Social security/Medicare Watch: 2008

Social Security and Medicare trustees' 2008 annual report was released recently. See here for news coverage of the report, and here for the full report.

There are no big surprises in the report, but I find it fascinating to read about the projections for Social security and Medicare for the future. It is true that both programs are in financial trouble, but the situation is not anywhere as bad as some people think. Especially among 20 and 30 somethings, it has become fashionable to dismiss these "government programs".

First, about the state of Social security:

  • For years, the Social Security program has been taking in more in payroll taxes from existing workers than it needed to fund benefits. The government borrowed that surplus and promised to pay it back with interest by issuing special issue bonds to the program.

  • The federal government will have to start paying back what it owes the Social Security trust fund in 2017 so the program can continue paying 100% of benefits.
  • The trust fund will run dry by 2041. Without that cushion, Social Security would only be able to pay out the money it collects in payroll taxes. If the system is left unchanged, in 2041 Social Security will only be able to pay out 78% of benefits promised to future retirees.

  • Currently, the first $102,000 of wages are subject to the 12.4% payroll tax that funds Social Security. Typically, only half of this is paid by workers, and the other half is paid by employers. To keep the system solvent over the next 75 years, the trustees estimated that the Social Security payroll tax rate would need to increase to 14.1%, up from the current 12.4%. Or lawmakers could bring it into balance by cutting benefits by 12%.

And about Medicare:

  • Medicare was designed to be funded by three sources: payroll taxes, Medicare premiums paid by beneficiaries, and general revenue or money from income taxes.
  • The Medicare program is already taking in less than it has committed to pay out, and the trustees forecast that the Medicare trust fund will be depleted by 2019, at which point Medicare would only be able to pay out 78% of costs.

  • The payroll tax portion of that funding comes from a 2.9% tax on all wages, half of which is paid by workers and half by their employers. To make Medicare solvent over the next 75 years, the trustees estimate that 6.44% of wages would need to be taxed.

Discussions about universal healthcare always include people making disparaging statements about "government-run healthcare." Some of them are not even aware that the US already provides universal healthcare for seniors, and that, all things considered, it works reasonably well.

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Retiring in Malaysia

As I mentioned in an earlier post on outsourcing retirement, India does not allow or encourage foreign citizens to retire there. On the other hand, several other Asian countries are actively trying to attract foreign retirees. Thailand is probably the best known among these, but of late, Malaysia has been getting some attention too.

Here are some interesting details about Malaysia's Malaysia My Second Home program for foreign retirees:

  • The program is open to all foreign citizens wishing to retire or reside in Malaysia on a long term basis, and their spouses and children under 18 years.
  • You will get a 10-year visitor pass and a multiple entry visa which is renewable every ten years.
  • You can invest and own businesses in Malaysia. You are, however, not allowed to work there.
  • Unlike Thailand and Singapore, Malaysia allows foreign retirees to own property and to apply for domestic loans to buy property.
  • There is no minimum requirement to stay or visit Malaysia per year. You may come and go as you please.
  • Malaysia does not tax any income that you earn outside Malaysia.
  • There is no age limit to participate in the program.
  • If you are under 50, you need to deposit RM300,000 (around $93,000) in a bank account in Malaysia initially.
  • If you are over 50, you can either deposit RM150,000 (around $47,000) or show proof of monthly income of RM10,000 (around $3,000) from a consistent source such as social security, company pension or rental income.
  • In either case, after the first year, you are required to maintain a minimum balance of RM60,000 (around $19,000).

It appears to be quite an interesting package. Malaysia is attractive for its relatively low cost of living, warm weather, good medical facilities, and a friendly and diverse population.

Related links:

  • Official site for the Malaysia My Second Home program
  • Article on retiring to Malaysia from
  • Article on retirement in Malaysia from

Retirement homes in India

There has been a growing market for retirement homes in India in recent years. With an increasing number of older adults living independently, this trend is likely to continue.
According to a recent Associated Press story, these new retirement communities are so far available only for the affluent.

The buy-in prices of $75,000 to $125,000 rule out the vast majority of the population, although with the economy growing every year, developers are betting the market will increase.
A PBS Nightly Business Report story from 2006 described the expenses for people renting at these facilities.
Living in retirement homes doesn't come cheap. Each resident pays a fee of up to $450 U.S. per month, a princely sum in a country where the average worker earns $120 U.S. a month. But there is no denying the demand. The Indian government has yet to work out a plan to deal with the country`s aging citizens, but the private sector has recognized the growing demand for retirement homes.
An article from India Abroad explains the contractual agreement for purchasing retirement homes.
You can either buy a house outright or pay a deposit and a rent for the rest of your life. The deposit will revert to your children as part of your estate.
But, if you choose to buy a house, then it cannot revert to your children, as most of these colonies don't accept people under 55 years of age. Nor is anyone allowed to buy a house as an investment. However, [some] builders offer a buyback scheme for these homes after the demise of the resident couple. This is part of the original sale agreement with a built-in price escalation.
Many of these places cater to retirees whose children live outside India. In recent years, I have known several older Indian immigrants from the US and UK who purchased villas and apartments in India. Some of them have already transferred their residence to India, and some others treat these much like vacation homes, with yearly trips for extended stays in India. According to the India Abroad article, this is indeed the intended target for builders of retirement homes.

Developers are also looking at a big non-resident Indian retirement market and building homes for the high-income couples working abroad in the US, Canada, Europe and even the Middle East who will retire in the next 3 to 5 years.
[This] is a big opportunity. There are couples working abroad who would want to spend 3 to 6 months in a year in India. Retirement homes could target them as well.

Links to some prominent retirement communities and developers in India:

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