medicare.

The results of the survey show that opinions of the health of entitlement programs are at their most pessimistic levels in 15 years. Asked how confident they are that Social Security will provide them with equally valuable benefits as it provides them today, 41% said they were not at all confident, with another 28% claiming they were not too confident. Only 5% said they were very confident that Social Security could continue at current levels.

Even more alarming, more than one in five respondents said that they didn't expect Social Security to be a source of income at all when they reached retirement. On the other hand, a rise in those expecting Social Security to be their major source of income isn't necessarily good news either, as it reflects trends that have left workers increasingly reliant on government programs to replace the substantial reduction in employer-provided pension benefits that's been occurring gradually for decades. Decisions in the past year from General Motors and Verizon to outsource their pension liabilities to insurance giant Prudential mark just the latest in a long series of moves that employers have made to reduce their exposure to the risks involved with providing employee pensions, and newer employees at most companies don't have any access to a traditional pension plan at all.

Medicare is equally endangered
Survey respondents weren't any more confident about Medicare, with 32% feeling not too confident in its prospects for maintaining current benefit levels for their retirement, and 37% being not at all confident of Medicare's prospects. The latter figure is the worst showing since 1996, with only 6% feeling very confident about Medicare sustaining current benefits.

Even current retirees aren't very confident about Medicare's chances of surviving in its current form. A majority, 56%, of retirees are not at all confident or not too confident of Medicare's ability to keep current levels of benefits. Recent threats of cuts to Medicare Advantage plan reimbursements have greatly affected health-insurance companies UnitedHealth and Humana , and with the ongoing need for federal-budget cost-control measures, similar cuts could pop up at any time.

When cuts become politically expedient
Clearly, the EBRI survey reflects the informed views of people who stand to gain or lose a great deal depending on the fate of Social Security and Medicare. But the attitudes that the survey reveals also point to a growing acceptance of the future need for entitlement-program cuts, and that acceptance in itself will make it politically easier for policymakers to make those cuts.

Hoping for outright support among voters for entitlement changes that will hurt them may be unrealistic, but these survey results suggest that voters might well end up resigned to the necessity of cuts after only a token fight. Recent proposals that call for cuts to take effect not on current retirees or near-retirees but rather on those a decade or further away from retirement show the beginning of a movement toward breaking the general public into groups of haves and have-nots, effectively taking advantage of attitudes that generally become even more pessimistic for younger demographic groups.

Be ready for anything
Workers used to be able to rely on three financial support mechanisms in retirement: personal savings, employer pensions, and government entitlement programs. With employer pensions becoming a thing of the past and Social Security and Medicare under siege, you're more on your own than ever in securing your retirement future.

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Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter: @DanCaplinger. The Motley Fool recommends General Motors and UnitedHealth Group. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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