Dude, where’s my Dude, where’s my retirement? retirement?

Social Security & MedicareSocial Security & Medicare

Steven P. Wallace, Ph.D.Steven P. Wallace, Ph.D.Professor, UCLA School of Public HealthProfessor, UCLA School of Public Health

Assoc. Dir., UCLA Center for Health Policy Assoc. Dir., UCLA Center for Health Policy ResearchResearch

swallace@ucla.eduswallace@ucla.edu

Concentration of death in Concentration of death in old ageold age

In 1900, 41% live to old age, in 2003 83% doIn 1900, 41% live to old age, in 2003 83% do

http://www.cdc.gov/nchs/data/nvsr/nvsr54/nvsr54_14.pdf

Life expectancy at age Life expectancy at age 6565

12.2 12.1 13 14.216.2 17.112.2 12.7 13.6

15.818.4 19.3 20

11.5

1900 '20 '40 '60 '80 2000 '04

men womenSource: http://www.agingstats.gov

>50% increase in last century

Key QuestionsKey Questions

Why does Social Security exist?Why does Social Security exist? Will it be there for me?Will it be there for me? Aren’t private accounts better?Aren’t private accounts better? At least I don’t have to worry about At least I don’t have to worry about

health care costs, right?health care costs, right? Why do I need to organize?Why do I need to organize?

US lags in social US lags in social welfarewelfare

1889 Germany1889 Germany● Bismark – Industrial unrest & growth Bismark – Industrial unrest & growth

of socialist movement leads him to of socialist movement leads him to create first public pensioncreate first public pension

1891 Denmark1891 Denmark 1908 England1908 England 1910 France1910 France 1927 Canada1927 Canada 36 countries total by early 1930s36 countries total by early 1930s

http://www.socialsecurity.gov/history/briefhistory3.html

The Great DepressionThe Great Depression

17 states w/ 17 states w/ pensions, mostly pensions, mostly in CA, MA, NYin CA, MA, NY

50% of older 50% of older adults w/o adults w/o sufficient income sufficient income by 1932by 1932

Local aid Local aid overwhelmedoverwhelmed

New Federal RoleNew Federal Role

I see one-third of a I see one-third of a nation ill-housed, ill-nation ill-housed, ill-clad, and ill-nourishedclad, and ill-nourished

… … The test of our The test of our progress is not progress is not whether we add more whether we add more to the abundance of to the abundance of those who have much; those who have much; it is whether we it is whether we provide enough for provide enough for those who have too those who have too littlelittle

Franklin D. RooseveltFranklin D. Roosevelt

Social Security - 1935Social Security - 1935

““Universal”, compulsory=socializes Universal”, compulsory=socializes riskrisk

Work-related, but portableWork-related, but portable Defined benefitsDefined benefits Age 65 chosen for benefits based on Age 65 chosen for benefits based on

actuarial calculationsactuarial calculations Only covered Only covered industrialindustrial workers @ workers @

first, then expandedfirst, then expanded

AssumptionsAssumptions

Male worker, stay at home Male worker, stay at home mothermother

Primary worker works full-time, Primary worker works full-time, continuously until retirementcontinuously until retirement

Three legged-stool of retirementThree legged-stool of retirement● Social Security Social Security ● Private PensionPrivate Pension● SavingsSavings

Elder Economic Security Elder Economic Security StandardStandard™™ index – LA index – LA

20072007Monthly Expenses

Owner w/o mortgage

Renter, one bedroom

Owner w/o mortgage

Renter, one bedroom

Housing $477 $1,016 $477 $1,016Food $263 $263 $486 $486Transportation $202 $202 $323 $323Health Care $194 $194 $388 $388Miscellaneous $227 $227 $332 $335Elder Index/month $1,363 $1,902 $2,008 $2,547

Elder Index/year $16,355 $22,827 $24,095 $30,567Federal Poverty/yr $10,210 $10,210 $13,690 $13,690Ave Social Security $12,540 $12,540 $21,068 $21,068

Elder Person Elder Couple

More Info on Elder More Info on Elder IndexIndex

UCLA Center for Health Policy UCLA Center for Health Policy Research Reports, county data Research Reports, county data http://www.healthpolicy.ucla.edu/elder_index08feb.htmlhttp://www.healthpolicy.ucla.edu/elder_index08feb.html

