In our last post, we demonstrated that baby boomers will not be inheriting the trillions that experts predicted would create the wealthiest generation of retirees in history.
Even worse, boomers face enormous expenses, even without considering the potential cost of healthcare reform,
The U.S. Census Bureau says there are more than 77 million baby boomers, defined as those born between 1946 and 1964. By 2030 all boomers will be over 65 and will represent an estimated 20 percent of the population.
The addition of that many retirees is bound to put a strain on both the Social Security system and Medicare, not to mention the long-term care industry. And that strain will be exacerbated if boomers live longer than previous generations, as expected.
Long-term care. Consider the cost of long-term care, for starters. Many of today’s boomers have parents receiving long-term care and it’s costing, on average, $72,270 a year, based on national statistics from the 2009 MetLife’s Mature Market Institute. Long-term care is not covered by health insurance, Medicare or any other government program, so most baby boomers will have to use their personal savings to pay for long-term care.
The National Clearinghouse for Long-Term Care Information estimates that 70% of people over age 65 today will need long-term care services. If baby boomers live longer that today’s seniors, the percentage needing long-term care may be even higher.
Social Security. Social Security is a pay-as-you go system, meaning that the money you have been paying into the system throughout your working life is paying for someone else’s retirement.
When boomers retire, a greater percentage of the population with be retired and a smaller percentage will be working. That means fewer people will be paying to fund Social Security for a much larger population of retirees.
In addition, when people live longer, they collect Social Security for a longer period and that puts further pressure on the system. When Social Security was created, retirement typically lasted only a few years. Today, a person may live for 20 years or more during retirement.
In 1950, there were 16 workers to support each Social Security beneficiary. Today, only 3.3 workers are supporting payments for each retiree so, not surprisingly, the Social Security tax is 70 percent higher than it was in the 1950s. The Social Security Administration projects that the ratio will drop to 2.2 workers per retiree by 2025 and to 1.8 workers per retiree by 2070.
Medicare. Medicare is “headed for a financial abyss,” according to The New York Times, which notes that the trust fund that pays hospital bills will likely run out of money by 2019, “leaving Medicare to limp along with payroll tax collections that would cover only 78 percent of estimated hospital expenditures.”
The Times adds that the trust funds that pay for doctors’ services and prescription drugs is also face rising costs that will drive up premiums and require more funding from general tax revenues.
Will healthcare reform solve this problem? Don’t count on it. To keep the overall cover of reform in the $1 trillion range, Congress is proposing a reduction in Medicare funding by up to $500 billion over the next 10 years – just as boomers are retiring and signing on for Medicare coverage.