Saving for retirement may be low priority for most new workers. But, the younger generation, experts say, should start saving now and put away more, because their government benefits likely will be less than their older cohorts.
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Reducing benefits is one suggested fix to Social Security, which expects a deficit in 2018, when it will pay out more benefits than it collects in payroll taxes. According to a recent AARP poll, the fixes most favorable to people 50 and older include increasing the payroll tax by 0.5 percent and increasing the wage cap on payroll taxes to $150,000. Most don’t favor raising the age of full benefit to 70.
According to the Bureau of Labor Statistics, people already are working longer. Of those 65 and older, 51 percent worked in 2005, up from 36 percent in 1990.
Retirees can cut their retirement income needs in half, just by working from age 63 to 65, said John Rother, director of policy and security for AARP.
Longer life spans, combined with fewer births, is putting a strain on government pension programs worldwide, said Rudolph Penner, senior fellow with the Urban Institute.
A big problem with the U.S. Social Security program, Penner said, is it’s price-indexed versus wage-indexed, so the elderly can fall behind. When taxes seem to be falling short of payouts, Sweden has an automatic trigger that multiplies its wage benefit by a certain factor.
Most observers believe the problems with America’s Social Security are easily fixed, and will be in the next president’s administration. But Medicare, experts say, is in crisis. Medical costs continue to skyrocket, while federal outlays are expected to nearly double by 2018.
“We can’t do anything with Medicare until we overhaul the whole healthcare system,” said Isabel V. Sawhill, senior fellow of economic studies at the Brookings Institution.
Ideas for reform, she said, include electronic prescribing, a global healthcare budget with forced rationing, subsidies related to income, and turning tax deductions into level credits, say 15 percent regardless of income.
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