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In 2011 The Baby Boomers Start To Turn 65: 

16 Statistics About The Coming Retirement Crisis That Will Drop Your Jaw

Do you hear that rumble in the distance?  

That is the Baby Boomers - they are getting ready to retire. 

On January 1st, 2011 the very first Baby Boomers turn 65. Millions upon millions of them are rushing towards retirement age and they have been promised that the rest of us are going to take care of them.  Only there is a huge problem. 

We don't have the money.  It simply isn't there.  But the millions of Baby Boomers getting ready to retire are counting on that money to be there.  This all comes at a really bad time for a federal government that is already flat broke and for a national economy that is already teetering on the brink of disaster.

So just who are the Baby Boomers?  
Well, they are the most famous generation in American history.  The U.S. Census Bureau defines the Baby Boomers as those born between January 1st, 1946 and December 31st, 1964.  You see, after U.S. troops returned from World War II, they quickly settled down and everyone started having lots and lots of babies.
 This gigantic generations has transformed America as they have passed through every stage of life. Now they are getting ready to retire.
If you add 65 years to January 1st, 1946 you get January 1st, 2011.
The moment when the first Baby Boomers reach retirement age has arrived.
The day of reckoning that so many have talked about for so many years is here.
        Today, America's elderly are living longer and the cost of health care is rising dramatically.  Those two factors are going to make it incredibly expensive to take care of all of these retiring Baby Boomers.
        The sad truth is that the vast majority of Baby Boomers have not adequately saved for retirement.
For many of them, their home equity was destroyed by the recent financial crisis.  For others, their 401ks were devastated when the stock market tanked.
        Meanwhile, company pension plans across America are woefully underfunded.  Many state and local government pension programs are absolute disasters.  
        The federal government has already begun to pay out more in Social Security benefits than they are taking in, and the years ahead look downright apocalyptic for the Social Security program.
If we are not careful all of these Baby Boomers are going to push us into national bankruptcy.  We simply cannot afford all of the promises that we have made to them.
        The following are 16 statistics about the coming retirement crisis that will drop your jaw.....
#1 Beginning January 1st, 2011 every single day more than 10,000 Baby Boomers will reach the age of 65. In fact this hapening every minute, 7 new baby boomers join the 65 crowd That is going to keep happening every single day for the next 19 years.
#2 According to one recent survey, 36 percent of Americans say
that they don't contribute anything at all to retirement savings.
#3 Most Baby Boomers do not have a traditional pension plan because they have been going out of style over the past 30 years.  Just consider the following quote
from Time Magazine: The traditional pension plan is disappearing. In 1980, some 39 percent of private-sector workers had a pension that guaranteed a steady payout during retirement. Today that number stands closer to 15 percent, according to the Employee Benefit Research Institute in Washington, D.C.
#4 Over 30 percent of U.S. investors currently in their sixties have
more than 80 percent of their 401k invested in equities.  So what happens if the stock market crashes again?
35% of Americans already over the age of 65 rely almost entirely on Social Security payments alone.
#6 According to another recent survey, 24% of U.S. workers admit
that they have postponed their planned retirement age at least once during the past year.
Approximately 3 out of 4 Americans start claiming Social Security benefits the moment they are eligible at age 62.  Most are doing this out of necessity.  However, by claiming Social Security early they get locked in at a much lower amount than if they would have waited.
#8 Pension consultant Girard Miller recently told California's Little Hoover Commission that state and local government bodies in the state of California have
$325 billion in combined unfunded pension liabilities.  When you break that down, it comes to $22,000 for every single working adult in California.
#9 According to a recent report from Stanford University, California's three biggest pension funds are as much as
$500 billion short of meeting future retiree benefit obligations.
#10 It has been reported that the $33.7 billion Illinois Teachers Retirement System
is 61% underfunded and is on the verge of complete collapse.
#11 Robert Novy-Marx of the University of Chicago and Joshua D. Rauh of Northwestern's Kellogg School of Management recently calculated the combined pension liability for all 50 U.S. states.  What they found was that the 50 states are collectively facing $5.17 trillion in pension obligations, but they only have $1.94 trillion set aside in state pension funds.  That is a difference of
3.2 trillion dollars.  So where in the world is all of that extra money going to come from?  Most of the states are already completely broke and on the verge of bankruptcy.
#12 According to the Congressional Budget Office, the Social Security system
will pay out more in benefits than it receives in payroll taxes in 2010.  That was not supposed to happen until at least 2016.  Sadly, in the years ahead these "Social Security deficits" are scheduled to become absolutely horrific as hordes of Baby Boomers start to retire.
#13 In 1950, each retiree's Social Security benefit was paid for by 16 U.S. workers.  In 2010, each retiree's Social Security benefit is paid for by approximately 3.3 U.S. workers.  By 2025, it is projected
that there will be approximately two U.S. workers for each retiree.  How in the world can the system possibly continue to function properly with numbers like that?
According to a recent U.S. government report, soaring interest costs on the U.S. national debt plus rapidly escalating spending on entitlement programs such as Social Security and Medicare will absorb approximately 92 cents of every single dollar of federal revenue by the year 2019.  That is before a single dollar is spent on anything else.
#15 After analyzing Congressional Budget Office data, Boston University economics professor Laurence J. Kotlikoff concluded that the U.S. government is facing a
"fiscal gap" of $202 trillion dollars.  A big chunk of that is made up of future obligations to Social Security and Medicare recipients.
#16 According to a recent AARP survey of Baby Boomers, 40 percent of them plan to work "until they drop".

