How to Greatly Reduce the Fiscal Burden of Entitlements-Becker

During the past couple of years, the financial crisis induced the US, Europe, Japan, and many other countries to greatly increase their fiscal deficits and government debt. Unlike the UK and Germany, and a few other countries, The Obama administration has done little to attack the fiscal deficit that has grown much larger since his election as president. The absence of action on the deficit front has been reported to be an important reason why Peter Orszag recently announced his resignation of Director of the Office of Management and Budget.

Yet despite the seriousness of the rapid increase in government spending and fiscal deficits during the crisis, the main budgetary issue facing all developed countries during the next couple of decades is the expected growth in spending on entitlements: mainly, spending on retirement incomes, and medical care given to the elderly. The growth in these expenditures is partly due to growing life expectancy and relatively low birth rates that will raise the number of retirees collecting social security benefits while reducing the relative number of men and women who are working to pay for these benefits. The growth in medical entitlements is mainly the result of technological advances and other changes that has led to a sharp expansion in both private and public spending on medical care during the past several decades, an expansion that is expected to continue into the future.

Orszag, when head of the Congressional Budget Office (CBO) in August 2008, predicted that unless radical actions are taken, the cost of Medicare, Medicaid, and social security will rise from 18 percent of GDP in 2008 to 28 percent by the middle of this century, and perhaps to 35 percent soon thereafter. Of course, such estimates depend on many guesses, such as the future rates of growth of GDP, how life expectancy will change, and how many expensive advances will occur in medical care. Still, these estimates are consistent with those made by others, and clearly indicate that health and retirement entitlements will become a growing American fiscal problem unless important steps are taken to scale them back. Similar concerns apply to the UK, Germany, Japan, and other rich countries.

I have supported changing retirement systems from pay-as-you-go to individual account defined contribution systems, as in American IRA and Sep private retirement accounts. I also support sharply increasing the fraction of all medical care spending on the elderly that comes from out of pocket spending by patients (see my post on March 28). Another reform could also greatly reduce future public spending on retirement incomes and health benefits, and make an important contribution to closing the long run fiscal deficit.

This reform involves a big increase in the average age of retirement before individuals become eligible to qualify for either social security or old age public healthcare benefits. When the American social security system was established in 1935, the expected retirement age was 65. At that time, the average life expectancy for 65 year olds was a mere 12 years. Therefore, years in retirement amounted on average to about one quarter of the 47 years that men typically worked in the 1920s (before the Great Depression) prior to reaching age 65. Expected life expectancy of men aged 65 now averages about 18 years, and it is a few years longer for women.  Men who retire at age 65 have typically worked on the average about 45 years, so retirement years for these men is about 40% of working years. Actual retirement of many men and women actually occurs at age 62, despite the decline in physically demanding work, and the improvements in health.

I propose that the US and other countries greatly raise over time the retirement age before the average person became eligible for either social security retirement income or publicly-funded health benefits. One simple and attractive rule would be to raise retirement age by an amount that makes the ratio of years spent in retirement to years spent working equal to the ratio that existed at the beginning of the social security system. Suppose the average person starts working at age 20, and lives a further 18 years if they make it to age 65. Then the average number of years spent in retirement for these persons would equal about one quarter of their average working years, the ratio prior to the introduction of American social security, if average retirement ages were raised to age 69 or 70.

If the average retirement age were raised to near 70 to qualify for retirement and elderly health benefits, retirees would still have more absolute years of retirement than they did 90 years ago. Moreover, their retirement years would be better because they would be healthier, both physically and mentally. As at present, men and women in poor health would be able to retire earlier through the disability system.

The US has been slowly increasing the normal retirement age in stages first from age 65 to 66, and then to age 67 for everyone born after 1960. These have been steps in the right direction, but they do not go far enough and have been too slow. It is time to raise more rapidly the normal retirement age for persons in reasonably good health to age 70 before they become eligible for either social security or Medicare benefits. This would add three years to taxable earnings, and eventually reduce the number of elderly collecting social security benefits by almost 20 % compared to what it would be under present retirement ages. It would also significantly reduce spending on Medicare, although by less than 20% since persons over age 75 take the bulk of this spending because they are in worse health than younger retirees.

Maintaining the ratio of working to retirement years is a reasonable first approximation to a guideline for determining the eligible age for retirement and health benefits. As the health and life expectancy of the elderly continues to improve in the future-as they surely will- retirement ages should be raised beyond age 70.

 

 

 

 

Comments

[James Morgan - Puritan Financial Advisor]

The US has been slowly increasing the normal retirement age in stages first from age 65 to 66, and then to age 67 for everyone born after 1960. These have been steps in the right direction, but they do not go far enough and have been too slow. It is time to raise more rapidly the normal retirement age for persons in reasonably good health to age 70 before they become eligible for either social security or Medicare benefits.

[handbags2006]

I like your blog!I want to collect it!

[lower back pain]

Why not increase incentives for financial and human capital investments which (over time) would have similar effects?

Why not focus on growth rather than limitation strategies?

It is both a theoretical and practical error to embrace the usual pessimistic approaches to these questions.

[Shelia]

Searched Google and ended up here - its good so I posted the site on my Facebook account !

[air jordan]

Thanks for such a great post and the review, I am totally impressed! Keep stuff like this coming.

