ElderLaw Answers Blog

Now that health care reform is settled, at least for now, a battle over a new area of policy reform is quietly gaining momentum – Social Security. The fear is that Social Security is going “broke” or “bankrupt” (pick your fiscal disaster) and something needs to be done, and fast.

Holders of this view got fresh ammunition when it was recently reported that due to the Great Recession, this year the Social Security system will be paying out more in benefits than it takes in from taxes — six years ahead of what had been predicted only a few years ago. Calls for benefit cuts – such as raising the age of retirement — in order to head off fiscal chaos are being heard, and many younger Americans assume that Social Security won’t be there for them, at least in any form they recognize now.

But how close to the brink is Social Security and do we need to cut benefits to pull it back? From what I’ve been reading, the brink is a long way off and it could disappear from view entirely with a few very painless changes to the way we raise revenue for the program.

First, the Social Security program’s trust fund currently stands at a massive $2.5 trillion. As Zach Carter, an economics editor at AlterNet puts it, “If the federal government makes absolutely no changes to Social Security whatsoever, the program is currently projected to remain fiscally fit through 2037.” Carter also points out that as the economy recovers, Social Security’s revenues will increase and the 2037 date will likely be pushed back. More happy news came in the form of a RAND Corporation study, which found that “the number of older Americans who delay retirement is likely to continue and even accelerate over the next 20 years, a trend that should help ease the financial challenges facing both Social Security and Medicare.”

If we want to shore up Social Security so that it remains fiscally sound for the foreseeable future, there are several ways to do it without cutting the benefits of retirees who have “worked hard and played by the rules,” to use Bill Clinton’s famous phrase. I’ve always wondered why everyone pays the same percentage of their income in Social Security taxes, no matter how much they earn, and why income subject to the payroll tax is capped. The cap currently is $106,800, meaning that someone who makes $250,000 a year is paying no Social Security tax on more than half their income. CounterPunch columnist David Lindorff agrees that not taxing such income makes no sense, and he also suggests increasing the employer’s contribution to Social Security tax payments. He makes a persuasive case that this will hardly make American business uncompetitive.

In any case, we’re not even close to facing “crisis” in what Mark Miller of Retirement Revised calls “the most successful and valuable part of our retirement safety net.” We would do well to study the agendas of those who claim that a Social Security crisis is at hand and that benefit cuts will have to be part of the solution.

The financial insecurity of the economic downturn has moved more Americans to value the financial security offered by Social Security, according to a poll recently released by the National Academy of Social Insurance.  While  President Bush could not get much traction even in good economic times for his efforts to privatize Social Security, it looks like he would get even less today.

According to results of the poll, conducted by Benenson Strategy Group, 88 percent of Americans say that Social Security is more important then ever in light of the current economy.  At the same time, they’re worried about the program.  Ninety percent are concerned about its ability to pay benefits to future generations and 44 percent of non-retirees are concerned about it being there for them. 

In what appears to be a new coming to terms with reality, the poll reports that three quarters of respondents agreed that workers should contribute more to the program if necessary to preserve it.  We can hope that this signals a change from the promises of many politicians that American citizens could get something for nothing which have contributed to our nation’s personal and shared budget deficits.

A recent study by the MetLife Mature Market Institute finds that purpose, rather than money, is the key to living the “good life.”

The study asked 1000 individuals between ages 45 and 75 whether they felt happy about their lives, what was important to them, and their hopes for the future.  It found that money is important, but that it only goes so far.  As long as the individual has enough money to be comfortable and is not preoccupied by the need to make ends meet, the key determinant in being happy is having meaning and purpose in life.  This was expecially true among the older respondents, who were less concerned about earning a living and saving enough for retirement.

This study, titled “Discovering What Matters: Balancing Money, Medicine and Meaning,” is relevant both to individuals and to their advisors in helping them make choices that can lead to the “good life” for them.  Financial and estate planning are important, but primarily to the extent that they can provide a means to allowing the individual to pursue meaning and purpose in his or her life.

To assist individuals in planning to achieve their own optimal balance, the MetLife Mature Market Institute provides a workbook that can be downloaded by clicking here.

The Institute on Assets and Social Policy (IASP) at Brandeis University studied Massachusetts seniors and found that almost 70% are at financial risk and that more than 80% of single seniors face financial insecurity.

More than four in 10 seniors in Massachusetts have inadequte financial resources to cover their financial needs over their expected lifespans, according to the study.  More than a third have nothing left at the end of each month.  And more than half pay too much for housing.

The study was conducted before the current economic downturn, so many seniors are facing more difficult financial challenges than are reflected in the study.  And matters are likely to become worse for future seniors because few will have pensions to rely upon.  For them, the old three-legged stool of pension, Social Security and savings, will be reduced to the two wobbly legs of Social Security and savings.

The study makes a number of recommendations for policy changes to improve the financial picture for both today’s and tomorrow’s seniors.  These include policies to facilitate the ability to work longer, whether full-timer or part-time, reformation of Medicare to reduce out-of-pocket costs, and universal long-term care insurance.

This morning I interviewed Dr. Robert N. Butler, the CEO of the International Longevity Center – USA and a pioneer in the field of geriatric medicine, for ElderLaw Radio about the future old age of baby boomers.  I was expecting an uplifting conversation about how we’ll change aging with our vitality, health and resourcefulness.  That’s not what I got.

