Recovery Built on Retirees' Backs

The "Greenspan squeeze" is ready to put your retirement income in a vise.

This is my name for a series of moves orchestrated by Federal Reserve Chairman Alan Greenspan and embraced by a spineless, budget-busting Congress that will reduce the cash flow that just about everyone will have in retirement. At its worst, the Greenspan squeeze has the potential to turn a modestly comfortable retirement in old age into poverty.

But if you start planning now -- and if you're lucky -- you could avoid having your retirement goals caught in the wringer.

In this column, I'll try to explain where the squeeze is coming from and which assets are going to get pressed hardest.

What's the Greenspan Squeeze?

The part of the Greenspan squeeze that deals with actual cuts in Social Security benefits has been getting a lot of headlines lately thanks to the Fed chairman's Feb. 25 testimony before the House Budget Committee. Greenspan started off with some unpleasant facts: The country faces huge annual budget deficits as far as the eye can see, and an even larger bill for retirement and health care benefits for the soon-to-retire baby boom generation.

The Social Security Trust Fund, the pool of IOUs and current tax payments that funds monthly Social Security checks, is forecast to hit red ink in 2018 and be exhausted by 2042. Over the next 75 years, total unfunded Social Security benefit liabilities come to about $26 trillion, according to the Cato Institute.

Of course, if Congress put money in the trust fund now, it would have to cough up a much smaller amount of cash -- about $5 trillion. But given that the federal budget is already in deficit, raising taxes would be the only way to do that. That, says Greenspan, would put the economy at risk and reduce future growth. (Which would, of course, make it even harder to balance the federal budget.)