By Edward Leone Jr. DMD MBA RFC
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It appears, according to Towers Watson survey results, that U. S. workers are a little more confident of retirement possibilities as the future unfolds due to acceptance of the prospect of an extended working career, a better focus on savings and the possibility of reducing spending in retirement. Evidently, the issues of concern by many people regarding the continued cost acceleration of the social security program and the Medicare program are not a part of the decision mix here. The Medicare trust fund will be depleted by 2024. This fund is held in the form of U. S. bonds which means that the federal government will have to borrow or print money to meet the trust funding obligations given current economic conditions. After 2024, payroll taxes will cover the cost of up to 90% of the benefit structure. In the period from 2000 to 2009, medical and prescription costs including insurance premiums and deductibles have increased by 150 percent. Insurance News.net tells us that hospitals are preparing for the introduction of criteria which will measure Medicare benefit payments to them based on quality of care assessment (pay for performance). This measure created under the healthcare reform legislation will be implemented in October of 2012. What I have learned is very troubling to me since hospitals have little or no control over some of the factors which will be used to reduce benefit payments. Such factors as readmission rates and patient satisfaction over care received are not totally under the control of the hospital facility since patients being released need not demonstrate accountability for taking prescribed medications or submitting to follow-up care. A patient’s opinion on quality of care can be quit subjective. I fear that these regulations will limit access to hospital care for Medicare beneficiaries. Something will have to change. Instability of the social security program long-term is well documented. These factors along with longevity projections are causes for concern. Half of men currently 65 years of age are expected to live to age 85 and half of women at 65 are expected to live to age 88.
These programs are certainly helping the economic status of the retired. As a result of the most recent recession, the U. S. poverty level rose to 15.1% for the general population; however, for those over the age of 65, the poverty level is 9%. Since 2007, median household income has decreased except for those over age 65. Although average wealth of households for those over the age of 65 was $170,494 in 2009 according to Pew research, it was mostly represented by home equity which is clearly under threat due to declining home values. These facts represent some of the good and some of the bad facing the elderly population. Future dynamics for retired people will create challenges for all aspects of our society–young and old.
An issue under discussion in the media related to our current economic condition and the need to raise additional federal revenues is the level of marginal tax rates and who should pay more. One bit of information which is absent is the definition of who represents the top 25% of income earners. As it turns out, IRS tells us that if you earn $66,193 per year or more, you are in the top 25% of income earners. You are a part of the group paying 87% of all income taxes. It is also interesting to study the issue of consumption equality among class of our society. According to Andy Kessler writing in the Wall Street Journal, quality of life for rich, middle class and poor individuals is evening out as a result of relatively inexpensive technology device availability. Transportation, communication, entertainment and food preservation methods are available to many at a modest cost. Putting aside the creature comfort and prestige aspect sought by some in society while focusing on the functionality of the devices we use to make our lives better, the rich are not much better off. There will always be some in our society who are disadvantaged. We cannot and should not ignore their existence and help them.
For those interested in planning their 2012 tax strategy, the following information will be helpful:
Marginal tax rates run from 10% to 35% depending on AGI and filing status.
Standard deduction is set from $5,950 to $11,900 depending on filing status.
The personal exemption is $3,800.
Traditional IRA contribution is deducible up to $5,000 with a $1,000 catch up for those over 50 depending on income level.
The deductible 401k contribution is up to $17,000 with a $5,000 catch up.
The Roth IRA AGI limit is $110,000 for individual filers an $173,000 for joint filers.
The earned income limit for early retirees is $14,640
It is not too early to be thinking about this issue.
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