Approximately 55 million retirees, the disabled, and children who have lost parents receive Social Security benefits. More than 46 million Americans are covered by Medicare. As the number of new Medicare and Social Security beneficiaries rises sharply with the upcoming wave of retiring Baby Boomers, can these programs continue to be viable? Experts predict that Medicare will be exhausted by 2024 and Social Security will be bankrupt in 2036.
"The financial shortfalls confronting both Social Security and Medicare are substantial and -- absent legislation to correct them -- quite certain," wrote Charles P. Blahous III and Robert D. Reischauer, two trustees of Social Security and Medicare. "Elected officials will best serve the interests of the public if financial corrections are enacted at the earliest practicable time." Solutions that are undertaken early can be more of a gradual cure as opposed to last-minute, painful remedies like high tax increases and deep benefit cuts.
The sluggish economy is hurting Medicare and Social Security because fewer people are working and contributing payroll taxes that fund these programs. Medicare also suffers the high cost medical care. In addition, people are living longer and having costly procedures like bypass surgeries and hip replacements later in life.
What Does Medicare Cover?
Medicare is our countrywide health insurance program for people 65 or older and is financed by payroll taxes paid by workers and employers. It is also partially funded by monthly premiums deducted from Social Security checks. Medicare assists with the cost of health care but does not cover all medical expenses or most long-term care. The program has 4 parts:
- Hospital Insurance: for inpatient care, some in-home care and hospice care;
- Medical Insurance: for doctors' services and other miscellaneous medical services and supplies not covered by hospital insurance;
- Medicare Advantage: These plans are available in many areas so that people with Medicare Parts A and B can choose to receive all their health care services through one of the provider organizations under Part C.
- Prescription Drug Coverage: for doctor prescribed medications.
What Is The Government’s Response?
American seniors have worked hard, contributing to Medicare and Social Security for decades. With the looming U.S. deficit at issue, however, those benefits are now at risk because Congress is considering dangerous cuts to Medicare and Social Security. There are many efforts in place to fight for cuts to be made to wasteful government spending instead of hurting these valuable programs.
According to reports, the Social Security benefits for disabled Americans and their dependents would be the first to dry up with funding scheduled to run out in 2018. The part of the fund that pays retirees, however, has enough money to stay solvent until 2036.
If nothing is done to remedy this before then, benefits will have to be cut by 23 percent or the Social Security payroll tax increased to16 percent or some combination of the two.
For future planning, the best advice for maximizing Social Security benefits is to continue to work as long as possible and to delay retirement to age 70, if possible. It is also a good idea to have some long-term care insurance - just in case.
Along with this, understanding strategies that married couples should use is key. Many people benefit from claiming later and too many claim early – not usually a good idea. In some instances, the lower-earning spouse should claim as early as possible and the higher-earning spouse as late as possible.
To get an idea of your monthly Social Security benefit, login to the Social Security website. (Visit the Social Security Administration’s benefit calculators website.) Also, read The National Academy of Social Insurance’s report, ‘When To Take Social Security: Questions to Consider.’ (Read the report from the National Academy of Social Insurance here.)
For Medicare to remain viable for the next 75 years payroll taxes would have to be increased by 24 percent or current benefit payments cut by 17 percent. The longer the US waits to address the pending shortages in Medicare and Social Security, the more painful it will be. Delaying good fiscal planning for Medicare’s future now may mean cuts for current beneficiaries rather than diminishing them for people who enter the program in the future.
This could mean that by age 65 or older the average individual could need $300,000 set aside for medical expenses and $300,000 for long-term care if you do not buy a long-term care insurance policy.
The bottom line here is simple. Social Security and Medicare will probably be around for many years to come; however, these programs should start to be viewed as supplements rather than primary sources of retirement income and health insurance.
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