Question: My wife and I have been casual readers of your column for the past couple of years, and, very frankly, never anticipated that we would be writing you because we believed that we were in control of our lives and finances. We are in our early 70’s, both retired from mid-level governmental jobs, and own a home on a lake we purchased 20 years ago for less than $75,000. Early in our marriage, we decided that rather than invest in the stock market and take too much risk or start IRA’s, we would purchase rental houses and duplexes with our funds. We figured that the properties would increase in value and we could pass them on to our children. Plus, the depreciation over the years reduced our income taxes, allowing us to purchase more property and pay for them faster. Over the years, we acquired nine rental houses and four duplexes, most paid for.

In addition to our government pensions, until lately we relied on our rental income. But over the past several years, we have seen a marked reduction in our spendable cash because 1) due to diabetes and hypertension, I have not been able to do the repairs and fix-up work that I used to do. This has required us to hire people to do this work, an added expense; 2) our rental properties have increased in value, but so have city and county taxes that are taking us to our knees; 3) we have seen more turnover in our renters, and have had to evict several long-term renters because they stayed behind on their rent and could not afford to stay, even though our rent increases have been modest. Today, four units are empty; 4) there has been a decline in the number of suitable renters.

We tried to sell some of our properties, but have been offered less than we think they are worth. To add to our financial woes, the property taxes on our home, which was just reassessed at more than $500,000, are astronomical. My wife and I are afraid that we made a mistake by thinking real estate would take us through our retirement, and it looks like we are being penalized for being entrepreneurial and for making good investments.

Answer: We are certainly not economists, but even grade school kids can see what is happening: Income tax cuts and cutbacks in funding by the federal government and state governments have resulted in the majority of Americans -- like you -- finding they don’t have enough of an increase in their spendable income from those tax cuts to pay their higher expenses. One reason is that both the federal and state governments are raising, and will continue to raise, fees. These fees are, in effect, taxes. At the same time, governments are reducing services. And, as greater burdens are imposed on counties and cities, you can bet that more and more folks will feel the bite of increased property taxes, not to mention sales taxes.

While paying lip service to home ownership – now available to some with more financing than the value of the home -- no one talks about the alarming increases in mortgage foreclosures and bankruptcies, especially for those who want to beat the October deadline when the new bankruptcy law will disembowel the middle class and provide safe haven for the wealthy.

Instead of the promised “more money in our pockets,” the majority of Americans are suffering financially. And rising gasoline prices – generally ignored by the politicians – are compounding the problem as the price of everything is going up. In short, reductions in federal funding to the states, coupled with reductions in state and federal tax revenues, increased governmental spending, and ballooning trade deficits, threaten the fundamental core of the United States as we once knew it – from schools to health care to property ownership.

For example, tuition increases at colleges and universities, coupled with the federal government’s denial of grants to tens of thousands of students, are making educations unaffordable, even for those who planned. This does not bode well for the younger generations who are supposed to work so the rest of us can draw Social Security. Even veterans are not safe from increased prescription co-payments and reductions of other benefits.

Our country’s economy, to a large extent, is based on ever-increasing property values; however, as values continue to increase and the federal government starves counties and cities, rents will increase and therefore pinch tenants who must cope with higher living expenses. But there will come a point when the middle class will no longer be able to afford the escalating prices.

Taking the NextStep: Whether you made any more of a mistake than the couple who fully funded their 401 (k)s and IRAs and then got pounded by the stock market is a toss up. There are no easy answers to the dilemmas facing middle-class America as the runaway train careens out of control with the engineer asleep at the switch.