Social Security and the Big Whack

By Rosenblatt, Robert | Aging Today, September/October 2011 | Go to article overview

Social Security and the Big Whack


Rosenblatt, Robert, Aging Today


Forget Washington, (we) the people want Social Security to stay intact

Medicare and Social Security are the pillars of retirement living. More than 54 million people get a monthly check from Social Security, and 47 million Americans have Medicare coverage for their doctor and hospital bills.

There is tough talk in Washington, D.C, about curbing the growth of future spending for these programs as a way to reduce America's huge long-term fiscal deficit. But those eager to trim these programs should realize these programs are already slated for reductions that will make them less generous for baby boomers-and their children and grandchildren-than they are for the people collecting benefits today.

Doing the Numbers

Here are the sobering realities of intergenerational economics.

Under a 1983 deal that averted a crisis in Social Security finances, the age for collecting hill benefits has been rising at a gradual pace, and will reach age 67 for people born in 1960 or later. "People reaching age 65 in 2025 will get retirement benefits for the rest of their lives that are about 19 percent lower than they would have been without the 1983 reductions," according to a June 2011 analysis by the National Academy of Social Insurance (NASI, www.nasi.org/research/2011/ social- security -beneficiaries-face-19-cutnew-revenue-can-re).

The rising cost of healthcare also affects the value of Social Security checks. Medicare premiums are deducted monthly from Social Security checks, and because health costs rise faster than the cost of living, Medicare premium growth will outpace the annual cost-ofliving raise received by Social Security beneficiaries.

Medicare will become more expensive because of tax hikes included in the 2010 Affordable Care Act. Medicare taxes are collected on all salary income, with a 1.45% tax paid by both workers and employers. The tax base will be expanded significantly in 2013, with the total 2.9% rate applied to investment income, including money from interest, dividends and capital gains on stock sales. And there will be an additional payroll tax of 0.9% on individuals earning more than $200,000 a year, and couples making more than $250,000.

Because Medicare has co-payments and deductibles, it doesn't cover the full cost of ever-increasing health bills as medical technology and medications become more expensive. Future enrollees will be using more of their personal financial assets to fill the gap between Medicare coverage and medical bills. The outlook is discouraging, especially for people of color, according to a June 2011 Kaiser Family Foundation report (www.kff. org/ medicare/upload /8172.pdf).

"While a small share of the Medicare population lives on relatively high incomes, most are of modest means, with half of people on Medicare living on less than $21,000 in 2010," the report said. "The typical beneficiary has some savings and home equity, but asset values are highly skewed and are significantly higher for white beneficiaries than for black or Hispanic beneficiaries."

Income and financial assets "are projected to be somewhat greater in 2030 than in 2010, yet only a minority of the next generation of beneficiaries will have significantly higher incomes and assets than the current generation, with much of the growth projected to be concentrated among those with relatively high incomes," the report says. "Racial disparities in both income and assets are projected to persist for the next decades." Social Security benefits aren't lavishthe monthly average retirement check is $1,160- but they're essential. For two-thirds of people ages 65 and older, Social Security provides at least half their total income. …

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