MONEY Social Security

Maximize Your Social Security Benefits…By Not Freaking Out

Seniors doing yoga on the beach
Lyn Balzer and Tony Perkins—Getty Images

A financial planner explains why, when it comes to retirement income, being patient can pay off in a big way.

About a month ago, a client walked into our office and announced that he had decided to take his retirement package being offered at work. We had to work out a number of issues related to his company’s retirement benefits. Finally, when the subject of Social Security came up, my client said, “I want to start taking the benefit as soon as I can, before they stop it.”

His opinion of Social Security is common. Many retirees believe that Social Security may run out or that Congress may legislate away their benefit.

We pushed back on this. First, the actuarial analysis shows the Social Security fund is pretty secure; it is Medicare that we all need to be worried about. Second, we feel that for a current retiree, the benefit amount is fairly safe; the only possible changes might involve a lower increase in the annual benefit. We agree with most experts that making changes to current benefits is a non-starter.

Our client was persuaded. Then he asked us a question we hear a lot: “When should I start taking Social Security, at age 66 or 70?”

The answer is not straightforward. If our client — let’s call him Jack — started taking Social Security at age 66, he’d receive a monthly benefit of $2,430. But your initial benefit increases the longer you postpone taking it, until you reach age 70. If Jack delayed taking the benefit until he turned 70, the initial amount would be $3,680, or 52% more per month.

Since Jack has other forms of retirement income, he doesn’t need the monthly check as soon as possible to live on. Instead, Jack’s goal is to get as much back from Uncle Sam as possible.

If Jack started his benefit at age 66, he would receive approximately $116,700 by age 70. (He’d actually get more, since benefits are adjusted annually for inflation. But for the sake of simplicity, I am ignoring inflation and other complicating factors.)

If he waited until age 70, he would be receiving $1,250 more per month, but he wouldn’t have received any money over the prior four years. It would take around 94 months to recoup the $116,700 he did not earn by waiting.

In other words, Jack would have an eight-year breakeven point if he waited until 70. If Jack dies before age 78, he would have received more by taking the benefit at age 66; if he lives past 78, he would be better off to wait until age 70. Federal life expectancy tables say a male 65 years old has a life expectancy of age 82. So if Jack has average health, the odds suggest he should wait until age 70 to take his benefit.

Jack’s wife — we’ll call her Jill — is 65, and has been retired for a couple of years. Jill’s Social Security projection looks like $2,120 monthly at age 66 or $3,200 at age 70. Jill’s breakeven also projects to be at age 78, yet her life expectancy is age 85, so the odds that she will be better off waiting until age 70 are greater than Jack’s.

But they both shouldn’t necessarily wait until 70 to take their benefits. Why? Because Social Security offers married couples a spousal benefit option.

This takes us into a different kind of strategy with our clients, something advisers call “file and suspend.”

It is possible to start taking a spousal benefit at age 66 (as long as your spouse has filed for his or her own benefit amount) and let your personal benefit increase to the maximum amount at age 70. The strategy is to have both spouses wait until 70 to take their own benefit, but for the spouse with the lower benefit amount to take a spousal benefit from age 66 up to age 70. For this to work, the spouse with the higher benefit amount needs to file for his or her benefit—then suspend receiving his or her own benefit until age 70.

For Jack and Jill, the file and suspend would work as follows: Jack, the spouse with the higher benefit, files for benefits at age 66, then immediately requests the benefits be suspended; that’s “file and suspend.” Then at age 70, he requests his benefits, which would be approximately $3,680 a month.

Jill files for her spousal benefit at age 66. This allows her to delay her own benefit while collecting a spousal benefit of around $1,250 a month. Then at age 70, she cancels the spousal benefit in order to collect her full benefit of $3,200 a month.

This scenario would provide them an added benefit of almost $60,000 in those first 4 years!

All Social Security scenarios have a breakeven age, so it is important to take an honest look at your health when evaluating all your options. The most important factor is your own cash flow need when you retire. If Social Security is going to be one’s sole source of income in retirement, waiting until age 70 is probably not an option.

But for those who can, delaying benefits is a useful tool. Outliving your money in your 80s or 90s is a real possibility. Postponing Social Security to allow for the highest possible benefit can mitigate that longevity risk.

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Scott Leonard, CFP, is the owner of Navigoe, a registered investment adviser with offices in Nevada and California. Author of The Liberated CEO, published by Wiley in 2014, Leonard was able to run his business, originally established in 1996, while taking his family on a two-year sailing trip from Florida to New Caledoniain the south Pacific Ocean. He is a speaker on investment and wealth management issues.

MONEY First-Time Dad

Why Millennials Aren’t Lazy, Spoiled or Entitled…

Luke Tepper

...At least not any more than other generations are.

