Dude, where’s my retirement? Social Security & Medicare Steven P. Wallace, Ph.D. Professor, UCLA School of Public Health Assoc. Dir., UCLA Center for Health Policy Research

Concentration of death in old age In 1900, 41% live to old age, in % do

Life expectancy at age 65 Source: >50% increase in last century

Key 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 health care costs, right? At least I don’t have to worry about health care costs, right? Why do I need to organize? Why do I need to organize?

US lags in social welfare 1889 Germany 1889 Germany ● Bismark – Industrial unrest & growth of socialist movement leads him to create first public pension 1891 Denmark 1891 Denmark 1908 England 1908 England 1910 France 1910 France 1927 Canada 1927 Canada 36 countries total by early 1930s 36 countries total by early 1930s

The Great Depression 17 states w/ pensions, mostly in CA, MA, NY 17 states w/ pensions, mostly in CA, MA, NY 50% of older adults w/o sufficient income by % of older adults w/o sufficient income by 1932 Local aid overwhelmed Local aid overwhelmed

New Federal Role I see one-third of a nation ill-housed, ill-clad, and ill- nourished I see one-third of a nation ill-housed, ill-clad, and ill- nourished … The test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little … The test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little Franklin D. Roosevelt

Social Security “Universal”, compulsory=socializes risk “Universal”, compulsory=socializes risk Work-related, but portable Work-related, but portable Defined benefits Defined benefits Age 65 chosen for benefits based on actuarial calculations Age 65 chosen for benefits based on actuarial calculations Only covered industrial first, then expanded Only covered industrial first, then expanded

Assumptions Male worker, stay at home mother Male worker, stay at home mother Primary worker works full-time, continuously until retirement Primary worker works full-time, continuously until retirement Three legged-stool of retirement Three legged-stool of retirement ● Social Security ● Private Pension ● Savings

Elder Economic Security Standard™ index – LA 2007

More Info on Elder Index UCLA Center for Health Policy Research Reports, county data UCLA Center for Health Policy Research Reports, county data Insight Center for Community Economic Development, CA policy info Insight Center for Community Economic Development, CA policy info Wider Opportunities for Women, national Wider Opportunities for Women, national

More Social Security principles Income adequacy Income adequacy ● Low-wage workers get higher replacement rate ● If spouse has no independent earnings, gets 50% spouse benefit ● Indexed for inflation Replacement Rate

Lifetime benefits Early retirement (age 62) and normal retirement (age 65-67) provide, on average, the same lifetime benefits Early retirement (age 62) and normal retirement (age 65-67) provide, on average, the same lifetime benefits Early retirement benefits are reduced to account for extra years benefits received Early retirement benefits are reduced to account for extra years benefits received Full retirement age goes to 67 (for those born 1962 & later) Full retirement age goes to 67 (for those born 1962 & later)

Who gets Social Security? Family protection Family protection ● Retiree ● Widow(er)s ● Survivors ● Disability 55 million total 55 million total Source:

Will it be there when YOU retire? Politicians and media continually talk of Social Security going “bankrupt” Politicians and media continually talk of Social Security going “bankrupt”

Follow the money

Social Security Trust Fund - Today Source:

Social Security Trust Fund - Tomorrow Source:

Then what? If NO changes are made to Social Security, in 2042 Benefits are reduced to 78% promised Benefits are reduced to 78% promised -- And/or And/or -- Taxes go up Taxes go up

How to balance budget Increase revenues Increase revenues ● E.g. Tax earnings above $102,000 (2008 amount) ● Gap is about 2% GDP Decrease spending Decrease spending ● E.g. Encourage people to work longer

How not to “fix” problem Privatization Higher administrative costs Higher administrative costs ● U.S. Social Security = 0.6% vs. 15% in UK private plans Investment risk is held by individual Investment risk is held by individual ● Poor decisions (e.g. invest in Enron, invest in low yield savings account) hurt individuals ● No inflation guarantee ● You can “outlive” some plans

How not to “fix” problem Most privatization plans are worse for Most privatization plans are worse for ● Widows & women (who live longer than men) ● Nonelderly Survivors ● Disabled Transition costs (paying current recipients plus putting money in new accounts) are huge Transition costs (paying current recipients plus putting money in new accounts) are huge

Who wins with private accounts? Major financial firm backers of privatization would see profits zoom via underwriting charges and commissions. Major financial firm backers of privatization would see profits zoom via underwriting charges and commissions.

What about medical care costs at age 65? Medicare Medicare Medi-gap (supplemental health insurance) Medi-gap (supplemental health insurance) Medicaid (for those with incomes below poverty) Medicaid (for those with incomes below poverty) Out of pocket Out of pocket

Per capita spending = $15,000 for those age 65 & over in 2004 Health Affairs, 27, no. 1 (2008): w1-w12. doi: /hlthaff.27.1.w1

Dude, where’s my health insurance? Averages are influenced by those with large expenses Averages are influenced by those with large expenses Premiums & copays for Medicare Premiums & copays for Medicare Uncovered expenses Uncovered expenses

Medicare’s costs Premiums Premiums ● Part B (MD=$96.40+) & Part D (drugs=$27.93+) Deductibles Deductibles ● Hospital ($1024), doctor ($135), drugs ($275 + coverage gap up to $3,216) Co-payments Co-payments ● Doctor (20%), drugs (varies)

Medicare’s gaps – services not covered Eyeglasses, hearing aids Eyeglasses, hearing aids Dental care Dental care Annual physical exams (after “welcome to Medicare” exam) Annual physical exams (after “welcome to Medicare” exam) Long-term care Long-term care ● Medicare only pays for post-hospital recovery, up to 100 days in nursing home, “reasonable” home health days

Solutions? Employer provided Medi-gap is the best Employer provided Medi-gap is the best HMOs often provide good gap coverage HMOs often provide good gap coverage Beware of plans to “save” Medicare! Beware of plans to “save” Medicare!

Best way to protect your retirement?

Organize! For example: Alliance for Retired Americans Alliance for Retired Americans National Committee to Preserve Social Security & Medicare National Committee to Preserve Social Security & Medicare

So where IS my retirement? Conclusions In Social Security as one pillar of income security in retirement, as long as it remains In Social Security as one pillar of income security in retirement, as long as it remains ● Universal – risks shared by all, (almost) everyone has a stake in it, predictable ● Public – low administrative costs ● “Adequate” – higher returns for poorest, indexed for inflation, benefits for widows/ survivors/ disabled

So where IS my retirement? Conclusions Social Security WILL be there for you, even if nothing is done to improve financing Social Security WILL be there for you, even if nothing is done to improve financing Privatization will benefit Wall Street, not Main Street Privatization will benefit Wall Street, not Main Street Medicare is the key pillar of retirement health care Medicare is the key pillar of retirement health care ● But you also need to fill in the gaps

So where IS my retirement? Conclusions The best investment for economic and health security in retirement is in working together with others in this room & elsewhere to protect Social Security and Medicare. The best investment for economic and health security in retirement is in working together with others in this room & elsewhere to protect Social Security and Medicare.

Thank you swallace.bol.ucla.edu swallace.bol.ucla.edu