Change in the Air (John Rother)

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The Four PillarsThe Four Pillarsof Retirement Securityof Retirement Security

Social SecuritySocial Security

Pensions & SavingsPensions & SavingsEarningsEarnings

Health Insur anceHealth Insurance



Social Security: MAIN retirement inco

for 4/5 of economic brackets

20%

40%

60%

80%

100%

Social Secur ity

Pensions/ Annuities

Public Assistance

Assets

Misc. Other

Wages

Source:

Mar c

h2004CurrentPopula

tionsurvey

Perce n

tofretire m

en

tincome

from

all

sou

rce

s



Social Security: Cash Flow

Estimated OASDI and Cost Rates, 2001-50

[as a % of taxable payroll]

8

9

10

11

12

13

14

15

16

17

18

19

2001 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

Year

PercentofT a

xable

Payroll

2018



Social Security: Projected Trust Fund Assets

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

2001 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

Year

BillionsofDo

llar s

Assets at end of year,including interest

2042

2028

We are here

(in current dollars)



Significant Savings Required at All IncomeLevels to Maintain Standard of Living in

RetirementPre-Retirement FamilyIncome

$50,000 $80,000 $120,000

Income at 70% replacement level $35,000 $56,000 $84,000

Income from Social Security

(at Full Retirement Age) $20,436 $26,820 $35,364Income needed from savings and

investments $14,564 $29,180 $48,636

Principal needed at retirement to

generate above income(if withdrawn at 4% per year) $364,000 $729,500 $1,215,900

Extra needed for average medical

costs per couple

$300,000 $300,000 $300,000

TOTAL savings needed for a

secure retirement

$664,100 $1,029,500 $1,515,900



Defined-Benefit Pensions Disappearing

0%

10%

20%

30%

40%50%

60%

70%

1981 1991 2001

Def ined Ben efi t On ly

Def ined C on tribut ion O

Source: Alicia H. Munnell, Kevin E. Cahill, and Natalia A. Jivan,An Issue In Brief, Number 13, Center for Retirement Research at Boston College, September 2003.

% of Wage & Salary Workers Covered by Plan Type, 1981-2001



Median Amounts in Retirement Accountsby Age Group, 2001 and 2004

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

Under 35 35-44 45-54 55-64 65-74 75+

2001

2004

Source: Brian K. Bucks, Arthur B. Kennickell, and Kevin B. Moore, “Recent Changes in U.S. Family Finances:Evidence from the 2001 and 2004 Survey of Consumer Finances,” Federal Reserve Bulletin, January, 2006.

(in thousands of 2004 dollars)



I in 4 peoplebetween 45-54are takingmoney out of

401(k)s, IRAs



Personal Saving Rates Have Declined Steadilyfor Two Decades

-5%

0%

5%

10 %

15 %

20 %

1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 200

P

ercent of Income

Perso nal saving (FoF )

Perso nal saving (NIPA

Source: Federal Reserve Board, Flow of Funds Accounts, Table F10, Derivation of Measures of Personal Saving, various years.

Trends in Personal Saving Rates, 1985-2006



Boomers’ Net Worth

MedianNe t

Wo

rth

$118,000

$179,000

$146,200

$0

$50,000

$100,000

$150,000

$200,000

$250,000

AllBoomers Boomers51-60 Boomers42-50

Source:A

ARPPub

licPolicy

Institute

research

2004 figures, include home equity; Boomer ages 42-60 currently



62.9

18.421.0 21.8

24.5

28.3

0.0%

11.3 12.5 13.516.3

0.0

4 .3 4 .7 5 .3 6 .4

59.257.2

54.255.9

0%

10%

20%

30%

40%

50%

60%

70%

1 985 1990 1995 2000 2005

55-64

65-69

70-74

75+

Older Americans are Working Longer

Source: U.S. Bureau of Labor Statistics, Labor Force Statistics from the Current Population Survey, 1985-2005,accessed at http://data.bls.gov/PDQ/outside.jsp?survey=ln.

Labor Force Participation Rates for Persons Aged 55 and Older, by Age Group, 1985-2005



Options to StrengthenSocial Security . . .



Raise payroll tax ½ percentage point 24%

Include newly-hired State/Local workers 9%

Raise max. wages subject to Soc Sec tax 43%

Gradually raise age of full benefit to 70 38%

Increase calculation period to 38 years 16%

Index benefits for “average longevity” 25%

Reduce benefits for new retirees (by 5%) 26%

Diversify 15% of Trust Fund investments 16%

“Superlative” index the COLA calculation 14%

Raise the earliest eligibility age 10%



Social Security Poll Results

Reform Options Would Consider FAVOR

Increase wage cap to $150,000 81% 71%

Increase FICA ½ percent 72% 59%

Lower benefit formula 10% for

higher income only

67% 56%

Invest small portion (15%) of Trust Fund 54% 40%

Raise retirement age to 70 47% 33%

Index benefits for average longevity 46% 30%

5% benefit cut for NEW retirees 43% 28%

Convert from wage-indexing to

modified price-indexing

37% 26%

PUBLIC OPEN TO ADEQUATE ADJUSTMENTS




Republican Democrat

Reform Options FAVOR Consider FAVOR Consider

Increase wage cap to $150,000 72% 83% 72% 80%

Increase FICA ½ percent 57% 68% 62% 76%Lower benefit formula 10% for

higher income only

53% 64% 59% 69%

Invest portion (15%) of Trust Fund 50% 63% 34% 50%

Raise retirement age to 70 37% 52% 32% 44%Index benefits for avg. longevity 32% 49% 30% 44%

