News Archive

Ask the Expert

Are the current Social Security/Medicare benefits sufficient to meet the needs of the soon-to-be-eligible baby boomer population? If not, what financial options could be considered?

Dean Benedetti, OTR/L
Baltimore, MD

The quick answer is that Social Security retirement benefits are relatively well funded, and Medicare benefits are relatively poorly funded.

Under the latest (2008) projections, regular retirement benefits, including cost-of-living adjustments, will be able to be paid in full until 2041 and would have to be reduced by 22% after that. But the Medicare trust fund runs out in 2017, after which benefits would have to be reduced by about 20% so as not to exceed new money coming in—a deficit percentage that would continue to climb annually for the indefinite future.

When these projections are next updated, they will undoubtedly be more pessimistic due to the severity of the current economic situation.

That’s the bad news. The good news is that the Obama Administration understands the problem and is determined to tackle it.

Numerous solutions have been proposed for strengthening the retirement fund, all of which rely on increasing revenues in some way (possibly by increasing the payroll tax amount for everyone or just for people making six-figure incomes whose payments currently hit a ceiling every year), reducing benefits (e.g., reducing the basic benefit amount, redefining normal retirement to a later age, or reducing cost of living adjustments), or some combination. Such changes are always unpopular on principle but in reality would not cause great hardship.

The Medicare funding gap is a much bigger problem, however, and given the baby boomer surge—which doesn’t even start for Medicare for almost three more years—and continual improvements in longevity, it will only get worse in coming decades. And there will be no painless solutions to this part of the problem. Rather, we probably need to anticipate large-scale changes, most likely in the context of completely rethinking healthcare for all Americans. Beyond the issues of funding sources and gaps in coverage, as a society, we need to face the ever-accelerating cost of care; the cost of waste, fraud, and paperwork; the shortage of medical and caregiving personnel, especially nurses; and the increasing need for and cost of long-term care, which is not covered by Medicare. It remains to be seen whether the new administration, Congress, and the public will have the stomach for the radical, rather than incremental, changes that are going to be needed.

So, in short, to the extent any of us will be relying on Medicare and Social Security, we can expect to afford to live into old age but perhaps not to get sick.

— Chuck Yanikoski is president of Still River Retirement Planning Software, Inc, in Harvard, MA, and principal founder of the Association for Integrative Financial and Life Planning.