Entitlement Programs

If current trends persist, Medicare and Social Security will consume a whopping 76% of all federal income tax revenue by 2050. This is before a penny is spent on national defense or Medicaid (health care for the poor). Higher taxes are almost inevitable. How much higher is the million (or perhaps multi-billion) dollar question.

Congress isn't making the tough choices necessary to attack this problem, because to do so would almost certainly lead to lost elections. Americans are in favor of spending cuts in the abstract, but start talking about exactly what to cut, and it becomes a dicier proposition. It's almost impossible to imagine a politician running on a platform of raising taxes and reducing entitlement program benefits, but this is exactly what has to be done sooner or later. In the meantime, most pols are hoping beyond hope that we can somehow grow our way out of the problem. Good luck with that.

For folks at least 10 years from retirement, I would suggest a Roth IRA if you are eligible (after-tax contributions are after tax but withdrawals are tax-free). If you make too much money, consider a Traditional IRA with an eye toward converting to a Roth in 2010 when the income limit for conversion is lifted.