5% benefit cut for NEW retirees 25% 43% 29% 45%

Convert from wage-indexing to

modified price-indexing

25% 36% 27% 38%

NO LARGE DIFFERENCES BY PARTY




Retirement Savings Accounts FAVOR

Employers should be required to offer payrolldeductions to an IRA 79%

All workers should be enrolled in and contribute to a401(k) plan, unless they opt out 75%

Favor individual retirement savings accounts that

supplement Social Security, with contributions fromboth employee and employer

71%

PUBLIC FAVORS SUPPLEMENTAL SAVINGS





Medicare Reform



Below

Poverty

18%

100-125% oPoverty

10%

125-200% o

Poverty

21%

200-400% oPoverty

28%

Over 400% o

Poverty

23%

Source: MedPAC analysis of the Medicare Current Beneficiary Survey, Cost and Use file, 2004

People on Medicare By Income



0%

20%

40%

60%

80%

100%

Gettin

g Ne

eded Care

Gettin

g Ca

re Quickly

ho co

mmunicate we

ll

ourteou

s, Helpful Staff

Custom

er Service

l Ratin

g of Health Plan

( % "n

ot a problem

")

( % “a

lway

s")

( % “a

lway

s")

( % “a

lway

s")

( % "n

ot a problem

")

( %

“res

pond

ing “9

“ or “10

”)

CAHPS Health Plan Survey Comparison 2006

Source: 2006 CAHPS Health Plan Survey Chartbook

Medica

re

Medica

re

Medicare

Medica

re

Medica

re

Medica

re

Medicare beats Commercial Plansin Patient Satisfaction last 5 years







Rise in Health Care Costs per capita

$3,46

$6,69 $7,09

$9,52

$0

$2,000

$4,000

$6,000

$8,000

$10,000

1993 2004 2006 2011Source: Health Affairs, Trends, Health Spending Projections, February 2007

Projected



NOTES:



$0

$200

$400

$600

$800

Costs for Total Medicare ProgramCosts for Total Medicare Program

Billions

Overall Medicare Costs

Projection

Source: CMS, National Health Accounts

C



Costs for National Health ExpendituresCosts for National Health Expenditures

Billions

Overall Medicare Costs compared to Overall Health CostsSource: CMS, National Health Accounts

$0

$600

$1,200

$1,800

$2,400

$3,000

$3,600

1993 1998 2002 2004 2006 201

Costs for Total Medicare ProgramCosts for Total Medicare ProgramProjection





Analysis of Cost Growth over 4 years

0%

20%

40%

60%

80%

100%

Source:Na

tiona

lHeal th

ExpendituresA

cco

unts:

Definitions,Sources,a

ndMethod

sused

intheNHEA2

004,CMS

GeneralInflation

Medical Inflationabove general inflation

Population Growth

Intensity, Volume,Technological Change

& other residual factors

Factors in Healthcare Cost Growth

2000-04



Annual Malpractice Premiumscompared to total HC Expenditures

Source: In 2005, total National Health Expenditures were $1.988 trillion, CMS.The 2005 amount spent on malpractice insurance was $12 billion, according to NAIC

$1.988 TRILLIONin Health CareExpenditures

$12 billion inMalpractice Premiums



52%

19%

12%4%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Retained as

PersonalIncome

Office Staff Office

Expenses

Malpractice

Premiums

Malpractice Premiums as a Percent of Physician Gross Income

Source: www.cms.hhs.gov/MedicareProgramRatesStats/downloads/mktbskt-economic-index.pdf 2006, 2005 data

P

ercent

ofPhysi cia

nIncome

2005

http://www.cms.hhs.gov/MedicareProgramRates






Effect of Excess HC Cost Growth



NOTES:

4 H l h S i h Bi 10



4 Health Sectors with Biggest 10-yearCost Increases, 1995 through 2004

4.3%

14.9%

0.9%

4.8%

3.5%

9.1%

2.9%

2.4% 4.3%

0.8%

2.8%1.5%

26.8%

20.9%

Hospital Care

Physician and Clinical Services

Dental Services

Other Prof. Services

Home Health Care

Other Non-Durable Medical Product

Rx Drugs

Durable Medical Equipment

Nursing Home Care

Other Personal Health Care

Admin. & Net Cost of Priv. HealthInsurancePublic Health Activity

Research

Structures & Equipment

Source:Calcu

lationsbyPP

IAARPusing

Centersfo

rMedicare&Medicaid

Services,Offi c

eoftheAct u

ary,CY1960-2004Natio

nalHealthEx

penditureData

HospitalsHospitals

Rx DrugsRx Drugs

Physician &Physician &

ClinicalClinicalServicesServices

Administration &Administration &

Net Cost of Private InsNet Cost of Private Ins27%

21%15%

9%





G d Ch i C M t K



Percent of Population

100%

20

40

60

80

20% 40% 60% 80% 100%

0%

3% of costs for50% of people

22% of costs for

1% of people

%

Health

Care

Dollar

sS

pent

Good Chronic Care Management Keyto a Large Segment of Cost

SOURCE: Conwell & Cohen, Agency for Healthcare Research and Quality, Statistical Brief #73, March 2005



Shared responsibility is necessary

BusinessGovernment

Individuals



2004 Election Analysis

– About 43% of the total vote was cast by 50+

– About 17% was cast by Americans 65+

– About 17% was cast by Americans under-30

Change in the Air (John Rother)

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