Within the next few years, America’s health care and retirement systems will be called upon to meet the needs of a growing generation of Seniors unlike any that have come before them Government programs created to help to Seniors during a time when they can no longer rely on a regular income will not be able to keep up with the demand of the new aging population.

• In 2004, there were 36.3 million Seniors living in the United States (Statistics on the Aging Population, Administration on Aging, 4/18/06)
  
  
• In 2006, the baby boom generation begins to retire. That means, over the next 20 years, 78.2 million people will retire - more than twice then number of Seniors retiring in 2005. (“Oldest Baby Boomers to Turn 60!” U.S. Census Bureau, 1/3/06)
  
  
• Every day this year, another 7,918 people turn 60, or 330 every hour. (Ibid.)
  
  
• By 2030, the United States will be home to 71.5 million people age 65 or older, representing 20 percent of the population. In 2000, just 12.4 percent of the population was at least 65 years old. (“A Profile of Older Americans: 2004,” Department of Health and Human Services Administration on Aging, 4/18/06)

Not only will the country’s support services be required to meet the needs of more people, but they may also be called upon to provide services for a longer period of time. Due to advances in medical research over the last few decades, Americans are living longer and healthier lives.

• The average American is living to be almost 78 years old. (National Center for Health Statistics, Life Expectancy Hits Record High, Feb. 28, 2005)
  
  
• The average life expectancy of the modern Senior is 83 years. (“A Profile of Older Americans: 2004,” 4/18/06)
  
  
• The survival rate of individuals afflicted with many of the leading causes of death, including heart disease and cancer, is increasing. (National Center for Health Statistics,Life Expectancy Hits Record High, Feb. 28, 2005)
  
  
• The number of people living to be at least 85 years old is expected to double, from 4.7 million in 2003 to 9.6 million in 2030. (“A Profile of Older Americans: 2004,” 4/18/06)

As the baby boom generation begins to retire, the nation’s health care system will be called upon to treat more Seniors than ever before.

• In 2004, Medicare (available to Seniors) served 42 million people and 57 million individuals were covered by Medicaid (available to low-income individuals). (Congressional Budget Office, The Long-Term Budget Outlook, December 2005)
  
  
• Also in 2004, 79.1 million people received benefits from government health insurance programs compared to 76.8 million in 2003. (U.S. Census Bureau, Income, Poverty, and Health Insurance Coverage in the United States: 2004, August 2005)

While many Seniors continue to receive health care benefits through their former employers or private health plans, most rely at least to some extent on government-provided health care.

• The federal government provided health care through Medicare, Medicaid and military health care programs to 96 percent of all people age 65 or older in 2003. (“A Profile of Older Americans: 2004,” 4/18/06)

Over the last 30 years, national health care spending (both government and private combined) increased at a faster rate than the economy.

• Medicare spending was $301.5 billion in fiscal year (FY) 2004. (Congressional Budget Office, The Long-Term Budget Outlook, December 2005)
  
  
• Medicaid costs in 2004 totaled $176 billion. (Ibid.)
  
  
• As a percentage of Gross Domestic Product (GDP), Medicare costs are expected to increase from 2.6 percent in 2004 to 3.3 percent in 2006, 7.5 percent in 2035 and 13.6 percent by 2079. (2005 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds, Centers for Seniors and Retirement Security

The retirement of the baby boomers will also put a financial strain on the Social Security program millions of Americans have come to rely on. Even as the number of beneficiaries increases, the number of workers paying into the system will not keep pace.

• There were 47.7 million Social Security recipients in 2004. (Annual Statistical Supplement 2005, Social Security Administration, February 2006)
  
  
• For one-third of America’s Seniors, Social Security comprises more than 90 percent of income. (“The Future of Social Security,” Social Security Administration, March 2005)
  
  
• For 65 percent of Seniors, more than half of their income is derived from Social Security. (Ibid.)
  
  
• In 2005, more than 150 million people paid into Social Security expecting to receive benefits when they retire. (The 2005 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds, Social Security Administration, 4/5/05)
  
  
• The program paid out a total of $493 billion in benefits in 2004 and an estimated $521 billion in 2005. (Ibid.)
  