        Companies all over America have been dropping their pension plans in anticipation of the time when the Baby Boomers would retire.  401k programs were supposed to be part of the answer, but if the stock market crashes again, it is absolutely going to devastate the Baby Boomers.
        State and local governments are scrambling to find ways to pay out all the benefits that they have been promising.  Many state and local governments will be forced into some very hard choices by the hordes of Baby Boomers that will now be retiring. Of course whenever a big financial crisis comes along these days everyone looks to the federal government to fix the problem.  But the truth is that after fixing crisis after crisis the federal government is flat broke.
        At our current pace, the Congressional Budget Office is projecting that U.S. government public debt will hit
716 percent of GDP by the year 2080.
But our politicians just keep spending money.  In order to pay the Baby Boomers what they are owed the federal government may indeed go into even more debt and have the Federal Reserve print up a bunch more money.
        So in the end, Baby Boomers may get most of what they are owed.  Of course it may be with radically devalued dollars.  Already we are watching those on fixed incomes being devastated by the rising cost of food, gas, heat and health care.
        What is going to happen one day when prices have risen so much that the checks that our seniors are getting are not enough to heat their homes?
What are we going to do when those on fixed incomes are buying dog food because it is all that they can afford?
We are rapidly reaching a tipping point.  As the first Baby         Boomers retire the system is going to do okay.  But as millions start pouring into the system it is going to start breaking down.
No, there is not much that we can do about it now.  
We should have been planning for all of this all along.  Americans should have been saving for retirement and governments should have been setting money aside.
But it didn't happen. Now we pay the price.

What’s Happening to My Medicare?

As debt reduction talks continue in Washington, changes to Medicare to save federal dollars have gained widespread support from the Medicare Payment Advisory Commission (MedPac), policymakers and Congressional representatives. Many of the proposed changes would affect both current and future Medicare beneficiaries, but in significantly different ways, depending on which changes are adopted. Savings to the Medicare program in “Washington speak” usually mean reducing the number or amount of services beneficiaries receive which translates to beneficiaries paying more of their own health care costs.

Besides reducing the deficit, Congress is also challenged with slowing the growth of future spending. This is where the rising costs of Medicare poses a problem. Medicare costs have been increasing because beneficiaries are living longer and needing more services as they get older. In addition, more people are becoming eligible for Medicare benefits as baby boomers turn 65. Each of these trends increases Medicare’s costs.

From 2002 to 2009 Medicare costs increased 4.6% per person compared with 6.1% per person for similar benefits in the private market because the cost of medical care services remains uncontrolled.

Apart from those two trends, Medicare expenditures areincreasing, although at a lower rate than the private health insurance market. For instance, from 2002 to 2009 Medicare costs increased 4.6% per person compared with 6.1% per person for similar benefits in the private market because the cost of medical care services remains uncontrolled. In addition, Medicare has often led the way in pioneering new payment methods and systems at an administrative cost much lower than the private insurance market.

Many in Washington believe Medicare’s rising costs are, in part, a result of Medicare beneficiaries not having enough “skin in the game.” If they did, they would be more cautious about using health care services since they would have to pay more of the cost of their own care. This view point assumes that beneficiaries currently use health care services whether they need them or not, and if they had to pay more, they would use only the services they really need. However, there is no evidence that Medicare beneficiaries over utilize health care services, or that the services they use are unnecessary. Most beneficiaries have legitimate health care needs, either because they are older or because they are disabled. Nearly half of this population has 3 or more chronic health conditions, while 1/3 have cognitive or mental impairments. Medicare beneficiaries already spend on average 15% of their annual fixed income on health care expenses, many of which are not covered by Medicare such as dental, hearing, glasses and long-term care. Moreover, Medicare only covers and pays for services that are medically reasonable and necessary, and a beneficiary who uses services that are not medically necessary would have to pay for them.

Half of all Medicare beneficiaries have incomes of $22,000 or less, and can ill afford additional costs to use health care services. The risk of adding additional cost-sharing is that beneficiaries may delay or forego necessary services because they cannot afford those costs. If beneficiaries delay important and necessary care they may need more care later when they are sicker, and care is more expensive.

Described below are a few of the proposals that would most directly impact Medicare beneficiaries.

