by: Begley Law Group

by Thomas D. Begley, Jr., CELA

As the population of the United States tend to age and Baby Boomers begin retiring in large numbers, there are a number of problems that will affect the elderly that need to be addressed.

  • Retirement Income. In 2012, people age 65 and older had an average income of $31,742, but the median income was less than $19, 604. About 30% of older Americans receive pensions. The median was $12,000. Only 46.5% of older Americans reported income from personal savings, but half receive $255 or less per year. The mean was $3,233 per year. Only 20% of older Americans had dividend income with the median amount being $1,200.[1] Social Security is the only source of income for 25% of older adults in New Jersey.[2] It is generally estimated that for a comfortable retirement a person must have an income equal to 70% of salary in the year just before retirement. Most experts advise saving 10% per year of one’s annual income beginning at age 25. Social Security plays a vital role in reducing poverty. Almost 90% of people age 65 or older receive some of their family income from Social Security. The Social Security Retirement System is expected to be able to pay full benefits through 2033. Thereafter, only 75% of benefits will be funded. The Disability Insurance Trust Fund paying disability benefits to disabled workers is expected to be solvent through only 2016, at which point only 81% of benefits can be funded. This problem has been discussed nationally for over 20 years, and Congress has always managed to dodge the hard decisions. The replacement of pensions with 401k plans has been disastrous for low-income workers. Workers in the top fifth in income account for 72% of total savings in retirement accounts.
  • Health Care. Health care spending has increased significantly. While this spending has declined over the last three years, the Brookings Institute believes that health care will continue to grow 1.2% faster than GDP over the next 20 years and will consume close to 25% of GDP. Health care costs will continue to grow at GDP plus 1.2% for the foreseeable future.[3] A couple, both age 65 in 2012, living an average life expectancy, could need as much as $220,000 to cover premiums for health insurance coverage and out-of-pocket expenses during retirement. It is estimated that these households should expect medical bills to consume 61% of their Social Security payments by 2027.[4]

Medicare. Medicare covers only about one-half of retiree health expenses. Medicare has three components: Hospital Insurance (HI) or Medicare Part A; Supplemental Medical Insurance (SMI) consisting of Medicare Part B and Part D. The SMI program is not threatened with insolvency, because premiums are reset on an annual basis based on actual expenditures. The Trustees of the Federal Hospital Insurance Fund estimate that the HI Program can remain solvent until 2030. Again, this is a problem that has been discussed nationally for over 20 years and Congress has refused to make tough decisions to fix it.


 (Here is a link to Part 2 of this article.)

[1] Sources of Income for Older Americans 2012, Ke Bin Wu, AARP Public Policy Institute, www.aarp.org.

[2] The Elder Economic Security Standard Index for New Jersey.

[3] Brookings Papers on Economic Activity, www.brookings.edu.

[4] Fidelity Estimates Couples Retiring in 2013 Will Need $220,000 to Pay Medical Expenses Throughout Retirement, www.fidelity.com.