Will aging boomers lose benefits?

Baby boomers grew up skeptical of authority, so it's hardly surprising that some of them doubt the government will deliver the full Social Security and Medicare benefits it has promised.

Bruce Benton, who turns 62 on Bastille Day, July 14, is one of them. He plans to file for early Social Security payments rather than wait till age 65 to draw a larger monthly check. He says his move is calculated, in part, to protect his benefits from possible cuts by Washington.

"I doubt very much it's going to change much for those people already drawing" benefits, Benton says. "It can't hurt to get locked in."

Will boomers see their benefits diminished during their long retirements?

It's impossible to say for sure. Aware of their political muscle, Congress will likely try to shield those in or near retirement from cutbacks in Social Security benefits. But a rough consensus among experts is that a projected long-term explosion of health care costs could force sweeping changes in both Medicare and private health insurance.

Peter Orszag, head of the non-partisan Congressional Budget Office, warns that delaying tactics by lawmakers will only put the programs and the economy at greater risk. If Congress fails to act, the CBO cautions, the result will be swollen debt and deficits, higher inflation and reduced living standards.

The coming surge in federal health and retirement spending may be one case where boomers, for all their size, can't control their destiny. Polls have shown that a majority of those 55 and older consider Social Security in crisis, rising to about 70% for younger people. Medicare draws less attention from boomers, even though it faces far more severe projected shortfalls than Social Security does.

Social Security's long-term financing gap is due mainly to the aging of the baby boomers, rising life expectancy and the fact that fewer workers will be paying Social Security taxes to support more retirees.

The solution isn't to tap your Social Security benefits at 62 — the earliest age of eligibility and the age the oldest boomers turn this year. Doing so could shrink your lifetime benefits. In any case, many plans to reform Social Security would protect those 55 and older from cuts.

Nor is there much that boomers can do to shield themselves from possible reductions in Medicare, which are being driven more by escalating health costs than by the aging population. Without changes, combined spending on Medicare for elderly and Medicaid health care for the poor is projected to jump from 4% of the overall economy to 19% by 2082, thereby crowding out spending for other programs, the Congressional Budget Office says.

The American Academy of Actuaries says eliminating the 75-year Medicare deficit would require an immediate 122% increase in the 2.9% Medicare payroll tax, a 51% cut in benefits, or a combination of the two.

"Changes are on the long-term horizon, but it doesn't appear that major changes are imminent in the short term," says Tricia Neuman of the Kaiser Family Foundation. "The good news for people who are approaching Medicare age is that there is now a drug benefit."

Some boomers seem to be banking on a third option: that Congress will remain so mired in gridlock that politicians won't be able to agree on major program changes.

"I've got about a 50-50 chance" of getting full projected Social Security benefits, estimates Jerry Emory of Humble, Texas, who turns 62 this year but plans to wait until he's closer to 65 to tap his benefits.

Social Security

Created during the Depression, Social Security is the nation's most successful anti-poverty program, providing retirement, disability and survivor benefits to 50 million people. During the 1970s, Congress expanded benefits. In the 1980s, lawmakers fixed a financing crunch, in part by raising the eligible retirement age. In the 1990s, they raised taxes on benefits.

By 2017, Social Security is expected to start paying out more than it collects in payroll taxes. It faces a funding gap over the next 75 years of about 1.8% of taxable payroll. That gap could be addressed by raising taxes or cutting benefits by a like amount, CBO says.

Politicians have been mulling ideas to solve the problem, including a further retirement-age boost or a less-generous formula for calculating benefits, which would mainly hit younger workers. One presidential candidate, Sen. Barack Obama, D-Ill., has suggested boosting the amount of income subject to the Social Security payroll tax, now capped at $102,500. Republican hopeful Mike Huckabee might offer Americans a one-time tax-free buyout of their benefits and create private investment accounts.

But there are no guarantees.

"Just because you've started to receive benefits doesn't mean substantial changes won't affect you," Cori Uccello of the American Academy of Actuaries says of Social Security and Medicare. "If we wait too long to make changes, it may not be possible to grandfather people in under the old rules."

Boomers could suffer if Congress changes how Social Security cost-of-living increases are calculated or further raises taxes on benefits.


Medicare, which provides health care for 43 million elderly and disabled, is a much more urgent problem, as well as a trickier and more complex issue to address.

Orszag says significant savings might occur by better targeting payments to more cost-effective medical treatments.

"I'm an optimist," Orszag says. "There are opportunities to remove costs from the system without harming health care."

But the funding gap is so serious that there's no way to achieve a solution without affecting benefits or revenue. Changing how Medicare pays health providers could reduce spending. It could also prompt other changes in the broader health care system.

Past Medicare laws that set payment caps for some medical services led to parallel moves in private health plans. Similarly, steps by Congress to reform the broader health care system by moving toward government-mandated insurance or greater use of tax incentives could also affect Medicare.

"There are wide-ranging options," says Neuman of the Kaiser Family Foundation. "There are changes that could directly affect beneficiaries … providers, doctors, hospitals; there are changes that could affect insurers. And there are more structural changes" that could affect health care for all.

A solution to Social Security and Medicare will require Congress to muster a political will it hasn't shown recently. It will require tradeoffs between protecting those now on the rolls and ensuring fairness for younger adults paying into the programs.

"There's no one solution that's painless," Uccello says. "Whatever we do is going to require some shared burden on all the parties."