Voucher or premium support

A popular notion in Washington would limit the amount of money the federal government spends each year for a Medicare beneficiary. Instead of covering a required set of benefits for every beneficiary under the system today, this proposal would give a certain amount of money, a defined contribution, to each beneficiary to buy his or her own insurance. The federal contribution, also referred to as premium support or voucher, would increase each year but by less than the rate of medical inflation, resulting in beneficiaries paying a larger portion of their own premium cost each year. Over time, Medicare beneficiaries would pay an increasingly larger share of the premium for their Medicare benefits and would have higher out-of-pocket costs. The federal government’s Medicare costs would still increase, but would do so more slowly than today.

This proposal is usually combined with another one that would require beneficiaries to buy Medicare benefits in the private insurance market, much like they do today in the Medicare Advantage and Part D programs. Beneficiaries would be responsible for paying the premiums of the plan they select and for any other costs the plan imposes on them. These proposals neither contain any restrictions for premiums based on age, nor require consumer protections that would be critical for this population. In addition to premiums, Medicare beneficiaries could be faced with higher out-of-pocket spending for deductibles and copayments in the plan they select.

Restructure Medicare to add more cost-sharing

Another popular idea is to restructure Medicare by creating a single annual deductible amount for Parts A and B ($500 up to $750 per individual) combined with an annual out-of-pocket limit ($5,000 up to $7,500 per individual). While this would be simpler than the separate deductibles for Part A and Part B today, it would shift a significant amount of the cost to beneficiaries. Under this proposal, new copayments would be required for all Medicare covered services, including hospital inpatient services, skilled nursing facility care and home health care.

In addition, this and other proposals would prohibit retiree plans, Medigap policies, the Federal Employees Health Benefit program and TriCare-for-Life from paying any annual deductible that becomes law, and at least half of any out-of-pocket costs. The thinking behind these proposals is that Medicare beneficiaries would use fewer medical services if they have to pay a significant amount of the cost for those services at the time of use, and hence, federal Medicare dollars would be saved. However, if beneficiaries have to pay copayments when they need care, they may delay or do without care, including preventive care services which have no copayment but are accessed through other services that do have a copayment. Some studies show this would result in beneficiaries waiting until they are sicker and need more expensive care. Thus any savings projected by these proposals could be wiped out by more costly care received later.

Discourage benefits that supplement Medicare

In addition to the restrictions on benefits discussed above, several proposals would penalize Medicare beneficiaries in a variety of ways if they purchase or have supplemental benefits that pay their out-of-pocket expenses. Some proposals would tax the Medigap insurers who offer these Medicare supplement plans. Insurers would likely pass on the tax to consumers in higher premiums for those products.

Other proposals would reduce employers’ tax benefits as a way to discourage them from providing generous retiree benefits that supplement Medicare. Several also include a provision to impose premiums and copayments for military retirees with TriCare-for-Life benefits.

Another proposal would impose higher Part B premiums on anyone who had existing supplemental benefits that cover deductibles and copayments.

Each of these proposals is intended to save Medicare dollars by requiring beneficiaries to pay more and to discourage them from using health care services.

Higher income beneficiaries

Several proposals would require higher income beneficiaries to pay a higher Medicare premium, and some would require higher income beneficiaries to pay a higher deductible amount than other Medicare beneficiaries. Individuals with annual incomes over $85,000 or couples with incomes over $170,000 already pay higher premiums for both Part B and Part D, and in general paid higher Medicare taxes while working. Several proposals would increase the amount of premium this group pays, while other proposals would freeze or remove an inflation adjustment until at least 25% of Medicare beneficiaries are in this category. Some proposals would tie premiums to people’s individual income, converting Medicare to a means-tested program.

Increase the age of eligibility for Medicare

One proposal increases the Medicare eligibility agefrom 65 to 67, and another increases it to 70. However, delaying eligibility until 67 or 70 would cost Medicare more, as well as increase costs for employers and individuals age 65 to 70. Compared to people in their 70s and 80s, those who are 65 to 70 are generally healthier and need fewer health care services. If the Medicare eligibility were delayed, Medicare could collect premiums only from these older beneficiaries who generally need more services thereby increasing Medicare’s costs.

Conversely, compared to the younger working population, younger seniors are older workers, and their health insurance premiums tend to be higher and their claims costs greater than much younger employees. More of these seniors would remain in the workforce or take advantage of retiree coverage driving up the cost to employers.

Younger seniors without employer health coverage would have to buy insurance from the private individual market paying higher premiums based on their age.

What can we do?

While we at California Health Advocates appreciate the need to reduce the federal deficit, we do not believe proposals that cut spending by increasing beneficiary out-of-pocket costs will solve the problem. Instead, the rising cost of health care services must be brought under control by focusing on wellness and prevention, bundling payments, reducing waste, encouraging efficiency such as coordinating care and using electronic health records, and giving providers incentives to hold down costs. We need to change the health care system to aim for better health care that results in better health outcomes.

The new health law, the Affordable Care Act, introduced initiatives to control costs as well as pay for value instead of volume. Instead of focusing on cutting Medicare spending by shifting the cost to beneficiaries, lawmakers should build on the initiatives in the Affordable Care Act and address the challenge of taking care of a growing Medicare population without adding to the federal deficit.                                

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