Secure Your Future
Good news in Social Security, Medicare solvency projections
May 24, 2007 1:55 PM
More than 49 million Americans (about one in every six) receive Social Security benefits. As you may know, the benefits are financed by dedicated contributions on earnings (6.2 percent of up to $97,500 of covered earnings) paid by both workers and employers, and by income taxes that higher-earning beneficiaries pay on part of their Social Security benefits.
Any money collected from these sources beyond what is paid in benefits and administrative costs is known as the annual surplus. This surplus, predicted to be $190 billion in 2006, is saved in the Social Security Trust Funds (old-age, survivors, disability — called OASDI). These Trust Funds are invested in U.S. Treasury Bonds, the safest investment available. Even under fairly conservative estimates, the annual surpluses are projected to continue for the next 10 years and the Trust Funds are projected to grow to over $4.4 trillion by the end of 2016.
Beginning in 2017, revenues flowing into the Trust Funds will be less than expenditures. At that time, the revenues plus the income of the Funds will be used to pay benefits. In 2041, a year later than projected in the last report, the reserves are projected to be depleted. At that time, income coming into the Trust Funds will be able to pay about 75 percent of benefits due.
Many competent, responsible actuaries believe that Social Security’s calculations are far too conservative and that even if nothing is done, Social Security will be able to meet all of its future obligations. Other experts believe that slight tweaking of the system would resolve any possible problems. This is in direct contrast to the “sky is falling” administration of President Bush who is still pushing — along with his Wall Street cronies — for privatization.
The extra year predicted by the Trustees is good news. The Trustees state that there would be no problem at all if the contributions of both the worker and the employer went up by 1.95 percent of payroll (less than 1 percent for the worker and the same for the employer).
Other highlights of the report:
- Income including interest to the Trust Funds amounted to $745 billion ($626 billion in contributions, $17 billion from taxation of benefits and $102 billion in interest) in 2006.
- Total expenditures for benefits and administration amounted to $555 billion in 2006.
- About 162 million people had earnings covered by Social Security in 2006.
- It cost only $5.3 billion to administer the system. This is a fraction of the administrative costs under a private scheme.
You can rest assured that the UFT, NYSUT, AFT, AFL-CIO and ARA will diligently monitor and protect the system.
Medicare
The trustees also monitor the Medicare program. The 2007 report projects that the Medicare Hospital Insurance Trust Fund will be depleted in 2019, a year later than was predicted last year. In 12 years, scheduled income will cover 79 percent of expenditures.
The report also triggered a warning that will require President Bush to submit to Congress next year proposals for dealing with Medicare’s problems. The Medicare funding warning is triggered any time two consecutive trustee reports conclude that the amount of general revenue needed to finance Medicare will top 45 percent of the program’s outlays, and the trustees first made that determination last year. While Congress must consider the proposals, it is not required to act on them.
According to the report, Medicare expenditures in 2006 totaled $408 billion and accounted for about 3.1 percent of U.S. gross domestic product and by 2030 will account for more than 6.5 percent of GDP. Medicare advocates at the Center on Budget and Policy Priorities say that the 45 percent threshold is not a meaningful measure of the health of Medicare. They argue that Medicare’s basic problem is its large projected cost, not what share of that cost comes from general revenues rather than payroll taxes. Experts tell us that the high cost of medical care in America must be brought under control in order to preserve Medicare.
The administration’s reaction raises questions about its commitment to Medicare, especially in light of the president’s opposition to Senate Bill 3, which would lower the cost of prescription drugs by allowing Medicare to negotiate bulk discounts with the drug companies. Furthermore, the administration is pushing expensive, privately run Medicare plans known as Medicare Advantage plans which are subsidized by traditional Medicare because of their higher costs compared to the traditional program.
Wealth in America
The number of American households that were worth at least $5 million in 2006 grew to 1.14 million, nearly 23 percent more than in 2005 (probably due to the good year in the stock market).
Some 22 percent of the ultra-high net-worth groups are senior corporate executives, 15 percent are business owners and 11 percent are physicians and dentists. The report did not state how many classroom teachers were in the group.
Home shopping
This may be the perfect storm for home buyers. Prices are down for residential properties in most areas. Sales of existing homes have fallen by the largest amount in 18 years. At the same time, the rate for a 30-year mortgage is comparatively low, averaging 6.16 percent nationwide. A good combination of events for those seeking to purchase a home.
TRS tidbits
Those of you retiring effective July 1 or later may receive retirement benefits by Electronic Fund Transfer (EFT) from the get-go. Members who currently receive their pay via direct deposit can have their retirement system benefits deposited by EFT into the same account. This is a great improvement over the cumbersome method used in the past — filling out forms, waiting for months, etc. — for instituting EFT. Speak to a Teachers’ Retirement System employee when you hand in your retirement application.
TDA spring campaign
TRS members who are not currently participating in the Tax-Deferred Annuity (TDA) program are receiving TDA enrollment information. You can enroll either by filing online or by filing a hardcopy form. Enrollment at this time will result in deductions beginning in the fall.
TDA investment election changes
May 1 marked the start of the quarterly filing period for TDA participants to change their investment elections. In-service TDA participants and members with TDA deferral status may file for changes online or file the “TDA Investment Election Change Form” (code TD45). The deadline for filing is June 1. New elections take effect on July 1.
Quarterly Account Statements
TRS account statements for the quarter ending March 30 will be distributed in May.
“Secure your future” is compiled and written by Mel Aaronson, Sandra March and Mona Romain, teacher-members of the NYC Teachers’ Retirement Board. For further information on items discussed, call your UFT borough office or the TRS. BRONX: 1-718-379-6200; BROOKLYN: 1-718-852-4900; MANHATTAN: 1-212-598-6800; QUEENS: 1-718-275-4400; STATEN ISLAND: 1-718-605-1400; Teachers’ Retirement System: 1-888-8NYC-TRS (692-877).
