Savvy Senior

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Dear Savvy Senior,

Where do the presidential candidates stand on Social Security and Medicare?

Senior Voter

Dear Voter:

Arizona Senator John McCain and Illinois Senator Barack Obama—the Republican and Democratic candidates, respectively—have devoted little time this election season to talk of Social Security and Medicare. That may be because both programs (especially Medicare) are in dire need of reform, and the solutions aren’t likely to make voters particularly happy. Here are the problems that exist and where the candidates stand.

Social Security is facing a long-term funding problem. By the year 2017, Social Security will start taking in less in tax revenue than it has promised to pay out in benefits. That’s because the massive Baby Boomer population will be retiring in droves. And by 2041, the system will only be able to pay out 78% of promised benefits. To fix this financial shortfall experts have recommended a variety of solutions including:

• Raising Taxes: Social Security trustees estimate that the system could be made solvent for the next 75 years by increasing workers payroll (FICA) tax to 14.1%. It’s currently 12.4%, split between workers and their employers, up to a wage cap of $102,000 in 2008. The cap rises every year with inflation. Earnings above the cap level aren’t taxed for Social Security.

• Curbing Benefits: This could be done by lowering annual cost-of-living adjustments, or by raising the retirement age (currently set to rise to 67 by 2027) to 70.

• Creating Private Accounts: This would give workers the option of diverting part of their Social Security taxes into private accounts to invest in stocks, bonds, and/or mutual funds. Critics argue that privatizing Social Security does little to address the long-term funding concerns.

Here are the candidate’s positions.

Obama strongly opposes individual private accounts and is against curbing benefits or raising the retirement age. He believes one way to help shore up Social Security is to implement a payroll tax of 2% to 4% on workers earning over $250,000 a year–starting in 2019. Half of it would be paid for by employees, and half by their employers.

McCain believes the best way to fix Social Security is by curbing or slowing the growth of benefits rather than raising taxes. He has also indicated he could embrace an increase in the retirement age, and supports optional and voluntary private accounts as a way to supplement Social Security.

Experts suggest, and both candidates agree, that fixing Medicare has to be part of an overall change to the entire healthcare system.

Here’s what else the candidates offer on the topic:

McCain has proposed a major overhaul of Medicare’s payment system, paying healthcare providers not by each individual service they perform but by how successfully they treat their patients. He also has proposed making wealthier Medicare beneficiaries pay more for their benefits, starting with the Part D prescription drug benefit.

Obama wants to improve efficiency and reduce waste in the Medicare system, including eliminating subsidies to the private-insurance Medicare Advantage program. He also wants to help bring down the price of drugs under the (Part D) prescription drug benefit by allowing Medicare to negotiate with drug companies for better prices, much like the VA does.

Savvy Tip: To learn more about the candidate’s positions visit www.barackobama.com and www.johnmccain.com.