Is Social Security or Medicare Running Out of Money? What the 2016 Trustees Report Has to Say

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Social Security is vital to Americans, providing workers and their families with retirement, disability, and survivors insurance benefits. Medicare is also an essential program for American seniors. Since its creation in 1965, Medicare has provided universal health care to millions. Both these programs play integral roles in our lives, and it would truly be a travesty if either of them stopped.

Each year the Trustees of the Social Security and Medicare trust funds report on the current and projected financial status of both programs. Last week, they issued their 2016 financial review of the programs, and it warns of shortfalls that could occur in the not-so-distant future.

Status of Social Security

Currently, sixty million people receive Social Security benefits totaling more than $74 billion each month, and the number of beneficiaries is expected to reach 76 million by 2025. Over the program’s 80-year history, it has collected roughly $19.0 trillion and paid out $16.1 trillion, leaving asset reserves of more than $2.8 trillion at the end of 2015 in its two trust funds. These are some of the highlights from the report, regarding Social Security:

•For now, Social Security’s trust funds are still growing. The combined trust fund assets will grow through 2019. Nevertheless, the population is aging, which makes more Americans eligible for retirement benefits, so even with interest earnings, the trust fund will gradually dwindle after 2019 and be depleted in 2034 if policymakers don’t act by then. Action in this case most likely means raising the Social Security tax rates, which is not popular politically, but is something that inevitably will need to be done.

The projected year of exhaustion is the same as last year: Social Security’s retirement and disability trust fund reserves are projected to be exhausted in 2034, the same year that was projected in last year’s Trustees Report.

What happens after the depletion of funds?: After trust fund depletion, annual revenues from the dedicated payroll tax and taxation of Social Security benefits will be sufficient to fund about three-quarters of scheduled benefits through 2090.

Social Security Cost-of-Living Adjustment (COLA) will increase slightly next year: Social Security will provide a modest cost-of-living adjustment, increasing benefits by two-tenths of 1 percent next year.

Social Security’s overall shortfall over the next 75 years is virtually unchanged from last year’s estimate of 2.68 percent of taxable payroll.

Status of Medicare

Medicare is the federal health insurance program created in 1965 for people ages 65 and over, regardless of income, medical history, or health status. Medicare plays a key role in providing health and financial security to 55 million seniors and younger people with disabilities. The program helps to pay for many medical care services, including hospitalizations, physician visits, prescription drugs, post-acute care, preventive services, and more.

The report warned of a “substantial increase” in Medicare premiums in 2017 for about 30% of beneficiaries. Under assumptions in the report, the standard premium, now $121.80 a month, would rise to $149, and the change could be announced just weeks before Election Day on Nov. 8.

The Medicare Hospital Insurance (HI) Trust Fund will have sufficient funds to cover its obligations until 2028, two years earlier than projected last year, but still 11 years later than was projected in the last report issued prior to the passage of the Affordable Care Act.

Medicare now spends an average of nearly $13,000 per beneficiary, and this figure is expected to exceed $16,000 in five years, the report said. High-cost drugs are a major driver of Medicare spending growth.

Part B of Supplementary Medical Insurance (SMI), which pays doctors’ bills and other outpatient expenses, and Part D, which provides access to prescription drug coverage, are both projected to remain adequately financed into the indefinite future because current law automatically provides financing each year to meet the next year’s expected costs.

Congress can easily close the projected funding gap by raising the Medicare payroll tax — now 1.45 percent each for employers and employees — to about 1.8 percent, or by enacting an equivalent mix of program cuts and tax increases.

As you can see, both Social Security and Medicare face long-term financing shortfalls. According to the report, although both programs don’t face an imminent crisis, policymakers should act sooner rather than later to restore long-term solvency. The sooner they act, the more fairly they can spread out the needed adjustments in revenue and benefit formulas over time, and the more confidently people can plan their work, savings, and retirement around those adjustments. Earlier action will also help elected officials minimize adverse impacts on vulnerable populations, including lower-income workers and people already dependent on program benefits.

Living on Social Security

The average Social Security retirement benefit is about $1,300 per month ($1,328 in 2015), and the maximum at full retirement age is more than $2,600 per month ($2,663 in 2015), but the exact amount you’ll get every month depends on how much you earned over your lifetime and how old you are when you start collecting. This isn’t much, when you consider cost-of living in this area. For suggestions on living on social security alone, please see our article on this subject.

What would happen if you or a loved one are living on Social Security alone and you or that loved one becomes incapacitated? Every adult over the age of 18 should plan ahead with an Incapacity Plan that includes a Financial Power of Attorney, an Advance Medical Directive, and an Advance Care Plan.

Medicare Doesn’t Cover Long-Term Care

Many of us don’t realize that Medicare does not pay one penny for long-term care. Medicare only pays for medical care delivered by doctors and hospitals, and in certain cases short-term rehabilitation which might take place in a nursing home.  When it comes to Medicaid, it gets very complicated to complete and file the application and, in most cases, it takes an experienced Elder Law firm, such as the Farr Law Firm, to help protect your assets first and then file for Medicaid. If you or a loved one need long-term care now or in the near future, the time to plan is now! Please call us any time to set up an appointment for a no-cost introductory consultation:

Fairfax Elder Law: 703-691-1888
Fredericksburg Elder Law: 540-479-1435
Rockville Elder Law: 301-519-8041
DC Elder Law: 202-587-2797

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