There are many doubts about whether our national government can lead us out of our current economic malaise and help stem horrendous federal spending deficits. There are no doubts that for at least the next 10 years, if not longer, older Americans will be facing recessionary conditions and erosion of financial gains they've achieved during the past 40 years.
The two-stage modest debt-ceiling plan agreed to on Sunday is at most just the first scene in what will be an extended drama over federal spending, taxation, and social welfare programs. Rhetoric aside, however, it includes no meaningful changes to the big three entitlement programs—Medicare, Medicaid, and Social Security. Yet none of the credible deficit-reduction plans issued during the past year has figured out how to balance the nation's books without significant reductions in these programs.
Meanwhile, the fragility of even a weak economic recovery was dramatically illustrated last week even as Congress battled over spending cuts and debt-ceiling increases. Overall economic activity in the first half of this year has been awful. The Commerce Department revised its first-quarter growth in the nation's output of goods and services from 1.9 percent to only 0.4 percent. The growth from this sharply reduced base during the second quarter of this year was 1.3 percent. The 2008-2010 growth numbers also were revised downward, creating a picture of weakness that is consistent with the recessionary conditions that many Americans still are experiencing.
As of June, 25.4 million Americans were either unemployed (14.1 million), forced into part-time work (8.6 million), or out of the labor force but still wanting to work (2.7 million). Even before those bad first-half growth statistics were released, experts were projecting it would take at least five more years for labor markets to recover their losses during the recession. Now, 2020 may not be too pessimistic a target for such a recovery.
On top of these numbers, the fiscal and monetary weapons we use to combat economic downturns are out of bullets. Fiscal policy is turning sharply contractionary. We've just seen how much pressure future federal spending will be under. But state and local governments already are making steep job and benefit cuts to balance their budgets. Federal Reserve Board Chairman Ben Bernanke and other fed leaders say the Fed can't really boost economic activity through monetary policy. Where do you go when interest rates have been zero for three years and banks still don't want to lend and companies still don't want to hire more employees?
It's against this backdrop that changes to senior safety net programs will be occurring. The exact form of these changes will be fought over during coming years. But is there any doubt that seniors will be asked to make do with less? If the economy and federal budget situations weren't worrisome enough, the picture for seniors gets even more dire with the arrival of millions of baby boomers turning 65 and joining the ranks of entitlement program beneficiaries.
Pretending there are silver linings or magic (and painless) bullets to fix things for seniors is the stuff of political rhetoric, not reality. There are five things, however, that seniors and their families owe it to themselves to consider doing to protect themselves from the financial storm that's already here and likely to get worse. You've probably seen some if not all of them before. But now, the stakes of not paying attention are very, very high.
Understand Social Security. Studies show most people mistakenly begin claiming Social Security benefits too soon. Benefits can begin as early as the age of 62 but, if deferred, rise by about 8 percent a year—plus cost of living adjustments for inflation—until the age of 70. Couples also often fail to take advantage of Social Security's spousal benefits. Learning about when to claim benefits, and which benefits to claim, can be time very well spent. Boston College's Center for Retirement Research maintains a Social Security Claiming Guide that is a good one-stop source. Once you've learned more about your options, you'll be able to find additional details on the Social Security website.
Shop for Better Medicare Policies. Millions of seniors augment basic Medicare protection (parts A and B) with supplemental policies (part C) and drug coverage (part D) from private insurers. These policies are renewed every year during a fall open enrollment period. However, relatively few seniors shop carefully for better rates and coverage terms for these private policies. Instead, they stick with their present policies and thus lose lots of money.
Use Free Medicare Benefits. The Affordable Care Act (ACA) expanded the menu of free and reduced-price preventive health procedures for Medicare beneficiaries. Perhaps the most appealing free procedure is a free wellness visit with your personal physician. Jon Blum, a deputy administrator and director of the Center for Medicare, said in an interview that the agency "is pleased" that a million beneficiaries have gotten free physicals since the program took effect on January 1. Hats off to them. But what about the other 32 million users of basic Medicare? And, even before The ACA, newcomers to Medicare were entitled to a free physical during their first year in the program. Medicare notes that the number of people taking advantage of this program rose by 26 percent last year. That seems impressive, but amounts to only about 66,000 persons through May of this year, compared with nearly 3 million Americans turning 65 each year. Medicare maintains a list of preventive services. Use them!
Cut Personal Spending Now. Many people already have cut spending to the bone. But for the many millions of Americans with some budget flexibility, the economic and political messages are chillingly clear: until further notice, expect less support and rely more on yourself. The consequences of not setting aside more money for future needs are going to be worse with each passing year.
Max Out Your 401(k) and IRA. The need for better retirement investing habits has been hammered home time and time again since the stock market collapse. Even so, large numbers of current workers and retirees leave money on the table. They fail to take full advantage of employer matches in 401(k)s. They also fail to take advantage of all the tax breaks for IRA contributions. When they change jobs, they too often take lump-sum distributions to meet current financial needs, instead of rolling over the accounts and continuing to build their nest eggs. It's past time to do better, folks.