[iegyi]

nice, guys, beutiful friend

[Dry Scalp Shampoo]

This is really interesting, You are a very skilled blogger. I have joined your feed and look forward to seeking more of your great post. Also, I have shared your website in my social networks!

[Dry Scalp Shampoo]

We're a group of volunteers and starting a new scheme in our community. Your web site offered us with valuable info to work on. You have done a formidable job and our whole community will be grateful to you.

[Dry Scalp Shampoo]

I like the valuable information you provide in your articles. I will bookmark your blog and check again here regularly. I am quite certain I will learn a lot of new stuff right here! Best of luck for the next!

[Acne Care]

Rand Paul, with all of his shortcomings, is one such fella. he might be willing to wait out the waters and act when there is some political pull like his dad is doing for the federal reserve

[skincare]

I propose that the US and other countries greatly raise over time the retirement age before the average person became eligible for either social security retirement income or publicly-funded health benefits.

[wrong diagnosis claim]

i lik e the way you are telling the people about wrong treatment . i like your way

[Rosetta Stone]

Orszag, when head of the Congressional Budget Office (CBO) in August 2008, predicted that unless radical actions are taken, the cost of Medicare, Medicaid, and social security will rise from 18 percent of GDP in 2008 to 28 percent by the middle of this century, and perhaps to 35 percent soon thereafter. Of course, such estimates depend on many guesses, such as the future rates of growth of GDP, how life expectancy will change, and how many expensive advances will occur in medical care. Still, these estimates are consistent with those made by others, and clearly indicate that health and retirement entitlements will become a growing American fiscal problem unless important steps are taken to scale them back. Similar concerns apply to the UK, Germany, Japan, and other rich countries.

[shelf hanging organizer]

Thanks for your comment. I liked my first one. It brought back the pain of finding out how unfair life and education can be.

[Protective-mask]

This sheds some light on the possible roots of your misogynistic tendencies Matt.

[power socket]

This was amazing. I was there with you - and it's as close as I want to get to a military experience.

[china crystal]

Allow yourself time to grieve over the deaths of your chickens, but don't think for a moment that you did something wrong.

[crystal-cooperate-trophy]

Of course, this only applied to dignified rifle-hunting of stags and boars.

[crystal-model-truck]

Wonderful writing and a fascinating story, Matt! I was fearful all might not end well for a moment there but boy was I smiling when that jackrabbit took off!

[solar-water-heater-distributor]

This is a very thoughtful piece. Sheds light on a subject that is causing much consternation among the book-loving community.

[solar-water-heater-supplier]

This sheds some light on the possible roots of your misogynistic tendencies Matt.

[nfl jerseys]

Very informative article. Thank you.

Hopefully online marketing jobs don't dry up in the wake of this ongoing economic collapse. The Dow dropped, what, 512 points today?! It's starting to feel like 2008 all over again. Ever wonder what's really going on? I think I know.

we sale nfl jerseys: http://www.nflsporter.com

[Supra Trainers]

Welcome to Supra Trainers online shop. Here we supply an extensive selection of super-fashion Asics Shoes with different styles and colors. Like Asics Running Shoes, Asics Trainers, Puma First Round and Supra Footwear and so on. Because of the high fashion, unique design and good function, Puma Shoes can make your feet more comfortable and make your life more stylish. So nowadays, Asics Uk Online shop offer the best Asics Running Shoes which are loved by more and more people all over the world. We try our best to make all of you enjoy the top fashion and become the most charming and handsome with the fashional and stylish Puma Shoes. Our mission is to provide the best products and service and also the lowest prices to you. Just enjoy yourself Supra Shoes UK store. Choose your favorite cheap Asics Australia online, just click"Add to cart". Or you can first register for future visit conveniently. As a creatative company, Supra Trainers always gives us more surprise. Order your favorite Puma Running Shoes here, and enjoy high quality, big discount, fast delivery, free shipping and without any sale tax. Don't hesitate! Act right now!

[楽天市場]

[url=http://www.ugg-rakuten.com/ugg-adirondack-ii-ugg-5_6.html]UGGアディロンダックII[/url] 、より多くのパテを追加する、それが実際の長さの一角にpencil.Beginのすべての直径を作成するための手に関するパテの数をpliable.Rollとレイアウトされるまで、これを混練グレイザーと一緒に溝にパテの持続時間は長く、さらに脳血管イベントのputty.Take利点を滑らかに、45測定角のガラスのツールを確保するためにガラス製品を利用して、あなたのwindow.Eraseのパテの周りに右issues.Applyです。は、すべてのフレームから境界を越えてそれを延長しないでくださいあなたは全体のstart.Paint直前には、ディップ実際のガラス器具亜麻仁油に、window.Toから反対側に表示さアクティビティを容易に構築しないようにしてくださいメーカーの指示は、例えば直ちにまたは場合は、アイテムを描く場合パテがパテを介して、ガラスのためのインチの分数でpainting.Paintする前の数日間治療すべきかを調べるためにidea.Checkをシールするためのパテseal.Tips＆ダイアー警告のパテを助けるために二人は、ウィンドウスタイルについてsecurelyガラスを保持し、タスクの右側を完了するのに十分なパテを使用して気象out.Takeケアを保ちます。

[womens supra]

I'm interested in such offer,The sound quality in these podcasts is really poor. I feel bad about complaining about something that is free, but I think it is important.