America's two largest publicly funded retirement programs, Social Security and Medicare, are rapidly going broke. Medicare is already running massive deficits, and its trust fund is expected to be exhausted by 2017. Social Security has a bit more time. Its 2010 deficit is projected to be "only" around $10 billion, and the serious strain on that system isn't expected to start until 2016. Unfortunately, by 2037, Social Security's trust fund will be out of cash, too.

What to do
First, understand that neither Social Security nor Medicare will disappear tomorrow. If you're already receiving or scheduled to start receiving benefits soon, chances are pretty good that the programs will continue largely unchanged for you, at least in the near term. While you do need to prepare for a future with far less generous benefits, there's no need to panic.

Next, get the rest of your financial life in order. Pay off your high-interest debts. Figure out what's really important to you in life -- and what you'd be willing to live without. Make sure you have a sufficient cash buffer to handle the common curveballs life sends your way. When all is said and done, money does make a difference. If you owe it and times get tight, you're at the mercy of those to whom you owe the money. If you've got it, then you're in a far better spot.

Finally, invest as if you'll need money for the rest of your life. Health-care inflation has typically been rising far faster than ordinary inflation. If that trend continues, when combined with Medicare's increasing budget difficulties, it means that you'll likely need a significant nest egg to cover your health expenses in your golden years. Likewise, if you're alive once Social Security's trust fund is exhausted, you'll need to make up that shortfall, as well.

Protect yourself from escalating costs
If you expect to live for the next few decades or longer, you need to prepare for regular inflation, medical inflation, and the additional costs you'll see as Social Security and Medicare benefits decline. That's a pretty heavy burden to bear, and it will likely require you to invest for a bit higher returns than you may otherwise have been targeting.