Financial planning tools and services to put you on the path to the future you want
Your guide to financial planning and retirement
Connect with peers and experts
Get to know the people behind the company and the mission behind the work
Offer financial wellness to the people at the heart of your business
April 6, 2023
The latest news on the solvency of Social Security and Medicare is not great. Social Security will not be able to pay out full benefits in 10 years and Medicare will face reductions even sooner.
Keep reading to get informed about the situation and find ideas for protecting your retirement financial security.
First, it is important to note that neither Social Security nor Medicare will actually run out of money. However, the money being brought into the programs will soon not be enough to cover the benefits being paid out and most people refer to this as “running out of money.”
And, without Congressional action, the deficits in the program may cause benefits to be cut.
A new report from the Social Security and Medicare Board of Trustees finds that Social Security’s surplus reserves are expected to run out in 2033.
This means that if nothing changes, the Social Security Administration has stated that in 2033, the fund’s reserves will become depleted and continuing tax income will be sufficient to pay only 77% of scheduled benefits.
So, there is risk that benefits will be reduced by 20-25%.
Starting in 2031, Medicare’s hospital insurance will be able to pay 89% of the scheduled benefits for hospital services, the report states.
This means that you might be paying 10% more out of pocket for some medical expenses.
Without any further action from government, it seems that benefits will be reduced at those times. However, at a minimum, there seems to be a bi partisan mandate to protect people who are already in the program.
In other words, it is highly unlikely that anyone who is already receiving benefits will see cuts, but never say never.
Whether or not your benefits will be cut in the future is entirely dependent on who is elected to Congress and the presidency and how they choose to fix the problems.
It appears that today’s Congress has elected to side step this issue for the time being. After all, fixing the deficits will not be easy. However, there are clear options that would protect those already receiving benefits from any cuts to what they are receiving. Options include:
Social Security is funded by payroll taxes. With baby boomers retiring and many people leaving the work force after the pandemic, we have less income coming into the system. At the same time, we have greater numbers of seniors receiving Social Security and these seniors are living longer than previous generations. This means that they receive benefits for a longer period of time, which obviously means a greater lifetime payout. And, the big COLA increases in 2022 and 2023 have exacerbated the problems.
If we have fewer people working, then fewer people are paying the Social Security taxes that fund the program. And, more people are drawing from the program for a longer period of time.
Similarly, Medicare also has fewer people paying in and more people getting benefits. However, there is also the fact that medical costs have risen dramatically and Medicare payouts are increasingly sizable.
NOTE: According to Andrew Biggs of the American Enterprise institute (AEI), in the 1960s there were 5 workers per retiree. We are now at only 2 workers per retired person.
Yes and no.
Yes, you paid into the program, but Social Security is not a retirement savings program. It’s more like a pension. The people paying in now through payroll taxes are paying for today’s retirees. When you retire, younger workers will be paying it forward for you.
And, in fact, you probably have paid less in taxes than you are going to get out in benefits. According to a 2020 report from the Urban Institute:
See more examples by downloading their report.
Of course, the above analysis ignores the time value of money and lost opportunity cost. Social Security contributions are put into the fund over decades, not all at once. Funding Social Security this way takes the risk away from accumulating benefits, but it also hampers growth opportunities.
No matter what happens with Social Security and Medicare, you need a strong and well-documented retirement plan — one that you can maintain and update as your own finances evolve. Given a somewhat perilous economic situation, this is more true now than ever before.
Create a Detailed Plan: The NewRetirement Planner is an extremely detailed tool that can help you set goals for retirement, find possibilities for achieving those goals and keep track of your progress. Get started today.
Maximize Your Social Security Benefits: Try different start ages and benefit amounts and review your cash flow and out of money ages.
Not Close to Retirement? Model Reduced Benefits and a Later Start Age: If you are really worried about cuts to these programs, you might want to run what if scenarios in the NewRetirement Planner where you:
Plan for Medical Expenses: Even with full Medicare, you will have sizable out of pocket medical costs. The NewRetirement Planner helps you estimate your lifetime out of pocket costs so you can have a more reliable and secure plan.
Do it yourself retirement planning: easy, comprehensive, reliable
Take financial wellness into your own hands and do it yourself retirement planning: easy,
Share this post:
Yes. You will likely pay taxes on Social Security. Learn what to expect (federal, state or work) and find a retirement tax calculator! Learn more now…
Find out how to apply for Social Security. Applying for Social Security is very straightforward. The real trick is deciding when. Get the inside scoop!
Choosing the right Social Security strategies can be a $100,000 (or more) question. Find out how to make the most of this benefit with 16 easy tips.
Our weekly newsletter full of inspiration, podcasts, trends and news.
© 2024 NewRetirement, Inc. All rights reserved.
Disclaimer: The content, calculators, and tools on NewRetirement.com are for informational and educational purposes
only and are not investment advice. They apply financial concepts in a general manner and include
hypotheticals based on information you provide. For retirement planning, you should consider other
assets, income, and investments such as equity in a home or savings accounts in addition to your
retirement savings in an IRA or qualified plan such as a 401(k). Among other things, NewRetirement
provides you with a way to estimate your future retirement income needs and assess the impact of
different scenarios on retirement income. NewRetirement Planner and PlannerPlus are tools that
individuals can use on their own behalf to help think through their future plans, but should not be
acted upon as a complete financial plan. We strongly recommend that you seek the advice of a financial
services professional who has a fiduciary relationship with you before making any type of investment or
significant financial decision. NewRetirement strives to keep its information and tools accurate and up
to date. The information presented is based on objective analysis, but it may not be the same that you
find on a particular financial institution, service provider or specific product's site. All content,
tools, financial products, calculations, estimates, forecasts, comparison shopping products and services
are presented without warranty.