By Jennifer Nicoll Victor, Ph.D., George Mason University
Social Security is a program that nearly everyone contributes to and benefits from. Medicare is the government program that provides access to health care for elderly people. Together, they are aimed at improving the lives of all American citizens. However, with time, there are increasing strains on these programs.
Social Security
According to the Social Security Administration, 97% of people between the ages of 60 and 89 either receive Social Security or will receive it before they die. The Social Security program is deeply embedded in the policy and political infrastructure of the United States, and its widespread use is part of its fortitude and effectiveness as a social policy.
Many politicians avoid talking about making changes to it. They are under the impression that proposing changes to Social Security is apolitical suicide because no matter what change you propose, you’re likely to anger a whole lot of people.
However, there are a number of reasons to think about making changes to the system.
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Demographic Shifts
There’s pressure building in the Social Security system because of generational imbalance and demographic shifts.
Between the Great Depression and World War II, there were a few decades where birth rates were not that high. But after the War ended in 1945, America experienced a baby boom. Those boomers are now reaching retirement age and are beginning to draw on the Social Security benefits they earned through their working lives.
But since Social Security is a pay-as-you-go system, the intergenerational dependency gets wildly out of balance. In 1940, there were 40 workers for every retiree. Because of the sheer numbers of boomers, however, in 2020 there were about 3 workers for every retiree. The shift puts enormous strain on the system.
Outdated Design of the Social Security Program
Most tax advisors would tell that Social Security was intended for many people to be one leg of a three-legged stool. To be comfortable during retirement years, the three legs of Social Security benefits, personal savings, and private pensions had to be in place to some degree.
But today, many Americans simply do not have much in personal savings. About one-third of workers have no retirement savings at all and will rely solely on Social Security as their income in their aging years.
To make matters worse, about half of all of today’s workers do not have access to a pension or retirement savings program. While many state and local governments have pension plans, they are expensive to fund, and in private sector, they have mostly disappeared.
In the place of pensions, only about half of people have access to a defined contribution retirement plan, often called a 401K. A 401K is a savings plan where employees and employers both can make contributions to the account and the account is invested in a variety of securities, bonds, and diversified mutual funds so that the money accrues interest over time. Most professionals who work in private industry have access to plans of this type these days, but this does not account for most workers.
With two of the three legs of the stool either weak or non-existent, this creates further need to reassess the design of Social Security.
Longer Life Expectancy
The final reason there is increasing strain on Social Security is because people are living longer. Thanks to advances in medical science, the average American today can expect to live until about age 78, meaning they would spend around 13 years collecting Social Security if they retired at age 65.
Overall, people are spending many more years in retirement than they did a generation ago.
Taken together, lower rates of savings and access to pensions, demographic shifts, and longer life expectancy have placed considerable strain on the country’s ability to keep people out of poverty during their retirement years. These problems can only be avoided for so long before they become unmanageable.
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Medicare
Medicare provides access to health care for people age 65 and older. It was established in 1965 as a national health insurance program for the elderly and disabled.
Like Social Security, it is not means tested, meaning that you do not qualify for Medicare based on your income level. Rather, just like Social Security, people paid a Medicare tax through their working lives and then become eligible for benefits during their retirement years.
Medicare also offers a supplemental plan called Medicare Advantage that seniors who own private insurance can buy as a supplement.
Between Medicare and Medicare Advantage, as of 2019, about 64 million people received health care benefits from the Medicare program.
Health Care Costs
For many people, about half of the total health care costs they will have during their lifetime occur when they are over the age of 65. Advances in medical science have given healthcare providers many more tools for treating disease and helping people to live longer, healthier lives; but the care can come at significant cost.
As people experience health problems during their aging years, they now have access to advanced treatments for cancer, heart disease, and other ailments. But, given the high cost of many of these treatments, this means that medical care for older people makes up a much greater proportion of total health care expenditures compared to younger people.
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Why Social Security and Medicare Matter
Overall, Social Security and Medicare have been very successful programs that have improved the lives of millions of Americans.
It is estimated that without Social Security, 40% of Americans over the age of 65 would live in poverty.
Social Security and Medicare are also very important to vulnerable populations, those who have experienced discrimination, and communities that have systematic poverty. Since the poverty rate for Black and Latino families is higher than it is for white and Asian families, this means that Social Security and Medicare are an important part of the government infrastructure that aims to bring economic equality across racial groups.
Common Questions about Social Security and Medicare Programs
Lower rates of savings and access to pensions, demographic shifts, and longer life expectancy have placed considerable strain on the Social Security program.
The 401K is a savings plan where employees and employers both can make contributions to the account and the account is invested in a variety of securities, bonds, and diversified mutual funds so that the money accrues interest over time.
Medicare is a government program that provides access to health care for people age 65 and older.
