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Federal Report Calls for Cuts, Ignores Americans’ Retirement-Security Crisis

Posted: Oct 01, 2012


TALLAHASSEE, Fla.--A disturbing new report mandated by Congress from National Research Council (NRC) concludes that the rapid growth of the 65-plus population in the United States and the continuing strain on public resources will make Social Security, Medicare and Medicaid “unsustainable” over the next three decades.

What’s troubling, though, are not the report’s conclusions, but its bias toward a strictly budgetary outlook. Unfortunately, this study—from a federally chartered body charged with scientifically objective research--is so unbalanced that it does a disservice to the full range of viewpoints on this politically volatile issue.

The report, titled Aging and the Macroeconomy, fails to take into account the microeconomic realities facing tens of millions of Americans, especially lower-income and ethnic minority groups.

The report’s 14 authors are almost all economists, and the research group does not represent the range of social gerontologists or public health experts, who might have contributed a broader understanding of the human impact of programs the report suggests cutting.

As Nobel Prize-winning economist Paul Krugman stated in his New York Times column, Oct. 1, “Contrary to Beltway conventional wisdom, America does not have an ‘entitlements problem.’ Mainly, it has a health-cost problem, private as well as public,” that is not only in Medicare and Medicaid.

Recommendations Would Disadvantage Those in Need

The NRC report recommends that the government address the difficult years ahead by combining major changes to contain spending on Social Security, Medicare and Medicaid, with efforts to urge people to work longer and save more during their working years. But these recommendations are likely to disadvantage the individuals and families who would be most affected by the emerging threats to a secure retirement.

Today's workers -- many of them trapped in low-wage, often physically grinding jobs with declining benefits -- are already facing a grim future in which the kind of retirement their parents were able to take for granted is out of reach.

Unemployment and stagnant or declining wages have drained American families of the capacity to save for retirement. And the recession has deeply undermined household wealth, especially for African Americans, Hispanics and other ethnic families.

The NRC report acknowledges that only half of American workers have private pensions and that most of them have seen substantial traditional pensions replaced by riskier and more-limited 401(k)s — the ones that depend on the fluctuating stock and bond markets.

Yet the NRC report’s recommendations that people worker longer and save more are disconnected from the realities of average workers. Median wages have remained stagnant or actually declined since the 1970s. Men with a high school degree or less have suffered as much as a 30 percent decline in income since 1973. Also, those with lower educational levels are losing ground to Americans at higher education levels in their life expectancy.

Increasingly, families have had to rely on debt to cover such essentials as housing and health care, which cost much more than they did in the 1980s. They don’t need the NRC economists to scold them.

In recommending that people work longer, the report’s contributors imply support for increasing the eligibility age for full Social Security benefits. This recommendation, however, ignores that many workers, especially those doing manual labor or other stressful jobs simply cannot work longer even if jobs were available.

Program Cuts Would Increase Elders’ Poverty

The report, instead of confronting our need to reverse the 30 years of economic policies that have undermined modern American retirement security, focuses on so-called structural changes, formulas that would partly cut the very programs Americans rely on for security in old age or at times when they can’t work. Those programs remain the only reliable sources of economic stability for many current seniors and most future retirees.

The budget reductions the report’s authors recommend would surely increase the number of older people in poverty. According to 2011 figures from the Census Bureau, senior impoverishment is already at 15.9 percent, if one includes out-of-pocket medical expenses—a cost not factored into the Federal Poverty Line.

Were the government to adopt the NRC report’s recommendations, expect access to appropriate health care to decline. Direct costs for beneficiaries--already 16 percent of income for those over 65, according to a 2011 Kaiser Family Foundation report—would rise with cuts to Medicare and Medicaid.

Even under current law, out-of-pocket costs are projected to reach 26 percent of the average beneficiary’s income by 2020, as increasing Medicare premiums and deductibles are subtracted from Social Security checks.

Rising Medicare costs are not a result of inefficiencies unique to the Medicare or Medicaid programs. What causes these increases are the same factors that have driven costs in the entire U.S. health care system significantly above the Consumer Price Index for almost 40 years.

These factors include advances in medical technology, such as genetically targeted drugs, and a health care system that is unique among developed nations by being so driven by shareholder value, high executive compensation and professional salaries, especially for doctors and administrators. Add to that out-of-pocket charges for what Medicare doesn’t cover.

Another new study reveals the enormous costs to patients in the last five years of their lives. Published by researchers at Mount Sinai School of Medicine, this research [http://bit.ly/SGOK4t] found that those costs average $38,688. And if Alzheimer’s disease is a factor, personal costs almost double to $66,105 with much of that amount coming from long-term care expenses not now covered by the Medicare program.

These are major reasons the Center for Retirement Research at Boston College estimates that over half of boomers will not achieve economic security in retirement.

Three-Quarters of Seniors at Risk

The level of economic risk facing retirees has risen steadily since the early 1980s. According to an analysis conducted by the Institute on Assets and Social Policy, 78 percent of all senior households are financially vulnerable and do not have enough economic security to sustain them for the rest of their lives.

Among senior households with a single person (mainly women), 84 percent are financially vulnerable, and 36 percent are at serious financial risk. Most of this economic jeopardy is generated by the lack of assets (low financial net worth) largely caused by the their inability to save while working, by small or no private pensions, by high and rising out-of-pocket medical costs, and by insufficient monthly income to absorb unexpected expenses.

The Great Recession has increased Americans’ level of financial risk by reducing retirement investment accounts and the value of equity in homes. Even though seniors have higher home ownership rates than younger people, they incur high housing costs because of rising property taxes in many areas, home repairs (try fixing a leaky roof on just Social Security income) and related factors.

Also, the report’s implied notion of raising the full Social Security retirement age ignores the fact that older minorities and aging white at lower income levels have significantly shorter lives than middle-class and elite-class whites. They would be substantially disadvantaged by a higher retirement age. These are also the groups, who will soon constitute a majority of older Americans.

A Better Strategy

A far better strategy for strengthening our shaky retirement security system would be to increase Social Security benefits for low income beneficiaries under or close to the poverty line, add long-term care as a Medicare benefit, and contain our out of control health care economy.

Neither this report nor any other that fails to address all of these issues honestly and fairly should be used as a guiding framework for dealing with our multi-faceted retirement security crisis. The NRC promises a follow-up study that will provide more “specific policy choices.” I hope that one will be more balanced.

Larry Polivka is Executive Director of the Claude Pepper Center at Florida State University and Scholar in Residence of the Claude Pepper Foundation. He is the former Director of the Florida Agency for Aging and Disabled Services.





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