Recovery Built on Retirees' Backs

Chump change, you say? If it were a difference in the value of the assets in a retirement portfolio, I'd agree. But it's not.

This is a difference in cash flow. Income. And therefore this relatively modest annual difference represents a much bigger swing in the portfolio assets that an investor must own to produce that cash flow.

In other words, to replace that $1,656 in annual income, you'll need an extra $20,700 in your retirement fund. To get that number, I'm assuming the portfolio yields 8%.

Of course, who can get an 8% yield these days? That's where the other side of the Greenspan squeeze kicks in.

The 10-year Treasury note is paying just 4.01%. At that rate, you'd need an additional $41,297 in your retirement fund to replace the lost Social Security income.

If the consensus projection on future equity returns is correct, forget about making up the difference by buying stocks. Stocks are likely to return only 8% in the next decade, the majority opinion now holds. And if you follow financial planning advice, you'll only cash out half that gain in any year so that you won't outlive your money -- or about a 4% again.

The Feds Can Play Games With Your Income, Too

See the squeeze? Wait, it gets worse.

Like any huge debtor, the federal government is interested in lowering its interest payments. But unlike any other debtor I can think of, the federal government keeps the numbers that control how much interest it pays out on inflation-linked obligations.

So, for example, the Bureau of Labor Statistics (BLS) has begun a study to see if the "true" rate of inflation in health care is lower than current measures. The idea is that the consumer price index doesn't subtract the improving quality of health care from any annual increase in the price of health care. We're getting an "improved" product each year: We're living longer. Thus, to correctly calculate inflation, you'd have to subtract that improvement in the health care product from any annual increase in the price of health care.