Oh No! What are we retirees going to do? Especially if we depend on Social Security and Medicare more than we are supposed to? According to this article in the NY Post:
Government trustees reported that a combination of rising costs and an aging population cut the life expectancy of Medicare’s trust fund to just 8 years.
The program is now expected to deplete its funds by 2026, down from last year’s estimate of 2029.
Meanwhile, higher benefit payouts mean Social Security will have to dip into its nearly $3 trillion trust fund for the first time since 1982 — and trustees warned the program would be insolvent by 2034.
Of course the most simple thing to do would be to eliminate the salary wage cap and start taking out Social Security payroll taxes from workers who earn more than $128,400 a year (which is quite a common annual salary nowadays). Why the government hasn’t taken this super easy step baffles me. Thankfully, there is no wage cap on Medicare, but that hasn’t seemed to help the government. They’re still running out of that money!
Social Security taxes are assessed on all wages earned, up to a capped maximum. In 2018, the cap is $128,400. Employees are taxed at 6.2% of wages earned, so if someone earned the maximum taxable wages of $128,400, they would pay $7,960.80.
In addition to Social Security taxes, workers also pay a Medicare tax of 1.45%. The earnings subject to the Medicare tax are not capped, so employees pay this 1.45% on their entire incomes. High earners owe an additional .9% on earned income above $200,000 for single filers and heads of household; above $125,000 for married spouses filing separately; or above $250,000 for married couples filing jointly.
AARP says it’s a myth (click here) that Social Security will ever run out of money. As long as America has some people working and paying their taxes, social security benefits will get paid. BUT (and here’s that ‘but’) because of the slowdown in our birth rate, Social Security checks will be reduced to just about 80% of what you would have been collecting in year 2034.
Fact: No doubt, Social Security faces funding challenges, but not immediately and not bankruptcy. Benefits are paid through payroll taxes collected from current workers and their employers, and the program currently operates with a surplus of about $2.8 trillion.
Yet with a rising number of retirees and a drop in the birthrate, that’s changing. The latest projection has the combined Social Security trust funds that pay retirement and disability benefits running out of cash reserves by 2034.
But that wouldn’t leave Social Security bankrupt and unable to pay any benefits. Even if Congress does nothing to shore up the system by 2034, Social Security will be able to pay out 79 percent of promised benefits until 2090. The last time Social Security nearly depleted its reserves was in the early 1980s, when Congress shored up the program by gradually increasing the full retirement age from 65 to 67 and started to tax benefits based on income levels.
What’s a current retiree or a future retiree to do? If you are working, start saving more money. If you are already retired and collecting benefits, reduce your spending and start saving money. Downsize, cut back on your expenses and prepare to tighten your financial belt. UGH! You’re going to need your retirement savings accounts more than ever in a few years. We’ve been forewarned so it would be advisable to prepare.
If you start collecting Social Security at age 62, that’s 3 years before $134 (approx) will be taken out of your check to cover Part B of Medicare. For a painless way to save, just put that extra $134 away in a savings account. You’ll have saved an additional $4,824 before you go on Medicare at age 65.
Think twice (maybe three times) before taking that very expensive vacation. Eliminate most if not all of your debt. Debt is the #1 retirement killer IMHO. Be kind to your relatives. A basement of theirs or a room in their home may be in your future. Stay as healthy as you can. Get out and just walk! It gets the blood running all through your body! Eliminate a dual car family or better yet, move to an area where a car is NOT needed for better savings. Don’t scrimp on home maintenance and repair. Fix and mend NOW before it gets too expensive to do anything later on!
If you have any recommendations or suggestions of saving money for our futures, kindly share.