The Four Pillars

of Retirement Security

Social Security Earnings

Pensions & Savings Health Insurance
 Social Security: MAIN retirement incom
for 4/5 of economic brackets
Misc. Other
100% Public Assistance
Percent of retirement income

Assets

Pensions/Annuities

Source: March 2004 Current Population survey

80%
from all sources

60%
Social Security

40%

20% Wages
 Social Security: Cash Flow
19

18
Percent of Taxable Payroll

17

16

15

14
2018
13

12

11

10

8
2001 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

Year

Estimated OASDI and Cost Rates, 2001-50

[as a % of taxable payroll]
Social Security: Projected Trust Fund Assets
(in current dollars)
$7,000
Assets at end of year,
including interest
2028
$6,000

$5,000
Billions of Dollars

We are here
$4,000

$3,000

$2,000

$1,000
2042
$0
2001 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

Year
 Significant Savings Required at All Income
Levels to Maintain Standard of Living in
Retirement
Pre-Retirement Family $50,000 $80,000 $120,000
Income
Income at 70% replacement level $35,000 $56,000 $84,000
Income from Social Security
(at Full Retirement Age) $20,436 $26,820 $35,364
Income needed from savings and
investments $14,564 $29,180 $48,636
Principal needed at retirement to
generate above income $364,000 $729,500 $1,215,900
(if withdrawn at 4% per year)
Extra needed for average medical $300,000 $300,000 $300,000
costs per couple
TOTAL savings needed for a $664,100 $1,029,500 $1,515,900
secure retirement
Defined-Benefit Pensions Disappearing
% of Wage & Salary Workers Covered by Plan Type, 1981-2001
70%
60% D efin ed B en efit O n ly

50% D efin ed C o n trib u tio n O n ly

40%
30%
20%
10%
0% 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.
1981 1991 2001
Median Amounts in Retirement Accounts
by Age Group, 2001 and 2004
(in thousands of 2004 dollars)
$90
$80
$70 2001
$60 2004

$50
$40
$30
$20
$10
$0
Under 35K. Bucks,35-44
Source: Brian Arthur B. Kennickell, 45-54 55-64
and Kevin B. Moore, “Recent Changes in U.S. 65-74
Family Finances:
Evidence from the 2001 and 2004 Survey of Consumer Finances,” Federal Reserve Bulletin, January, 2006.
75+
I in 4 people
between 45-54
are taking
money out of
401(k)s, IRAs
Personal Saving Rates Have Declined Steadily
for Two Decades
Trends in Personal Saving Rates, 1985-2006
20%

15%
Personal saving (FoF)
Personal saving (NIPA)

10%
Percent of Income

5%

0%
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Source: Federal Reserve Board, Flow of Funds Accounts, Table F10, Derivation of Measures of Personal Saving, various years.
-5%
 Boomers’ Net Worth
2004 figures, include home equity; Boomer ages 42-60 currently
$250,000

Source: AARP Public Policy Institute research

Median Net Worth

$200,000 $179,000
$146,200
$150,000
$118,000
$100,000

$50,000

$0
All Boomers Boomers
Boomers 51-60 42-50
 Older Americans are Working Longer
Labor Force Participation Rates for Persons Aged 55 and Older, by Age Group, 1985-2005
70%

62.9%
60%
59.2%
57.2%
55.9%
54.2%
50% 55-64
65-69
70-74
40% 75+

30% 28.3%
24.5%
21.0% 21.8%
20% 18.4%
16.3%
12.5% 13.5%
11.3%
10%
6.4%
4.3% 4.7% 5.3%

0%Source: 0.0%
0.0%
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.
1985 1990 1995 2000 2005
Options to Strengthen
Social 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
PUBLIC OPEN TO ADEQUATE ADJUSTMENTS
Reform Options Would Consider FAVOR
Increase wage cap to $150,000 81% 71%
Increase FICA ½ percent 72% 59%
Lower benefit formula 10% for 67% 56%
higher income only
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 37% 26%
modified price-indexing
 Social Security Poll Results
NO LARGE DIFFERENCES BY PARTY
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 53% 64% 59% 69%
higher income only
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 25% 36% 27% 38%
modified price-indexing
 Social Security Poll Results
PUBLIC FAVORS SUPPLEMENTAL SAVINGS
Retirement Savings Accounts FAVOR
Employers should be required to offer payroll
deductions to an IRA 79%