  
• In 2004, Social Security expenses accounted for 4.4 percent of GDP. By 2030, Social Security will eat up more than six percent of the economy. (“The Outlook for Social Security,” Congressional Budget Office, June 2004)
  
  
• Even though Social Security costs will increase, the ratio of payroll taxes collected to pay benefits compared to GDP is projected to stay about the same: five percent. (Ibid.)

Overview & History

Social Security was created in 1935 by President Roosevelt. Over the years, the program has expanded to provide benefits to a worker’s dependents, survivor and disability benefits, and hospital and medical insurance. The law has also been amended several times to increase the amount of monthly benefits, adjust the rate of withholding, the amount of income taxed, the amount of benefits taxed and the age at which a retiree can begin collecting benefits.

The Social Security system is financed through the collection of payroll taxes levied on employers and workers. The payroll taxes, formally known as the Federal Insurance Contributions Act (FICA) taxes, fund Old-Age and Survivors Insurance (OASI), Disability Insurance (DI), and Medicare. The Old-Age and Survivors and Disability Insurance (OASDI) portion of the taxes are credited to the Social Security Trust Fund.

The Trust Fund

By law, all payroll taxes collected for the purposes of Social Security are required to be paid out in benefits. Considered pay-as-you-go financing, the benefits currently paid out to Seniors are financed with the payroll taxes collected from younger workers.

Any taxes collected in excess of what is needed to pay out benefits (the cash flow surplus) are invested in U.S. government-backed securities. If at anytime Social Security expenses exceed Social Security income, the securities are cashed in and paid back with interest.

• Contrary to popular belief, the payroll taxes paid by younger workers are not set aside for their retirement. That money is used to pay the benefits of Seniors currently receiving benefits. (Social Security: The Trust Fund, Congressional Research Service, 8/11/05)
  
  
• Surplus Social Security taxes are invested, allowing the cash to be used to finance other federal programs. Thus, surplus Social Security funds are “borrowed” by the general Treasury. (Ibid.)
  
  
• Cashing in these securities can only be paid for by a) reducing federal spending on other programs, b) raising taxes, or c) increasing the debt. (“Social Security: Answers to Key Questions,” GAO, May 2005)
  
  
• The Social Security Trust Fund is an accounting mechanism; the Trust Fund holds no real  economic assets because all assets are either paid out in benefits or used to buy securities.  (Ibid.)
  
  
• In 2004, the Social Security Trust Fund collected $702 billion in income and paid out $521 billion in benefits. (2006 Annual Report of the Board of Trustees to the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds, Social Security Administration, 5/1/06)
  
  
• Total funds credited to the Trust Fund in 2005 were $1.9 trillion. (Ibid.)
  
  
• Interest contributed $94.3 billion to the Trust Fund in 2005, an effective annual interest rate of 5.5 percent. (Ibid.)
  
  
• In 2005, 48 million people received Social Security benefits. (Ibid.)

SUMMARY:

Social Security is sound for today’s seniors and for those nearing retirement, but it needs to be fixed for younger workers – our children and grandchildren. The government has made promises it cannot afford to pay for with the current pay-as-you-go system.

• In 1950, there were 16 workers to support every one beneficiary of Social Security.
• Today, there are only 3.3 workers supporting every Social Security beneficiary.
• In 2008 – just three short years from now – baby boomers will begin to retire. And over the next few decades, people will be living longer and benefits are scheduled to increase dramatically. By the time today’s youngest workers turn 65, there will only be 2 workers supporting each beneficiary.
• Under the current system, today’s 30-year-old worker will face a 27% benefit cut when he or she reaches normal retirement age.

If we do not act to fix Social Security now, the only solutions will be dramatically higher taxes, massive new borrowing or sudden and severe cuts in Social Security benefits or other government programs.

• Just 13 years from now, in 2017, the government will begin to pay out more in Social Security benefits than it collects in payroll taxes – and shortfalls then will grow larger with each passing year.
• By the year 2027, the government will somehow have to come up with an extra $200 billion a year to keep the system afloat.
• By 2033, the annual shortfall will be more than $300 billion a year.
• By 2041, when workers in their mid-20s begin to retire, the system will be bankrupt – unless we act now to save it.