Insight Center for Community Insight Center for Community Economic Development, CA policy Economic Development, CA policy info info http://www.insightcced.org/index.php?page=california-elder-economic-http://www.insightcced.org/index.php?page=california-elder-economic-

security-initiativesecurity-initiative Wider Opportunities for Women, Wider Opportunities for Women,

national national http://www.wowonline.org/ourprograms/eesi/index.asphttp://www.wowonline.org/ourprograms/eesi/index.asp

More Social Security More Social Security principlesprinciples

Income adequacyIncome adequacy● Low-wage workers Low-wage workers

get higher get higher replacement ratereplacement rate

● If spouse has no If spouse has no independent independent earnings, gets earnings, gets 50% spouse 50% spouse benefitbenefit

● Indexed for Indexed for inflationinflation

0%

20%

40%

60%

80%

Lowerwage

Higherwage

worker onlyworker+spouse

http://www.socialsecurity.gov/finance/2007/Overview_of_SSA.pdf

Replacement Rate

Lifetime benefitsLifetime benefits

Early retirement (age 62) and Early retirement (age 62) and normal retirement (age 65-67) normal retirement (age 65-67) provide, on average, the same provide, on average, the same lifetime benefitslifetime benefits

Early retirement benefits are Early retirement benefits are reduced to account for extra reduced to account for extra years benefits receivedyears benefits received

Full retirement age goes to 67 Full retirement age goes to 67 (for those born 1962 & later)(for those born 1962 & later)

Who gets Social Who gets Social Security?Security?

Family Family protectionprotection● RetireeRetiree● Widow(er)sWidow(er)s● SurvivorsSurvivors● DisabilityDisability

55 million total55 million total

6%

13%

18%

63%

Pensioner SpouseSurvivor Disability

Source: http://www.ssa.gov/policy/docs/quickfacts/stat_snapshot

Will it be there when Will it be there when YOU retire?YOU retire?

Politicians and Politicians and media media continually talk continually talk of Social Security of Social Security going “bankrupt”going “bankrupt”

Follow the moneyFollow the money

Social Security Trust Fund -Social Security Trust Fund -TodayToday

$2,023.6

$495.7$675.0

$1,844.3

Assets12/06

Income 07 Outgo 07 Assets 1/08

$ bi

llion

s

Source: http://www.socialsecurity.gov/OACT/TRSUM/trsummary.html

Social Security Trust Fund -Social Security Trust Fund -TomorrowTomorrow

050

100150200250300350400450500

2009

2013

2017

2021

2025

2029

2033

2037

2041%

An

nu

al S

pen

din

g in

Tru

st F

un

d

Source: http://www.socialsecurity.gov/OACT/TR/TR08/lr4b3.html

Then what?Then what?

If NO changes are made to Social If NO changes are made to Social Security, in 2042Security, in 2042

Benefits are reduced to 78% Benefits are reduced to 78% promisedpromised

-- And/or ---- And/or -- Taxes go upTaxes go up

http://www.nasi.org/publications2763/publications_show.htm?doc_id=263184

How to balance budgetHow to balance budget

Increase revenuesIncrease revenues● E.g. Tax earnings above $102,000 E.g. Tax earnings above $102,000

(2008 amount)(2008 amount)● Gap is about 2% GDPGap is about 2% GDP

Decrease spendingDecrease spending● E.g. Encourage people to work E.g. Encourage people to work

longerlonger

How not to “fix” How not to “fix” problemproblem

PrivatizationPrivatization Higher administrative costsHigher administrative costs

● U.S. Social Security = 0.6% vs. 15% in U.S. Social Security = 0.6% vs. 15% in UK private plansUK private plans

Investment risk is held by Investment risk is held by individualindividual● Poor decisions (e.g. invest in Enron, Poor decisions (e.g. invest in Enron,

invest in low yield savings account) invest in low yield savings account) hurt individualshurt individuals

● No inflation guaranteeNo inflation guarantee● You can “outlive” some plansYou can “outlive” some plans

How not to “fix” How not to “fix” problemproblem

Most privatization plans are worse Most privatization plans are worse forfor● Widows & women (who live longer than Widows & women (who live longer than

men)men)● Nonelderly SurvivorsNonelderly Survivors● DisabledDisabled

Transition costs (paying current Transition costs (paying current recipients plus putting money in recipients plus putting money in new accounts) are hugenew accounts) are huge

Who wins with private Who wins with private accounts?accounts?