Dr. Butler pointed out that we’re not so healthy.  While some baby boomers eat right and exercize, we’re also a big part of the obesity revolution, which could lead to declining longevity and health on our part.

We’re also not so wealthy.  Most people had too little saved up even prior to the current recession.  We have even less now.

And we can’t depend on our parents to pass along gobs of wealth to us.  They also have less than ever now, and what wealth current seniors have is concentrated in a small number of the most affluent.  Most baby boomers will see little or nothing by way of inheritance.

Finally, there are not enough caregivers to take care of us when we get ill and feeble.  Given the high cost of a medical education in the United States, most new doctors come out of school with too much debt to become primary care physicians.  Instead, they go into high-paying specialties that permit them to pay off their debt, and by the time they’re solvent most are too ensconced in their specialties to switch back to the calling that may have inspired them to be doctors in the first place.

Are there any answers for this dilemma?  Certainly, there are steps government can take to ameliorate the situation, but Dr. Butler makes a resounding call for each of us to make changes that will improve our senior years and, if we all make these changes, that will save our nation from a potential financial and care trainwreck.  Here are some steps we can take:

• Exercize, aerobic and for strength and balance.  One of the leading causes of death and disability among seniors is falling, which can be avoided through exercize.
• Push back from the table.  Don’t eat that second course or dessert.  Obesity is a major health and financial crisis for individuals and the country.
• Keep working.  You’ll need the money, as well as the socialization and purpose work provides.
• If you’re not working, volunteer.
• Start or involve yourself in a community such as Beacon Hill Village to help yourself and others stay at home.

With these changes, Dr. Butler says, we can change our future as individuals and as a nation.

Floyd Norris, writing in The New York Times, points out an unusual and previously unremarked phenomenon of our current recession.  While employment has dropped precipitously for younger workers, it has risen for older workers.

The hardest hit group in actual numbers of jobs is those age 35 to 44, who lost more than one million jobs this past September through November as compared to the same months a year ago.  Those aged 45 to 54 lost approximately 150,000 jobs, less than 1 percent, while those aged 55 to 64 gained more than 550,000 jobs and those between ages 65 and 69 gained 190,000 jobs, increasing their employment by about 6 percent.

These numbers can be easily lost in a focus on the unemployment rate which for men age 65 to 69 increased from 3.4 percent in November 2007 to 5.9 percent in November 2008.  The reason the unemployment rate almost doubled while the number of those employed in this age group increased by 6 percent reflects two trends.  First, women in general are doing better than men, and one the increase in jobs includes both sexes while the unemployment rate is only for men. 

Second, more older workers are postponing retirement or seeking to go back to work due to the drop in their retirement savings.  The unemployment figures reflect the relationship between the number of people seeking work and the number employed.  Those not seeking work a year ago, but now seeking work, can account for a large part of the increase in the unemployment rate despite the increase in actual employment.

While these figures are distrubing in terms of what they mean for our younger workers, they are somewhat encouraging for the Baby Boomers and the future of our economy.  They reflect both their bargaining power within the labor force and the ability of the economy to self-correct to some extent.  There have been dire predictions as to what will happen to the economy when Baby Boomers retire and the number of workers supporting the number of retirees is insufficient to maintain Social Security and Medicare.  The result may be that many Baby Boomers will postpone retirement — whether out of necessity or a desire to keep active — thus improving the ratio of workers to retirees and enabling those working to help support those retired.

According to a recent study released by the Center for Retirement Research at Boston College (http://crr.bc.edu), most men begin drawing on their Social Security retirement benefits at age 62 or 63, rather than waiting until their full retirement age or even age 70.  The early receipt of benefits means that both the husbands and their wives will receive less each month than they would if they waited.

According to the study, written by Steven A. Sass, Wei Sun and Anthony Webb, this early election has no effect on average on the men.  Though they will receive a smaller benefit check each month, this will be offset by the checks they receive between the ages of 62 and normal retirement age.  Of course, this is the average.  Men who are in ill health would do better to take early retirement and men who expect to live a long time should postpone their receipt of benefits for as long as possible.

This is also basically true of single women, meaning on average they do about as well in terms of lifetime Social Security benefits no matter whether they start earlier and get more smaller checks or start later and receive fewer larger checks.

But for today’s seniors, most wives’ benefits are based on their husband’s work record.  If husbands choose to take benefits before the full retirement age, their wives are penalized twice — first while their husband’s are alive when they get a reduced benefit, usually half of the husband’s benefit, and second when the husband dies (which often happens due to women’s greater life expectancy) when they receive their husband’s benefit rather than their own.

So, why do men do this?  Are they cads?  The researchers conclude that they are not, that instead they simply don’t understand the implications of claiming benefits early.  More education may change their behavior, although the researchers note that “financial education has not been especially effective in changing behavior.” As an alternative, they suggest a number of potential policy changes, such as requiring spouses to sign off on the decision to claim Social Security before the beneficiary’s full retirement age.

Interestingly, while the Social Security Administration’s Web site (www.ssa.gov) has a number of excellent calculators to assist beneficiaries in deciding when to retire, none appear to calculate spousal benefits.  Based on the Boston College report, adding such calculators would be a good first step.

To read the report, go to: http://crr.bc.edu/index.php?option=com_content&task=view&id=485&Itemid=4