Before the year ends, the president’s deficit commission will bring forth a plan for cutting the deficit. While commission co-chairs Alan Simpson and Erskine Bowles have announced that everything that costs the government money is on the table—wars, hunger programs, agricultural price supports, entitlements like Social Security and Medicare, and thousands of other programs—only Social Security has risen to the top. That’s largely because of the public relations machine created by billionaire investment banker Peter G. Peterson and a mainstream news media that is just beginning to pay attention to Social Security. (Peterson is a CJR funder.) If anything, Peterson’s message has gotten through. A Gallup poll found that more than half of current retirees expect their benefits to be cut, and sixty percent of all Americans believe that Social Security won’t be able to pay benefits when they stop working.
The stories and columns that have appeared border on the wonkish and elliptical, and have failed to tell ordinary Americans what’s at stake. What does all this talk mean for them? CJR went to the metropolitan area of Champaign-Urbana, Illinois, to find out. This is the third of a series of posts that discuss how possible changes in Social Security will affect the area’s residents. The entire series is archived here.
Deficit commission co-chair Alan Simpson, who got himself into hot water last week with his intemperate e-mail to the executive director of the Older Women’s League, is fond of saying that the changes he has in mind for Social Security won’t hurt people like Ronald Eaker “one whiff.” Eaker, who turns sixty-three this month, won’t be bothered by, say, lifting the retirement age for full benefits to seventy. But Eaker’s health and financial circumstances are not unlike those of millions of others in the next decade or two who will be affected by an increase in the retirement age. The dilemma Eaker currently faces is whether to take a reduced Social Security benefit now or wait until he is sixty-six to collect the full amount, $1404 per month.
“A person who has had three heart attacks and a defibrillator in his chest is thinking how many days I have left, not years,” Eaker says. “If the age was seventy, I would have to keep working. It’s basically saying you work until you die.” He said his father was a crane operator in a factory who was on Social Security disability for ten years before he died at age sixty-nine; his mother, who is still living, he said, barely made it to sixty-five. “She worked in a munitions factory and would have never made it to seventy on the job.”
For him, waiting until age sixty-six is a long stretch, but at the moment he says he is going to do it. “I keep telling myself, I’m okay right now. I’m in a job I like. But it depends on me not getting sick or my wife’s job (at an assisted living facility) not going away or she gets fired,” he told me. It also provides health insurance.
Eaker works as the on-site manager for a self-service storage company, earning about $34,000 a year. He has been there for six and a half years, managing 500 units. He says it is the least stressful job he has ever had. For nineteen years, Eaker was a United Methodist pastor. He left the ministry, though, after a divorce from his first wife. “When you become a single pastor, people want to know if you’re gay,” Eaker said. So he became a nursing home administrator—not the world’s easiest job. “I wanted to improve things for the elderly, but instead I spent eight years fighting the system of owners wanting a profit and a staff wanting a paycheck. If I wanted to make a difference, this was my niche. I had challenged myself to take a poor public aid facility that was in fairly deep trouble.”
That’s when his own serious financial troubles began. Realizing that the nursing home job was killing him, Eaker left and began selling long-term care insurance as a gap job. He now needed health coverage, and bought an individual health policy from Illinois Blue Cross Blue Shield. Six weeks later, he had his first heart attack. He thought the policy covered him, but it didn’t. The policy said Carle, the local hospital system, was in the network. It was, but the policy did not make clear that Carle Clinic doctors at the time were not. Eaker had assumed Carle was Carle and was covered. He was wrong, and found himself with $30,000 in medical bills to pay out of pocket. “I couldn’t make the payments the clinic demanded and keep paying for an insurance policy that was worthless,” he told me. So he dropped the coverage.
Two years later, Eaker had another heart attack, and his second wife suffered an aneurysm. Those bills drove them into medical bankruptcy. After the third heart attack three years later, the hospital wrote off the cost of his treatment as a charity case.
Even with health reform, there will still be people like Eaker who are deep in medical bankruptcy. More employers are pushing workers into high-deductible health plans that leave them with high out-of-pocket expenses when serious illness hits. Even with tax subsidies, people are likely to buy skimpy policies from the new state-based shopping services that will be up and running in four years. Medical bankruptcies won’t disappear, and catastrophic health expenses will continue to mess up even the best-laid retirement plans.
Eaker is luckier than most. He had a pension from the church—a rare source of income these days. Last year, when he turned sixty-two, he took that pension—reduced, of course, for early retirement—and he used one-third (a $40,000 lump sum) to pay off doctor bills, much of it incurred from his third heart attack. He is taking the rest as a life annuity, which gives a monthly income of $2112. The pension allows him to defer his full Social Security benefits and still build a small IRA, which now totals some $45,000. Annutizing that money right now would give him an additional $160 of monthly income.
Without that pension he’d be hard-pressed to make it financially even with his job, and would have to take his Social Security benefits early. That would give him around $300 a month less than he would have if he waits until age sxity-six. Eaker lives at the edge, as many do who have had medical problems that eat into their income. He told me that when he was employed by the church, he was considered self-employed and paid both the employee and employer portions of the Social Security payroll tax.
“This is something I have earned,” he said. “It is not welfare. It’s a means where the government can assist citizens in having a semi-secure retirement in older age. I’m not in favor of them messing with the system. If they start messing with it, I know who will get hurt—the poor and the middle class. The rich won’t be hurt at all. I wouldn’t trust where they are going with it.”
Click here for more from Trudy Lieberman on Social Security and entitlement reform.