Last week Washington made a rare effort to help America's fast-growing aging population. The U.S. Treasury and the IRS issued a new rule permitting people to use funds in their tax-advantaged retirement accounts to buy so-called longevity annuities—deferred annuities that typically don’t begin making payments until a person turns 80 or 85.
Longevity annuities can be a great option to ensure you don’t outlive your assets, as well as provide higher quality of life. Since you can count on future annuity income, you can spend more now, instead of having to set aside a big chunk of your nest egg for a longer-than-expected old age.
But longevity annuities are only a small first step. Much more needs to be done to prepare for the many changes—legal, social, and behavioral—that will occur as we become not only an older society but one enjoying amazing longevity gains. In 1954 a 65-year-old man might be expected to live to age 83. In 2014 the average life expectancy for a 65-year-old is 86.
These gains have led many to push for raising the Social Security retirement age to 68, 69 or even 70. That needs to happen. (It’s already set to rise to 67 for people born in 1960 and later.) Still, longevity increases are not being shared by people with little education, lower incomes and, often, physically demanding jobs that wear out their bodies well before even the current full retirement age. So if we raise the retirement age, we also need to provide improved early retirement benefits for those who can no longer work.
Longevity and related healthcare issues will eventually lead to additional changes in the big three old-age safety net programs—Social Security, Medicare, and Medicaid. Few people in government have been willing to deal with these challenges. We do not have enough money to continue funding current benefit levels. Voters don’t want to hear this.
Well, I’m not planning a run for elective office anytime soon. So here are three aging and longevity reforms that you've heard less about but deserve serious consideration:
*Social Security payroll taxes should be reduced for workers who stay on the job past full retirement age (this change should also apply to employers). Continuing to work will improve what are, for millions of baby boomers, looming financial shortfalls in retirement. The design would be tricky, to say the least, but it’s possible to do this in a way that lowers total government spending. Giving employers a financial incentive to hire older employees encourages them to do the right thing and covers any higher costs of employee benefits for this group.
*A hybrid form of Medicare should be blended with employer health insurance to accommodate older persons who are still drawing a paycheck. The federal government will spend less than on pure Medicare. Employers will also spend less than for a purely private health policy. Older employees may spend more but they will have a job to help pay these bills.
*Medicaid must be reinvented or it will (further) bankrupt the nation. A long-term care trust fund should be created to help shoulder the enormous long-term care costs staring at us from the future. This would ease a lot of the financial pressure on Medicaid. Yes, it would cost taxpayers more money but a pooled approach is efficient and can reflect a progressive benefit structure as does Social Security. In the long run, these changes are well worth the cost.
Philip Moeller is an expert on retirement, aging and health. He is an award-winning business journalist and a research fellow at the Sloan Center on Aging & Work at Boston College. Reach him at firstname.lastname@example.org or @PhilMoeller on Twitter.