Mrs. Tepper and I spent the better part of the past week trying to induce our six-month old son Luke to sleep through the night. After a parade of co-sleepers, swings, night feedings and magic sleeping suits, it was time — our doctor told us — to go medieval and let the little guy cry in his room until he woke up the next morning.

The (seemingly) endless sobbing was difficult to endure, but within a few nights, Luke slept all night. He did it! And so did we.

Luke’s accomplishment not only put our minds at ease, it helped stroke our parenting egos. Now when other parents ask us how he’s sleeping, we’ll be able to look them dead in the eyes and with not a small amount of satisfaction say, “We got him to sleep like a log.”

Parenting, much like sports and everything else, is competitive. If you think your kid is cuter than mine, well, we might just have a problem. Of course, this is silly. Whether a kid sleeps through the night, rolls over, or cries incessantly is largely a matter of luck and circumstance. Some parents happen to have a newborn that sleeps well, while others don’t and there are millions in between.

The mistaking of luck for skill, the conflation of happenstance for personal achievement, is pervasive in our society. You even see this play out in the management of mutual funds. In fact, I think this natural phenomenon is one reason that older generations think mine is narcissistic, instead of simply unlucky.

More than a few readers have responded to my articles with a common refrain that kids today are given much more than older generations — and thus are much more willing to spend and less principled in saving. And that this deficit accounts for Millennials’ current economic struggles.

Fine, though older generations complaining about the lives lead by their children and their children’s children is just as much a cliché. Nevertheless, a few facts and figures may help to enlighten the perception of today’s young adults and help align the views of those from different ages.

We Grew Up During the Great Recession

Millennials graduated college in the teeth of the worst economic downturn since the Great Depression. While people of all ages felt its impact, Millennials were a little more vulnerable — if not economically, then psychologically — than other groups.

In a recent speech, the chairman of the White House’s Council of Economic Advisers highlighted just how rough the Great Recession was on Millennials. “While the unemployment rate for those over 34 peaked at about 8%, the unemployment rate among those between the ages of 18 and 34 peaked at 14% in 2010 and remains elevated, despite substantial improvement,” Furman said.

Graduating into a recession leads to lower wages, which has been especially true for those who had the misfortune of turning 22 in 2008. In fact, per a recent Pew Research Center survey, “Millennials are the first in in the modern era to have higher levels of debt, poverty and unemployment, and lower levels of wealth and personal income than their two immediate predecessor generations had at the same time.”

We Pay More to Raise Our Kids Than You Did

If you had kids in 1985, and the mother of those kids worked, you paid on average $87 (in 2013 dollars) a week in child-care expenses, according to Pew. In 2010, the figure grew to $148. That means, on average, working mothers today pay over $3,000 more a year on child care than their mothers paid for them.

Of course, child-care expenses, like real estate, differ zip code to zip code. We live in Brooklyn and teamed up with another family to hire a nanny. The total cost to us? Almost $400 a week.

And it doesn’t look like families like ours well get help anytime soon. A few months ago, the International Labor Organization put out a report which found that the U.S. and Papua New Guinea are the only two countries in the world that have “no general legal provision of maternity leave cash benefits.”

Not only is it more expensive to raise your kids now, but we live in one of the two countries in the entire world that doesn’t offer any help.

You Are More Entitled Than We Are

Despite the fact that some think that seniors have earned their Social Security and Medicare benefits, entitlements have always been a transfer of wealth from the working to the elderly. Ida May Fuller was a legal secretary who retired in the end of 1939 having paid $24.75 in social security taxes. A couple of months later, she received the first retirement check and would go on to accumulate almost $23,000 in Social Security benefits.

Ida is not alone. According to the Urban Institute, a couple that earned $71,700 (in 2013 dollars) a year from 22, and retired in 2015, will receive more than $1 million in lifetime benefits (including Social Security and Medicare.) This despite paying nearly $650,000 in lifetime entitlement taxes.

Now, I’m fine paying taxes to fund a social program that has so effectively reduced elderly poverty and improved the lives of millions of people. I just don’t want those recipients of public funds to think of my generation as entitled.

Look, so much of our success is defined by luck.

If you graduated college during the Carter or Reagan presidencies, you entered an economy that was adding between 150,000 and 250,000 jobs a month. Over the past 14 years? Not so much.

Of course, you can’t do much to control your macroeconomic environment. The only thing non-policy makers can do is hope — hope that in 28 years your son is luckier than you were.

So when you think about Millennials in terms of living at home and deifying self-aggrandizing behavior, remember the economic hardships that we endured and you didn’t. Remember that others who receive Social Security and Medicare may not have really earned those funds. Remember “there but for…” and appreciate the luck you have in this world.

