Menu
AARP rep: Medicare, Social Security on the rocks
McCOOK, Nebraska -- So you've been paying into Social Security all these years, thinking you'll have something in your "Golden Years."
Think again.
With baby boomers retiring in record numbers -- 10,000 baby boomers will reach age 65 every day for the next 19 years -- and rising health care costs, Social Security and Medicare may not be able to handle the load.
That's why it's important now to see what Washington has in mind to keep the retirement programs solvent, said Mark Interwill, AARP Nebraska associate director of advocacy. Interwill presented the AARP program "You've Earned a Say" Thursday at the Heritage Senior Center.
Speaking to about 50, Interwill said any changes made will take about five to ten years to implement, but people need to know now how it would affect their retirement. Serious financial challenges will affect the government programs in about 20 years.
For example, due to funding shortfalls, only 75 percent of Social Security benefits are estimated to be paid out beginning in 2033 and gradually decreasing after that.
For years, more has been coming in than paid out, thanks in part to the huge baby boomer segment, but now that will be reversed, Intertill said. He outlined proposals being talked about in Washington that could change a number of things about Social Security benefits and Medicare and urged those present Thursday to make their preferences known to senators "before any decisions about your retirement benefits are made."
Some of these proposals include:
* Raise the retirement age. The retirement age to get full benefits is now 66, partial benefits before that. Raising the age would fund 44 percent of the funding gap. People are living longer than ever and one proposal would raise retirement age to 68 or 70 by 2028. In 1935, when Social Security began, 65-year-old men were expected to spend 13 years in retirement and women, 15 years. Now, projections put men living about 20 years in retirement and women, 22 years. However, raising the age may not make much of difference for low-earning workers or disadvantaged groups, who have seen little or no gains in longevity due to lack of preventative health care compared to wealthier workers.
* Increase payroll tax cap or eliminate it. The current payroll tax, money that is taken out of each paycheck, applies to annual earnings up to $110,000. Any wages above that go untaxed for Social Security. Today, this cap covers about 84 percent in total earnings. Raising the cap to $215,000 would cover 90 percent of all earnings, that would fill 36 percent of the funding gap. Eliminating it completely, so all earnings are subject to Social Security payroll tax, is estimated to fill 86 percent of the funding gap. Proponents say this is fair, as only 6 percent of workers earn more than the current cap of $110,000. But, detractors say eliminating the cap would cause huge Social Security checks for very high-income people, where maximum annual benefit payments could reach over $150,000 a year. This would change the nature of Social Security, which was not intended to ended to provide such large benefits.
* Reduce benefits for higher earners. Gradually reduce benefits for the highest-earning 25 or 50 percent. This is estimated to fill 31 percent of funding gap. Higher earners usually have other benefits to draw on in retirement, such pensions, home equity, or savings. However, just what constitutes high wage earners could possible cut benefits to middle-class workers making about $35,000 a year.
* Provide tax credits for those who stay home from the workforce to care for children or another family member. Besides Social Security, Medicare is also facing financial challenges, Interwill said. These challenges include health care costs rising higher than inflation and baby boomers retiring in large numbers.
The number of people in Medicare is expected to double between 2000 and 2030. Forty million used Medicare in 2000 but an estimated 81 million will be using it by 2030. This will cause federal spending on the program, that provides for hospital and doctor bills, to increase by 50 percent over the next 10 years. Within 12 years, Medicare may not be able to pay the full amount of hospital costs. Another scenario is that medical providers may not want to participate in the federal program, if reimbursements are too low.
Changes in Social Security and Medicare is not a matter of if, but when. "That's why we need to make sure these programs are shored up now," Interwill said.
Social Security is funded by:
| Payroll taxes | 83% |
| interest on bonds | 14% |
| taxation of benefits | 3% |
Who receives Social Security?
| Retired workers | 64% |
| disabled workers | 16% |
| widow and parents | 8% |
| children | 8% |
| spouses | 4% |
Social Security a vital part of income:
* about half of seniors have an income that is under $20,000 a year
* Social Security provides 50% or more of family income for more than 1/2 of all older Americans
* Social Security provides 90% or more of family income for 1/4 of seniors
Medicare is funded by:
| General taxes | 42% |
| payroll taxes | 37% |
| premiums | 13% |
| other | 8% |