Almost Like Another Ponzi Scheme
This doesn’t appear to be a sustainable system:
Consider an average-wage, two-earner couple together earning $89,000 a year. Upon retiring in 2011, they would have paid $114,000 in Medicare payroll taxes during their careers.
But they can expect to receive medical services – from prescriptions to hospital care – worth $355,000, or about three times what they put in.
As each generation shrinks in size from the previous, the number of payers decreases, and as medical science and individual longevity advance, the pay outs increase. That’s why folks my age don’t really expect to see a penny of such “entitlements.”
Justin,
How much would the $114K be worth today if it had been invested in mutual fund stocks and bonds over a working lifetime? $300K sounds about right.
Bob, you know better than that. It’s like Social Security. There is no pot of money where our payments sit being invested. As we pay it in, it goes right out to the current seniors.
So you’re right that the investment would make sense, but that’s not a reality.
Don’t forget productivity growth, though – if the fewer workers are producing more economic output per hour, you can have an affordable system with a smaller number of people numerically. Not saying that will happen here, but it’s part of the equation.
Whoa! The cost does not stop when one enrolls in Medicare. Many elders pay $200 or more per month in Part B premiums, drug coverage, and other insurance costs for this “free coverage.”
Those who work must keep paying the tax they paid before enrolling. This can be another $200 per month. Even the WalMart greeters keep paying this tax.
At Age 64, you might pay $700 per month for Blue Cross. At Age 65 you will be paying $400 for Medicare. And there are still deductibles and services that are not covered at all.
How does all of this add up when you consider the current value of the $110,000 you put in before age 65. Interest on that accumulation should spin off more than $300 per month.
Medicare is certainly not the free coverage that many people think it is!
“Interest on that accumulation should spin off more than $300 per month.”
Interest on what accumulation? There is no accumulation. There are no Medicare accounts that you and I pay into that are earmarked for our retirement. I pay my Medicare money into the system and that month it is paid out to the current senior needs.
How about a cop or fireman paying $120,000 ($6000 a year for 20 years), retiring at 40 (Todd Brien anyone?) and then collecting millions over 40/50 years with a $50,000 starting pension plus COLA’s….plus free health care.
Real sustainable huh?
I’m usually with you Tommy but do you think you might be exaggerating the millions. Secondly, while these pensions are unsustainable, you can’t blame the recipient as much as you can blame the cities and towns for not figuring that out. Even in the private sector, as a new hire, I’m not asking if my pay and benefits are sustainable?
“Even in the private sector, as a new hire, I’m not asking if my pay and benefits are sustainable?”
There’s a big difference. In the private sector, you probably didn’t pony-up a bunch of cash to get your boss into his seat. Your boss doesn’t owe you his job.
“I’m usually with you Tommy but do you think you might be exaggerating the millions.”
That depends on the person’s lifespan and Tommy’s facts.
If a 40 year old can retire with a $50,000 a year pension plus health care, which can cost $15,000 a year for a family plan. That’s $65,000 a year, plus 3% a year. Let’s say he lives to 80 with no COLA. Right there is $2.6M. That does qualify as “millions”. Technically. Add in the COLA and the increase in health care and it can easily get over $3M total. Millions.
Patrick: The point I was trying to make with the interest presumption was that everybody needs to realize that Medicare is a far from free benefit. For those elders who choose to work — and many are being forced to do so — the current year’s payment for Medicare is almost the same as the cost for insurance at age 64 when you consider the time value of the contributions (taxes) that you paid prior to Age 65.
My comment has nothing to do with how the federal government spends my before age 65 taxes and everything to do with the confounded cost of Medicare to the elders.
Anybody who complains about the feds not setting aside the contributions (taxes) should also complain about the waste in the system caused by endless tests and over prescribing.
Add in the COLA and the increase in health care and it can easily get over $3M total. Millions.
Posted by Patrick at January 3, 2011 12:29 PM
Indeed. Millions.
For a $120,000 contribution.
If you divide the 114K by 45 years you get $2533 a year. Retiring at age 65 starting work at age 20.
A Future Value calculation of a contribution of $2533 per year for 45 years at a modest 5% rate of return gives you $404,520.93.
At least that is how I would have calculated in grad school 30 years ago.
Tommy & Patrick
The problem with your calculations is you’re eliminating matching contributions from the city or state and the earnings on those contributions. One of the problems in the past was the city or state not making the contribution. My larger point was identifying a recipient as a culprit. If the city offers a 20 year retirement, is that the fault of the employee? I think not.
“If the city offers a 20 year retirement, is that the fault of the employee? I think not.”
Absolutely not. I’ve posted a similar sentiment in the past. People get angry at Nee, Walsh, Crowley, Reback, etc, but they’re just doing their job. People demonize the teachers for the contract they get. It’s up to our elected leaders to not sign contracts that we don’t like. If we don’t like our elected leaders, it’s up to us to vote for people who will do what we want. If we don’t have the options among candidates that we want, then it’s up to us to run for office.