Taylor Tepper is a reporter at Money. His column on being a new dad, a millennial, and (pretty) broke appears weekly. More First-Time Dad:

MONEY Health Care

Why the Good News for Retiree Health Care May Not Last

With overall health-care costs in check, Medicare didn't hike the premiums seniors pay again this year. But once economic growth picks up, rising prices could come back too.

Medicare turned 49 years old last week, and the program celebrated with some good financial news for seniors: Premiums will not rise in 2015 for the third consecutive year.

The question now: How long can the good news persist? Worries about Medicare’s long-range financial health persist, but for now persistent low healthcare cost inflation will translate into a monthly premium of $104.90 next year for Part B (outpatient services), according to the Medicare trustees. Meanwhile, the Centers for Medicare & Medicaid Services (CMS) says the average premium for a basic Part D prescription drug plan will rise by about $1, to $32 per month.

The Part B premium has been $104.90 since 2012—except for 2011, when it actually dropped by about $15, to $99.90. The moderation is good news for seniors, since premiums are deducted from Social Security checks. Beneficiaries will keep all of next year’s Social Security cost-of-living adjustment, which likely will be about 1.7%.

Meanwhile, the average Part D premium has been $30 or $31 since 2011. That’s because of a dramatic shift to cheap generic drugs, and innovation by plan providers competing for customers.

“Seniors can expect to see more of what they’ve been getting over the last few years, which is increasing effort by Part D insurers to offer very-low-premium plans,” says Matthew Eyles, executive vice president of Avalere Health, a consulting firm specializing in healthcare.

As in recent years, Eyles says, the best deals will be found in plans that require enrollment in preferred pharmacy networks. Those plans offer lower premiums and co-pays. “We’ll also see plans limiting or eliminating deductibles, and encouraging the use of generics by offering them free or at nominal prices,” says Eyles.

But the average figures mask a more complicated story. Part D enrollees will find significant regional variations in premiums around the country. CMS data shows average premiums will be as low as $21.19 in New Mexico, and $25.83 in Florida—but as high as $39.74 in Idaho and Utah.

Eyles says it is not entirely clear why premiums will vary so extensively, although the prices tend to track the overall cost of healthcare, and are related to the overall healthiness of seniors by state.

“The plan providers have to submit bids for regions that take into account differences in the enrolled populations, including prescribing and utilization patterns,” he says. “It could be that one state tends to have more people using statins, or a diabetes medication.”

Another complication in Part D is the “doughnut hole,” the gap in coverage for Part D enrollees with high drug costs. Higher-cost plans are available to provide gap coverage, but the hole’s size is being shrunk under a provision of the Affordable Care Act (ACA), and the gap is set to disappear in 2020.

The coverage gap begins after you and your drug plan have spent a certain amount for covered drugs. Next year the gap starts at $2,960 (up from $2,850 this year) and ends after you’ve spent $4,700 (up from $4,550 this year).

Seniors who enter the gap also get discounts on brand-name and generic drugs, and those breaks will be larger next year. Enrollees will pay 45% of the cost of brand-name drugs in 2015 (down from 47.5% this year) and 65% of the cost of generic drugs (down from 72% this year).

Can the recent good news on lower healthcare costs continue indefinitely? Medicare spending reflects our overall health economy, and the big picture is that the United States does not have effective controls on spending growth. Healthcare outlays have quadrupled since the 1950s as a percentage of gross domestic product, to 17.7% in 2011. What’s more, our spending is more than double any other major industrialized nation, according to the Organization for Economic Cooperation and Development.

Still, our per capita Medicare spending growth averaged 2% from 2009 to 2012, and it was nearly zero last year.

The Obama administration often points to the ACA, but outside experts are more skeptical. Research published this month by Health Affairs, a leading health policy and research and journal, credited 70% of the recent spending slowdown to the slack economy. Absent further changes in the structure of our healthcare system, the researchers expect higher healthcare inflation to resume as the economy improves.

“A significant amount of it is due to the economic slowdown,” says Eyles, “although we know that changes in the way providers deliver care, and how providers are being paid are also making a difference in the overall rate of growth.”

TIME health

The Most Shocking Mistakes Hospitals Don’t Want You to Know About

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knape—Getty Images

They include foreign objects left in the body, air embolisms and giving patients the wrong blood type

Is it somehow unfair that the public knows that one airline – Malaysia Air – flew two of the planes in our most recent commercial aviation tragedies? After all, the exact cause of either catastrophe isn’t yet known, and it’s not clear that Malaysia Air was at fault in either. The airline flies roughly 91,000 flights per year safely; no Malaysian Air flight had been involved in a fatal accident since 1995. Is it really fair to name the airline?

