Over recent months the issue of the federal budget deficit has been one of the most hotly debated topics on Capitol Hill. Social Security, Medicare, and Medicaid expenditures accounted for 43% of the annual federal budget in FY 2010, and the number of people who will be eligible for these programs are expected to increase dramatically over the coming years. So those who are concerned about the deficit suggest that we can’t make any headway without cutting these programs.
Those concerned about the cost state that the current workforce is not large enough to pay for the “entitlements” of these masses of baby boomers who are reaching retirement age. There are those among the boomers who would suggest that they paid into the programs for 30, 40, or 50 years when there were fewer people receiving Social Security and Medicare benefits. They wonder why receiving their earned benefits would require deficit spending in light of their massive contributions over the decades.
Some go on to mention the fact that many people die before they reach the age of 65 or 66 without ever receiving a penny, and all of their contributions should be sitting safely in the Social Security “lock box,” perhaps resulting in a surplus. And it should also be noted that Social Security and Medicare benefits are not allotted to those who did not contribute into them, so they cannot truly be defined as “entitlements.”
Here’s the problem. First, contributions do not go into a designated investment account for you, one that will earn interest and grow for you during your career years. The Social Security system is a “fund” in name only. Your tax dollars – your contributions – are being used to pay the benefits of current beneficiaries, those receiving their Social Security and Medicare benefits now. That’s a surprise to many.
Second, beneficiaries are taking out more over their lifetime than they contributed. For example, a couple now 65 who earned an average wage of $43,100 each during their career contributed $690,000. They will take out $882,000 in benefits. And as our society ages it will only get worse. In short, this is a recipe for disaster.
There are indeed a number of questions that could rightly be injected into the debates surrounding Social Security and Medicare funding, and perhaps we’ll see some of them asked as the dialogue continues.
To get a feel for the public sentiment with regard to cuts to the federal budget the Kaiser Family Foundation recently conducted a poll that provided some useful feedback. 62% of Americans polled stated that they did not favor any cuts at all to Social Security; 57% were against Medicare cuts; and half of the people who responded said they did not support cuts to Medicaid.
In other words, those who often complain about government spending refuse to acknowledge they are part of the problem. As Pogo said, “We have met the enemy, and he is us.” As a nation we may not have the political will to fix this.
If you are planning for your retirement it would be logical for you to have anticipated receiving these benefits when you do reach full retirement age. It would be difficult for many people to adjust to a new playing field just as they reach retirement age. These polls reflect this feeling, but in spite of popular opinion at this time it is hard to predict with any certainty exactly what these programs will look like in the future.
Parman & Easterday are members of the American Academy of Estate Planning Attorneys.