(FORTUNE Magazine) – THE POWER OF THE RETIREMENT VOTE

Good news. The 1996 presidential election should be a boon to boomers with an eye on retirement. The hordes of soon-to-be-retirees virtually ensure that Medicare and Social Security reform will be hot-button issues for Bill Clinton and Bob Dole.

--Medicare. Both candidates know they need to reduce spending to avoid Medicare bankruptcy by the year 2001. They just can't agree on the numbers. Clinton wants to slash $124 billion over seven years, and says that would keep the health care program solvent until 2006. The Republicans want more substantial cuts: $158 billion over six years.

Neither candidate has a clear long-term solution. Clinton says he'll wait until the fiscal year 1997 budget is passed to think about the future. Dole suggests establishing a bipartisan committee to bail out the sinking program.

--Working senior citizens. In March the President signed a bill to lift Social Security's "earnings test" limits that measure how much individuals can earn and still preserve retired status. The new law will allow people between 65 and 69 to earn up to $30,000 (not including pensions, dividends, and interest) without losing Social Security benefits. The previous ceiling had been $11,500.

While the legislation bears the President's signature, Dole would also like to be identified with it. Says the former Senate Majority Leader: "I support putting the Social Security earnings test out to pasture--not our senior citizens." --Amy Kover

MAXIMUM IMPACT FROM A MINIMUM-WAGE BILL

Expanding IRAs and giving employees at small companies easier access to pensions are two issues Democrats and Republicans agree on. But both ideas have stalled because they have been attached to controversial bills that never made it into law. The solution: Tack these and other long-favored retirement proposals onto the minimum-wage bill, passed by the House in May and by the Senate in July. President Clinton should receive the final legislation shortly and is expected to sign the bill.

The legislation would enable companies with fewer than 100 workers to set up special savings plans, called Savings Incentive Match Plans for Employees of Small Employers (Simple). Simple is similar to the President's plan for small businesses, the National Employee Savings Trust (Nest), featured in his 1997 budget proposal. Employees could set aside as much as $6,000 a year of pretax income in individual accounts similar to IRAs. Employers would match that dollar-for-dollar up to 3% of salary, or contribute a flat 2% regardless of how much the worker has saved.

Employees of big companies would get a break too. Today highly paid executives can't contribute the full $9,500 allowed by law to a 401(k) plan if their contributions exceed those of lesser-paid employees, leading the plan to fail a vital discrimination test. But under the new legislation, the restriction would be lifted if the employer does one of two things for all eligible lower-paid employees: puts in 3% of pay for these workers regardless of whether they contribute to the plan, or matches contributions on a sliding scale--from 3% to 5% of salary--offering an increased amount to those who put in less.

Nonworking spouses may also be able to save more. Under current law, each member of a two-income couple can contribute as much as $2,000 to an IRA. But in a one-income household, the stay-at-homer is limited to $250. The Senate wants to let each spouse put in $2,000, regardless of employment status.

Even current retirees would get a bone. Right now anyone who withdraws more than $155,000 a year from a tax-deferred retirement account must pay a 15% penalty tax on the excess, on top of ordinary income taxes due on the distribution. The new legislation would waive the penalty tax for three years, giving retirees with large savings a chance to winnow them down. --Susan E. Kuhn

KASSEBAUM-KENNEDY HEALTH CARE RELIEF

After much talk but virtually no action, Congress is poised to make changes in health care. The Health Insurance Reform Act of 1995, sponsored by Senators Nancy Kassebaum (R-Kansas) and Ted Kennedy (D-Massachusetts), is on the cusp of approval. It will guarantee individual health insurance to anyone who has worked for at least 18 months at a job that previously provided coverage. The legislation benefits everyone, but it will particularly help older people caught in the health care dead zone--retired but not yet 65, when Medicare kicks in.

Right now, most individuals who leave work are eligible for extended coverage under Cobra, which provides cost-effective health care insurance for 18 months. Once Cobra has expired, however, individuals must get insurance on their own. Many older people, especially those with preexisting health care conditions, cannot do so. The Kassebaum-Kennedy bill aims to change that by requiring insurance companies to provide coverage once Cobra has been exhausted.

Both the House and the Senate have passed versions of the bill. President Clinton has also blessed most of it. Now that one big problem (Senator Ted Kennedy's staunch opposition to an amendment for medical savings accounts) has been ironed out, both parties have election incentives to ratify the bill before Congress breaks in early August. --A.K.

EASY ACCESS TO INFLATION-INDEXED BONDS

By year-end, the U.S. Treasury plans to issue its much anticipated inflation-indexed bonds. To make them accessible to small investors, the government is proposing a bite-size minimum purchase of $1,000. Investors will be able to buy the bonds through brokers and mutual funds, or directly from the Treasury Department.

While details on the structure of the new securities remain fuzzy, Canada's Real Return Bonds look like a reasonable prototype. The principal of these bonds is adjusted for inflation, which means that a bond bought for $1,000 would be worth $1,030 if inflation averaged 3% for the year. The bonds would mature in either ten or 30 years. Their semi-annual interest payments would be a fixed percentage of the current principal value. In this case, if the fixed rate were 5%, the investor's first interest payment would be $50. The second interest payment, adjusted for 3% inflation, would be $51.50.

Are these precautions really necessary when inflation seems to be under control? "My mother was asking me about inflation-adjusted bonds, and I told her she was better off buying two-year Treasury notes," says Josh Stiles, a senior bond strategist at IDEA, a New York-based investment research firm. "I think inflation will only rise at a modest uptick--nothing substantial enough to require a need for these bonds." --A.K.