I suspect your reaction – almost everyone’s reaction — to this line of thought is roughly, “Fair? Who cares about fair? Of course we have a right to know.” Perhaps only a lobbyist for the American Hospital Association (AHA) could have any sympathy for suppressing the name of a company that has a terrible accident. The AHA has just successfully employed a similar “fairness” argument in convincing the Obama Administration to eliminate government disclosure of the worst medical mistakes committed by hospitals.

As of this month, the Centers for Medicare and Medicaid Services (CMS) has removed data on many “never events” from its public website, Hospital Compare. “Never events” are just what they sound like: errors so egregious they should never happen. The term came into widespread use in 2006, when the National Quality Forum defined 28 serious healthcare errors. While CMS has never published data on all the never events until recently, it made public records of some of the worst and most preventable, such as foreign objects left in the body, air embolisms (a killer air bubble entirely preventable during surgery), giving the wrong blood type to a patient and bedsores allowed to develop into extremely painful and even deadly wounds. CMS now believes that continuing to publish this information is unfair to hospitals.

Never events – unlike airplane crashes – actually happen quite often. CMS’ Inspector General estimated 1 in 165 admissions of a Medicare patient involved a never event. It is estimated that foreign objects left in a patient’s body after surgery occurs once every 5,500 operations. That rate would translate into 9,345 objects left in patients in per year.

Hospitals point out correctly that the data on never events are incomplete, and that collection methods vary. They point to statistical analyses that suggest that occurrence of a never event doesn’t always reflect the hospital’s entire safety record. As a result, they claim never events data shouldn’t be used to compare hospitals, and that this information might confuse, rather than inform, patients. According to Nancy Foster, the vice president for quality and patient safety policy at AHA, “The only thing we have insisted upon is that the measures be accurate and fair, that they represent a real picture of what’s going on in an individual hospital if you’re going to put it up on a public website.”

Oddly, these arguments seem to resonate with regulators, even though the Obama Administration has generally shown a commitment to increased medical transparency. Part of the problem is structural; as the predominant funder of hospitals, CMS has always been an ambivalent regulator. And the AHA has a lot of friends in Congress, allowing them to find mouthpieces for their talking points. At the recent “1,000 Preventable Deaths a Day” Senate hearing on patient safety, Rhode Island Sen. Sheldon Whitehouse noted that “while obviously we all want robust reporting,” the burden on hospitals and the confusion of too much data suggested “focusing on simplifying and directing attention to a few clear agreed measures.” It all sounds so reasonable, until you understand that what AHA and its allies have been pressing on CMS is the elimination of public reporting, not its improvement.

The counter-example of airline regulation clearly demonstrates the self-serving nature of this line of reasoning. Can we imagine an airline executive or lobbyist arguing that the public had no right to know any piece of data about airline safety? But of course in aviation safety, we long accepted the primacy of consumer safety over industry “fairness.” In health care, we still believe that hospitals can kill patients as a result of errors and retain rights to confidentiality. That may help explain why the airline industry grows safer every year, and estimates of deaths from medical errors are now so high they would rank as the third-leading cause of death in America behind only cancer and heart disease.

Let’s say we were “unfair” to hospitals and actually published all never events data, incomplete though they may be. “Irrational” and “poorly informed” patients might avoid hospitals with a lot of never events. Patients who suffered a never event at a hospital might “unfairly” demand compensation upon discovering the particular error occurred frequently. Hospitals might be forced to respond to this patient misuse of data by improving efforts to decrease the incidence of never events. It might all seem terribly unfair to hospitals. But to a patient who trusts his life and well being to a hospital, having a foreign object left in her body after surgery can result in pain, additional treatment and even death. And doesn’t that also seem—what’s the word—unfair?

David Goldhill is the CEO of GSN, a media company, and the author of Catastrophic Care: Why Everything We Think We Know about Health Care is Wrong.

MONEY Social Security

The 5 Key Things to Know About Social Security and Medicare

No need to panic, but both Social Security and Medicare face long-term financial challenges, this year's trustees report finds. There's still time to make fixes.

If you worry about the future of Social Security and Medicare, this is the week to get answers to your questions. The most authoritative annual reports on the long-term health of both programs were issued on Monday, and while the news was mixed, there are reasons to be encouraged about our two most important retirement programs.

Under the Social Security Act, a board of trustees reports annually to Congress on the status and long-term financial prospects of Social Security and Medicare. The reports are prepared by the professional actuaries who have made careers out of managing the numbers and are signed by three cabinet secretaries, the commissioner of Social Security and two publicly appointed trustees—one Republican, one Democrat.

Here are my five key takeaways from this year’s final word on our social insurance programs.

* Imminent collapse nowhere in sight. Social Security and Medicare face long-term financial problems, but there’s no cause for panic about either program.

