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Care and Feeding of Millionaires

May 12, 2011

Hey, if you’re retiring, did you know that you’re worth a million dollars?  John Cogan explains in the Wall St. Journal.

According to my calculations based on government data, such married couples [both turning 65 and receiving benefits] will begin receiving monthly Social Security checks that will, on average, total about $550,000 after inflation. They will receive health-care services paid for by Medicare that, on average, will total another $450,000 after inflation. The benefactors will be a generation of younger workers who are trying to support themselves and their families while paying taxes to finance the rest of government spending.

Hey, you didn’t know you were worth that much!  It’s likely that the average couple paid in about $500k in today’s dollars, so that’s a pretty average interest rate for all those years of paying.  But was that money really saved?

Many of the million-dollar couples believe they rightfully deserve the benefits they have been promised. They have, after all, spent all of their working years paying into Social Security and Medicare. And true enough, the typical 66-year old couple and their employers, on their behalf, have contributed nearly $500,000 in payroll taxes (in today’s dollars) toward these benefits during their working careers.

But regardless of how much they have contributed, the hard reality is that the federal government has already spent it. No matter how deserving they are, it is younger generations of workers who have to come up with the money.

Ah, yes… no, it wasn’t saved.  The money was collected and spent, and there’s a blind trust fund with a bunch of IOU’s in it that we have to pay now.  And meanwhile all the money we’re paying in will be promised back to us… with strings:

To fix Social Security, Congress should start by limiting the increase in benefits of future retirees to the rate of inflation. Congress should then gradually raise Social Security’s normal retirement age. Congress should also allow younger workers to invest a portion of their payroll taxes—and create more incentives for them to invest their earnings—in safe, broadly-diversified, stock and bond funds. This would allow younger workers to become millionaires through their own hard work and thrift.

To fix Medicare, we must move away from the current system of fee-for-services and low copayments. First and foremost, copayments should be increased significantly. Medicare recipients need to have more skin in the game if they are to become cost-conscious medical consumers.

All of these things sound agreeable.  Of course, that likely means that younger workers who are good at saving and building their own retirement will likely be means-tested out of getting anything… and that’s fine, too.  As long as we’re willing to differentiate classes in an otherwise open society.

I don’t have a solution, but this one tweaked me for some reason today.  Here we are meeting commitments that we provided to the current generation of retirees, but we’re doing it on the backs of people who either can’t afford to save on their own, or who will see savings go away in an unfair test later in time.

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2 Comments leave one →
  1. Ellen D. permalink
    May 13, 2011 4:42 pm

    I am a “Boomer” but my husband and I never really expected to be able to collect Social Security as we are on the tail end of the Boomer generation and still years away still from being eligible. We put all we could into retirement starting from when we first got jobs, so we wouldn’t have to depend on SS or Medicare.

    The generation before the Boomers collected more than they paid in, but still felt entitled to COLA increases, etc. I also thought it was a well known fact that SS taxes were just put into the general fund and spent, not set aside or invested for retirees. SS is a Ponzi scheme that makes Bernie Madoff look like a small time swindler.

  2. May 12, 2011 2:25 pm

    A smaller generation is going to pay for a larger generation (the Boomers), who will live longer and get ever-increasing benefits? I saw the piece this morning, and you have given me the perfect place to air my thoughts. Not happy ones, mind you, but I wanted to get them out – thanks!

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