(The opinions expressed here are those of the author, a columnist for Reuters.)
By Mark Miller
CHICAGO, March 1 (Reuters) - President Donald Trump outlined a budget plan this week that steers clear of cuts to Social Security and Medicare. That will not sit well with congressional Republicans and some Trump Cabinet members, who think both programs are pushing the government toward financial collapse and want to shrink them.
Deficit hawks likely will pressure the White House to accept cuts in Social Security and Medicare for future retirees, protecting those already retired or close to it. Their political goal will be to defang public opposition, since younger workers tend not to focus much on retirement when it is several decades away.
But that approach is not going to work. Retirees and their advocacy groups will fiercely resist cutting benefits down the road, because they understand the critical importance of Social Security and Medicare benefits. They also care about the future retirement of their own children. And numerous polls show that the public opposes benefit cuts - a view that is common across all demographic groups and political affiliations.
Politics aside, cutting future benefits would be bad policy. As I noted last week, Medicare’s financial challenges stem from demographics and rising healthcare utilization - not the program itself. (http://reut.rs/2lEyx7o) And while per-enrollee spending is rising as a share of gross domestic product, that growth is somewhat smaller than spending growth in the private health insurance market.
RISING LONGEVITY
Social Security, meanwhile, faces a long-term imbalance in cost and revenue, but the gap is manageable. More importantly, future retirees will need Social Security more, not less, than their parents did.
First, consider that longevity is rising. In 2015, a woman turning 65 could expect, on average, to live to 86.6 years of age, according to the Social Security Administration trustees. That average is expected to increase by more than a year by 2035, and by almost two years in 2045. (Men can expect similar gains.)
Rising longevity often is cited as a reason to cut benefits, but the opposite is true. Savings alone cannot hedge against longevity risk - the uncertain prospect of exhausting resources before the end of life. Simply put, no one can predict their lifespan with accuracy. The only way to guarantee income for those lucky enough to live very long lives is with annuity-style benefits like Social Security and pensions.
But far fewer of today’s younger workers will be covered by pensions than in the past. Today, 57 percent of near-retirement households (age 55-64) that participate in workplace retirement plans are covered by a traditional pension, according to the National Institute on Retirement Security; just 30 percent for age 35-44 are covered.