Social Security’s retirement program is fully funded for the next 19 years. It has $2.8 trillion in reserves, and that figure will rise to $2.9 trillion in 2019, when the surplus funds will begin depleting rapidly as baby boomer retirements accelerate. Although you’ll often hear that Social Security spends more annually than it receives in taxes, the program actually took in $32 billion more than it spent last year, when interest on bond holdings and taxation of benefits are included.

The retirement trust fund will be depleted in 2034, at which point current revenue would be sufficient to pay only 77% of benefits—unless Congress enacts reforms to put the program back into long-term balance.

Medicare’s financial outlook improved a bit compared with last year’s report because of continued low healthcare inflation. The program’s Hospital Insurance trust fund – which finances Medicare Part A— is projected to run dry in 2030, four years later than last year’s forecast and 13 years later than forecast before passage of the Affordable Care Act (ACA).

In 2030, the hospital fund would have enough resources to cover just 85 percent of its expenditures. (Medicare’s other parts—outpatient and prescription drug services—are funded through beneficiary premiums and general revenue, so they don’t have trust funds at risk of running dry.)

Could healthcare inflation take off again? Certainly. Some analysts—and the White House – chalk up the recent cost-containment success to features of the ACA. But clouds on the horizon include higher utilization of healthcare, new medical technology and a doubling of enrollment by 2030 as boomers age.

* Medicare is delivering good pocketbook news. The monthly premium for Medicare Part B (outpatient services) is forecast to stay put at $104.90 for the third consecutive year in 2015. That means the premium won’t take a larger bite out of Social Security checks, and that retirees likely will be able to keep most— if not all—of the expected 1.5% cost-of-living adjustment (COLA) in benefits projected for next year. (Final numbers on Part B premiums and the Social Security COLA won’t be announced until this fall.)

* Social Security Disability Insurance (SSDI) requires immediate attention. The program faces a severe imbalance, and only has resources to pay full benefits only until 2016; if a fix isn’t implemented soon, benefits would be cut by 20 percent for nine million disabled people.

That can be avoided through a reallocation of a small portion of payroll tax revenues from the retirement to the disability program – just enough to keep SSDI going through 2033 while longer-range fixes to both programs are considered. Reallocations have been made at least six times in the past. Let’s get it done.

*Aging Americans aren’t gobbling up the economic pie. Social Security outlays equalled 4.9% of gross domestic product last year and will rise to 6.2% in 2035, when the last baby boomer is retired. Medicare accounted for 3.5% of GDP in 2013; it will be 3.7% of GDP in 2020 and 6.9% in 2088.

* Kicking the can is costly. There’s still time for reasonable fixes for Social Security and Medicare, but the fixes get tougher as we get closer to exhausting the programs’ trust funds. Social Security will need new revenue. Public opinion polls show solid support for gradually eliminating the cap on income subject to payroll taxes (currently $117,000) and gradually raising payroll tax rates on employers and workers, to 7.2% from 6.2%. There’s also strong public support for bolstering benefits for low-income households and beefing up COLAs.

Medicare spending can be reduced without resorting to drastic reforms such as vouchers or higher eligibility ages. Billions could be saved by letting the federal government negotiate discounts on prescription drugs, and stepping up fraud prevention efforts. And an investigative series published earlier this summer by the Center for Public Integrity uncovered needed reforms of the Medicare Advantage program, pointing to “tens of billions of dollars in overcharges and other suspect billings.”

Your move, Congress.

Related stories:

How to Fix Social Security—and What It Will Mean for Your Taxes

Why Taxing the Rich Is the Wrong Way to Fix Social Security

3 Smart Fixes for Social Security and Medicare

 

MONEY Social Security

How to Fix Social Security — and What It Will Mean for Your Taxes

As Baby Boomers retire, the Social Security trust fund is getting closer to running out of money, a new study finds.

Last week I explained why I thought it would be a bad idea to close Social Security’s long-term funding gap by simply making all wages — not just those up to the annual ceiling, which this year is $117,000 — subject to payroll taxes, thereby socking it to wealthier workers. That wasn’t a popular opinion among those who feel it only right to raise the levies on the top 1%, or even top 5%.

“When all other sources have been depleted soak the portfolio holders even more disproportionately,” one critic responded via social-media .

Tweets, unfortunately, don’t make great policy arguments. And as Social Security’s doomsday clock keeps ticking, it’s all the more urgent to come up with a balanced reform strategy and act on it. Last week the Congressional Budget Office projected Social Security’s trust funds would be depleted during calendar year 2030—a year earlier than its previous estimate. If this happens, the program could then pay only about three-fourths of its scheduled benefits.

How, then, to close the funding gap? Although I do not want to see the wealthy as the primary bill-payer for Social Security reform, I do think the payroll tax ceiling is set too low. Today that ceiling, which is $117,000 this year, captures about 83% of all wage income, but it used to apply to 90%. The reason for the decline is widening income inequality, as the upper end of the wage scale has soared disproportionately higher.