Major financial Major financial firm backers of firm backers of privatization privatization would see profits would see profits zoom via zoom via underwriting underwriting charges and charges and commissions.commissions.

http://www.flickr.com/photos/photo_secessionist/1907265921/

What about medical What about medical care costs at age 65?care costs at age 65?

MedicareMedicare Medi-gap Medi-gap

(supplemental (supplemental health insurance)health insurance)

Medicaid (for Medicaid (for those with those with incomes below incomes below poverty)poverty)

Out of pocketOut of pocket

Per capita spending = Per capita spending = $15,000 for those age 65 $15,000 for those age 65

& over in 2004& over in 2004

Medicaid17%

Private18%

out ofpocket15%

Medicare50%

Health Affairs, 27, no. 1 (2008): w1-w12. doi: 10.1377/hlthaff.27.1.w1

Dude, where’s my Dude, where’s my health insurance?health insurance?

Averages are Averages are influenced by influenced by those with large those with large expensesexpenses

Premiums & Premiums & copays for copays for MedicareMedicare

Uncovered Uncovered expensesexpenses

http://www.flickr.com/photos/wrayne/367717274/

Medicare’s costsMedicare’s costs

PremiumsPremiums● Part B (MD=$96.40+) & Part D Part B (MD=$96.40+) & Part D

(drugs=$27.93+)(drugs=$27.93+) DeductiblesDeductibles

● Hospital ($1024), doctor ($135), Hospital ($1024), doctor ($135), drugs ($275 + coverage gap up to drugs ($275 + coverage gap up to $3,216)$3,216)

Co-paymentsCo-payments● Doctor (20%), drugs (varies)Doctor (20%), drugs (varies)

http://www.medicare.gov/Publications/Pubs/pdf/10050.pdf

Medicare’s gaps – Medicare’s gaps – services services notnot covered covered

Eyeglasses, hearing aidsEyeglasses, hearing aids Dental careDental care Annual physical exams (after Annual physical exams (after

“welcome to Medicare” exam)“welcome to Medicare” exam) Long-term careLong-term care

● Medicare only pays for post-hospital Medicare only pays for post-hospital recovery, up to 100 days in nursing recovery, up to 100 days in nursing home, “reasonable” home health home, “reasonable” home health daysdays

Solutions?Solutions?

Employer provided Medi-gap is Employer provided Medi-gap is the bestthe best

HMOs often provide good gap HMOs often provide good gap coveragecoverage

Beware of plans to “save” Beware of plans to “save” Medicare!Medicare!

Best way to protect Best way to protect your retirement?your retirement?

Organize!Organize!

For example:For example: Alliance for Alliance for

Retired Americans Retired Americans www.retiredamericans.org www.retiredamericans.org

National National Committee to Committee to Preserve Social Preserve Social Security & Security & Medicare Medicare www.ncpssm.org www.ncpssm.org

So where IS my So where IS my retirement?retirement?ConclusionsConclusions

In Social Security as one pillar of In Social Security as one pillar of income security in retirement, as income security in retirement, as long as it remainslong as it remains● Universal – risks shared by all, (almost) Universal – risks shared by all, (almost)

everyone has a stake in it, predictableeveryone has a stake in it, predictable● Public – low administrative costsPublic – low administrative costs● ““Adequate” – higher returns for Adequate” – higher returns for

poorest, indexed for inflation, benefits poorest, indexed for inflation, benefits for widows/ survivors/ disabledfor widows/ survivors/ disabled

So where IS my So where IS my retirement?retirement?ConclusionsConclusions

Social Security WILL be there for Social Security WILL be there for you, even if nothing is done to you, even if nothing is done to improve financingimprove financing

Privatization will benefit Wall Privatization will benefit Wall Street, not Main StreetStreet, not Main Street

Medicare is the key pillar of Medicare is the key pillar of retirement health careretirement health care● But you also need to fill in the gapsBut you also need to fill in the gaps

So where IS my So where IS my retirement?retirement?ConclusionsConclusions

The best investment for economic The best investment for economic and health security in retirement and health security in retirement is in working is in working togethertogether with others with others in this room & elsewhere to in this room & elsewhere to protect Social Security and protect Social Security and Medicare.Medicare.

Thank youThank youswallace.bol.ucla.eduswallace.bol.ucla.edu