All workers should be enrolled in and contribute to a

401(k) plan, unless they opt out 75%

Favor individual retirement savings accounts that

supplement Social Security, with contributions from 71%
both employee and employer
Medicare Reform
People on Medicare By Income
Below
Over 400% of Poverty
Poverty 18%
23%
100-125% of
Poverty
10%
200-400% of
Poverty 125-200% of
28% Poverty
21%
Source: MedPAC analysis of the Medicare Current Beneficiary Survey, Cost and Use file, 2004
 G
et
tin
g
N
ee

100%

20%
40%
60%
80%

0%
(%de
"nd
G ot C
a ar
et pr e
tin ob
g le
m
C ")
ar
e
(%Q Medicare
ho “ua ic
lw k
co ayly
m s"
)
m

(%
un
i

“a
lw
ca

ay
te Medicare

s ")
ur
te w
el
ou l
s ,H

(%
el

“a
pf
Medicare

lw
ul

ay
S

s"
)
ta
C f f
us
om(% t
er"n
Sot a Medicare
lR er p
at (% virob
cele
in “ m
g res ")
Source: 2006 CAHPS Health Plan Survey Chartbook
o f po
CAHPS Health Plan Survey Comparison 2006

H ndi
eang Medicare
lth“9“
Plor “
an10
”)

Medicare
in Patient Satisfaction last 5 years
Medicare beats Commercial Plans
Rise in Health Care Costs per capita

Projected
$10,000
$9,525
$8,000

$6,000 $7,092
$6,697

$4,000

$2,000 $3,469

$0
1993 2004 2006
Source: Health Affairs, Trends, Health Spending Projections, February 2007
2011
NOTES:
 Costs for Total Medicare Program
$800 Projection

$600
Billions

$400

$200

$0 Overall Medicare Costs

Source: CMS, National Health Accounts
Costs for National Health Expenditures
Costs for Total Medicare Program
$3,600 Projection

$3,000

$2,400
Billions

$1,800

$1,200

$600

$0
Overall Medicare Costs compared to Overall Health Costs
1993 1998 2002 2004 2006 201
Source: CMS, National Health Accounts
Analysis of Cost Growth over 4 years
2000-04

Definitions, Sources, and Methods used in the NHEA 2004, CMS

100%

Intensity, Volume,
Technological Change
80%

Source: National Health Expenditures Accounts:

& other residual factors

60% Population Growth

Medical Inflation
above general inflation
40%

General
Inflation
20%

Factors in Healthcare Cost Growth

0%
 Annual Malpractice Premiums
compared to total HC Expenditures
$12 billion in
Malpractice Premiums

$1.988 TRILLION
in Health Care
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
Malpractice Premiums as a Percent of
Physician Gross Income
100% 2005
90%
Percent of Physician Income

80%
70%
60% 52%
50%
40%
30% 19%
20% 12%
10% 4%
0%
Retained as Office Staff Office Malpractice
Personal Expenses Premiums
Source: www.cms.hhs.gov/MedicareProgramRatesStats/downloads/mktbskt-economic-index.pdf 2006, 2005 data
Income
 Effect of
Excess HC Cost Growth
NOTES:
4 Health Sectors with Biggest 10-year
Cost Increases, 1995 through 2004
2.4% 4.3% Hospital Care

Services, Office of the Actuary, CY 1960-2004 National Health Expenditure Data

2.9% Physician and Clinical Services

Source: Calculations by PPI AARP using Centers for Medicare & Medicaid
26.8%
9%
9.1%
Dental Services

Administration &
Net Cost of Private Ins
27% Other Prof. Services

Home Health Care

3.5% Hospitals Other Non-Durable Medical Products

Rx Drugs
4.8%
21% Durable Medical Equipment
0.9% 15% Physician & Nursing Home Care
Rx Drugs Clinical Other Personal Health Care
Services Admin. & Net Cost of Priv. Health
Insurance
14.9% Public Health Activity
20.9% Research
0.8%
Structures & Equipment
1.5% 2.8% 4.3%
 Good Chronic Care Management Key
to a Large Segment of Cost
SOURCE: Conwell & Cohen, Agency for Healthcare Research and Quality, Statistical Brief #73, March 2005

100%

22% of costs for

% Health Care Dollars Spent

80
1% of people
60

40 3% of costs for
50% of people
20

0% 20% 40% 60% 80% 100%

Percent of Population
 Individuals

Shared responsibility is necessary

Government Business
 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