Raising the ceiling until it once again covers 90% of the nation’s wage income would help, somewhat, to improve Social Security’s finances, the CBO found. The big headline here is that hiking the ceiling to cover 90% of wages would require a huge jump—from a projected $119,400 in 2015 to $241,600. The steep hike is necessary because high-end earners are a relatively small slice of the U.S. population. Even so, raising the payroll tax ceiling, which more than doubles the amount of Social Security payroll taxes paid by wealthier earners, would close only 30% of the system’s projected 75-year actuarial deficit.

You might wonder why we don’t eliminate the ceiling altogether so all wages are subject to payroll taxes. Glad you asked. Eliminating the ceiling would still close only 45% percent of the deficit, according to CBO. Both these projections assume that wealthier people would also see their Social Security benefits increase.

To make a more significant reduction in the deficit, you could limit Social Security benefit increases for the wealthy to only an additional 5% of pre-retirement earnings. In that scenario, along with eliminating the earnings ceiling, we could close nearly two-thirds of the funding gap. Still, as I wrote last week, I think soaking the rich this way is nearly as bad as soaking poorer people. Soaking people is not what Social Security was or should be about. It’s about requiring people to set aside enough money through a mandatory payroll tax to provide them a modest level of retirement security.

For most people the payouts are, indeed, modest. In 2013 a 66-year old who had earned average wages during his or her working life would qualify for lifetime Social Security payments beginning at $19,500 a year. This amounts to 45% of average pre-retirement income. What’s more, most workers file for benefits early, which sharply reduces the level of income replacement.

Yet that’s pretty much how the program was designed, and even these low levels of replacement income have been enough for Social Security to be a spectacular success. Before the program began in the ‘30s, retirees had the highest poverty rate of any age group. Today they have the lowest. (Medicare gets major credit as well.)

Problem is, even as Social Security has worked well, the other parts of the retirement system have fallen apart. The move from defined benefit pensions to 401(k)s and other defined contribution plans has shifted enormous retirement risk from employers to employees, and the numbers show that many aren’t saving enough to meet their goals.

Given the looming retirement shortfall, there has been growing support to expand Social Security benefits, not contract them. That will be tough to do. As the CBO reported last week, under current rules Social Security’s long-term deficits will continue to balloon. Over the next 25 years, program income will amount to 5.2% of the nation’s gross domestic product, while program benefits will account for 6%.

The fundamental problem is the aging of America. As the wave of Baby Boomers moves into retirement, the number of people collecting Social Security is projected to rise by roughly a third from 58 million today to 77 million in 2024—and by nearly 80% to more than 103 million by 2039. By contrast, the work force, defined as people aged 20 to 64, is expected to increase by only 5% by 2024 and just 11% by 2039.

Something’s got to give. Higher taxes, in one form or another, are inevitable.

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 moeller.philip@gmail.com or @PhilMoeller on Twitter.

MONEY Health Care

Why Does an MRI Cost So Darn Much?

Blood vessel with human brain MRI
This is a very expensive picture to take. Yuji Sakai—Getty Images

A single scan runs $2,600 on average (before your insurance kicks in). Here's what makes this common diagnostic procedure so expensive.

When it comes to pricey hospital procedures, MRIs come to mind. Sure enough, according to recently released Medicare pricing data analyzed by NerdWallet Health, the average cost of an MRI in the U.S. is $2,611. Here’s what’s behind that number.

Make Room for a Big Machine

Magnetic resonance imaging machines use magnets and radio waves to produce black-and-white images of bones and organs, usually to help with a diagnosis. Only five companies make MRI machines, and each specializes in a few magnet strengths, so there is relatively little competition when it comes time for a hospital or medical center to buy one.

Machines come in a variety of sizes and powers. Their imaging power is measured in magnetic field strength units called Teslas; low-field or open MRI machines measure 0.2 to 0.3, while the strongest currently on the market are 3 Teslas. Used low-field MRI machines can be as cheap as $150,000 or as expensive as $1.2 million. For a state-of-the-art 3 Tesla MRI machine, the price tag to buy one new can reach $3 million.

The room that houses the machine, called an MRI suite, can cost hundreds of thousands more. Safety features must be built in to protect those right outside from the magnetic field. Add in patient support areas and installation costs, and a suite with just one machine can cost anywhere from $3 million to $5 million. Recouping these costs factors into your bill, but that alone does not tell the entire story.

Add in the Doctors and Hospitals

Charges for a single MRI scan vary widely across the country for reasons beyond startup costs. According to the recently released Medicare data, MRIs charges are as little as $474 or as high as $13,259, depending on where you go. (Another recent study of medical claims by Change Healthcare found that in-network prices for certain MRIs can run from $511 to $2,815.) That’s because hospitals and medical centers can charge whatever they want, and in most cases they don’t have to justify prices or even disclose them ahead of time.

Doctors can also charge whatever they want, and though the MRI facility probably sets the rates of their staff doctors, you’ll be charged separately for a radiologist to read the MRI. Additionally, your ordering physician may ask for the MRI to be done with or without contrast dye, or both. This “dye” is actually a paramagnetic liquid that responds to the machine’s magnet and helps enhance certain abnormalities on the scan that would not have otherwise been visible, common in neurological MRIs.

This means that in addition to cost of the scan, your total bill for the MRI will include the radiologist fee, the contrast dyes, and the cost of the procedure itself. Depending on the medical center, these charges may be bundled together into one charge. Bundling is one type of common error on medical bills, so always check over an itemized statement before paying for any costly medical procedure.

Read more from NerdWallet Health, a website that empowers consumers to find high quality, affordable health care, and insurance.

 

 

 

 

 

 

 

 

 

 

 

 

MONEY Social Security

3 Smart Fixes for Social Security and Medicare

Betty White in OFF THEIR ROCKERS
Actress Betty White works well past traditional retirement age. Justin Lubin—NBC/Courtesy Everett Collection

The aging of America threatens the financial stability of the nation's safety net programs. Here are sensible reforms that can help.

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.

Related: The New 401(k) Income Option That Kicks In When You’re Old

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 moeller.philip@gmail.com or @PhilMoeller on Twitter.

MONEY Aging

Why Most Seniors Can’t Afford to Pay More for Medicare

Replacing Medicare with vouchers would push costs higher and put older Americans at risk.

Should seniors pay more for Medicare? Republicans think so; they have repeatedly called for replacing the current program with vouchers that would shift cost and risk to seniors.

There’s no doubt this is where Republicans will take us if they capture control of Congress this year, and the White House in 2016. Representative Paul Ryan, the Wisconsin Republican who chairs the House Budget Committee, advocates “premium support” reforms that would give seniors vouchers to buy private Medicare insurance policies in lieu of traditional fee-for-service Medicare.

Under the latest version of Ryan’s budget proposed in April, starting in 2024 seniors could opt to buy premium-supported private plans or stay in traditional Medicare. Ryan has argued that introducing competition will bring down costs over time, and capping the government’s costs does sound like a tempting way to address Medicare’s financial problems.

Medicare’s trustees project total annual spending will jump 78% by 2022, to $1.09 trillion. Much of that increase will be fueled by higher enrollment as the baby boom generation ages.

But premium supports would shift risk to seniors, and could effectively make traditional Medicare much more expensive by siphoning off healthier seniors to private plans. The Congressional Budget Office has estimated that this effect could boost traditional Medicare premiums 50% by 2020 compared with current projections.

Most seniors simply can’t afford to pay more. If you doubt it, check out the new interactive tool launched last month by the Henry J. Kaiser Family Foundation, one of the country’s leading healthcare research groups.

The tool analyzes the income and assets of today’s 52.4 million Medicare beneficiaries, and how their financial picture will change between now and 2030, when 80.9 million people will be covered by the program. It can compare different demographic slices of the Medicare population based on variables such as education, race, gender and marital status—and here you get a stark look at how economic inequality affects the pocketbooks of seniors.

Kaiser’s tool is based on a simulation model developed by the Urban Institute that uses population data to analyze the long-range impact on retirement and aging issues. I encourage you to test-drive the tool, but here are some highlights:

INCOME

Fifty-three percent of Medicare beneficiaries had $25,000 or less in annual income last year; half had savings below $61,400 and less than $67,700 in home equity on a per-person basis.

The income figures reflect the sharp divisions that characterize the wider U.S. population. Just 4% of seniors had income over $100,000 last year; 27% had income below $15,000 (which is just a bit higher than the average annual Social Security benefit).

Healthcare already is one of the largest expenses for seniors, most of whom are on fixed incomes. HealthView Services, which develops software for gauging healthcare costs, recently estimated that a senior retiring this year in high-cost Massachusetts would pay $7,020 in Medicare premiums alone—a number that will jump to $11,536 in 2024. And that figure doesn’t include co-pays and out-of-pocket costs for things Medicare doesn’t cover, such as dental care. It also doesn’t include costs for a catastrophic event.

“Sixty-six thousand in savings is less than the cost of one year in a nursing home,” says Tricia Neuman, senior vice-president at the foundation and director of the foundation’s Medicare policy program. “That tells us that many people on Medicare today don’t have the resources they’d need to pay for a significant health or long-term-care expense if it should arise.”

DEMOGRAPHIC DIVIDES

Neuman says she was especially surprised by the extent of the gaps in income and saving by race, ethnicity and gender. Median 2013 per capita income for white Medicare beneficiaries was $26,400, compared with $16,350 for African Americans and $13,000 for Hispanics.

Men had $25,880 in median income, compared with $21,800 for women. And married couples were better off than singles: Per capita income for married seniors in 2013 was $27,400, compared with $20,250 for divorced people, $21,050 for widows and $14,150 for those who never married.

That’s unlikely to change by 2030. “The model suggests there won’t be phenomenal changes in wealth, or that seniors will be that much more comfortable,” Neuman says.

Neuman says the data also points to continued income inequality and sharp divisions in the status of seniors. In 2030, 5% of Medicare beneficiaries will have income over $111,900, while half will have income below $28,250.

“There will always be a small share of the Medicare population with sufficient wealth and resources to absorb higher costs, but most will not be in that position,” she says. “The assumption that boomers are healthier and wealthier and that we’ll have a much rosier Medicare outlook down the road just isn’t going to happen.”

MONEY Health Care

The State of Senior Health Depends on Your State

Dollars and cents
Finnbarr Webster / Alamy

Reports on senior health reveal a north-south divide. Many worst-ranking states rejected Medicaid expansion.

What are the best and worst places to stay healthy as you age? For answers, take out a map and follow the Mississippi River from north to south. The healthiest people over 65 are in Minnesota, the sickest in Mississippi.

That’s among the findings of the America’s Health Rankings Senior Report released in May by the United Health Foundation. The report ranks the 50 states by assessing data covering individual behavior, the environment and communities where seniors live, local health policy and clinical care.

Minnesota took top honors for the second year in a row, ranking high for everything from the rate of annual dental visits, volunteerism, high percentage of quality nursing-home beds and low percentage of food insecurity. This year’s runners-up are Hawaii, New Hampshire, Vermont and Massachusetts. (See how your state fared here.).

The researchers base their rankings on 34 measures of health. But here’s one you won’t find in the report: state compliance with the Affordable Care Act (ACA). While the health reform law isn’t mainly about seniors, it has one important feature that can boost the health of lower-income older people: the expansion of Medicaid.

The ACA aims to expand health insurance coverage for low-income Americans through broadened Medicaid eligibility, with the federal government picking up 100% of the tab for the first three years (2014-2016) and no less than 90% after that. But when the U.S. Supreme Court affirmed the ACA’s legality in 2012, it made the Medicaid expansion optional, and 21 states have rejected the expansion for ideological or fiscal reasons.

And guess what: Most of the states with the worst senior health report cards also rejected the Medicaid expansion.

Nearly all Americans over age 65 are covered by Medicare. But the Medicaid expansion also is a key lever for improving senior health because it extends coverage to older people who haven’t yet become eligible for Medicare. That means otherwise uninsured low-income seniors are able to get medical care in the years leading up to age 65—and they are healthier when they arrive at Medicare’s doorstep.

Two studies from non-partisan reports verify this. The U.S. Government Accountability Office reported late last year that seniors who had continuous health insurance coverage in the six years before enrolling in Medicare used fewer and less costly medical services during their first six years in the program; in their first year of Medicare enrollment, they had 35% lower average total spending.

The GAO study confirmed the findings of a 2009 study report by two researchers at the Harvard Medical School. That study looked at individuals who were continuously or intermittently uninsured between age 51 and 64; these patients cost Medicare an additional $1,000 per person due mainly to complications from cardiovascular disease, diabetes and delayed surgeries for arthritis.

Fifty-two percent of Medicaid-rejecting states ranked in the study’s bottom third for senior health, including two very large states, Texas and Florida. Many of these states also can be found in a list of states with the highest rates of poverty among people over 65.

What emerges is a north-south divide on senior health. “Many states that haven’t expanded Medicaid are in the South, and there’s a clear link between socioeconomic status and health status,” says Tricia Neuman, senior vice-president at the Henry J Kaiser Family Foundation and director of the foundation’s Medicare policy program. “Insurance may not be the only answer, but it certainly is helpful.”

The United Health Foundation—a non-profit funded by the insurer UnitedHealth Groupdidn’t consider insurance coverage in its study, but it did consider poverty. Minnesota’s rate was 5.4%—well below the 9.3% national rate. Mississippi ranked dead last, with a 13.5% poverty rate.

In states that rejected the Medicaid expansion, we are witnessing a victory of politics over compassion and morality. Jonathan Gruber, an economics professor at the Massachusetts Institute of Technology and a key architect of health reform in Massachusetts and under the ACA, summed it up in an interview with HealthInsurance.org earlier this year, saying that these states “are willing to sacrifice billions of dollars of injections into their economy in order to punish poor people. It really is just almost awesome in its evilness.”

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