The latest Social Security and Medicare Trustees’ reports show that the trust fund for Social Security and Medicare will be depleted earlier than anticipated unless lawmakers take action.
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Here’s a closer look at how this could impact retirees.
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Why Social Security and Medicare Could Run Out Earlier
According to NPR, the change is a result of a new law that increased benefits for nearly three million former public-sector workers who had pensions for jobs not covered by Social Security. More Americans have also started drawing benefits at a younger age, partly due to concerns that future benefits may be lower.
Congress will likely take action, but Neal K. Shah, chairman at Counterforce Health, author of Insured to Death and CEO of CareYaya, recommends that retirees and near-retirees act as if Washington won’t do anything.
“Delay claiming if possible, pile money into HSAs and Roth accounts for tax diversity, stress-test your budget for a 25% benefit shock, lock in Medigap or robust Advantage coverage early,” Shah recommended.
Impacts on Retirees
Despite spending cuts at federal programs and agencies, President Donald Trump has sworn to protect Social Security and Medicare.
“The proverbial Social Security ‘can’ has been kicked down the road continually by our representatives in Congress. At this point, no matter what they do, the future looks a bit disconcerting for Social Security recipients and those hoping to receive Social Security income in retirement,” Josh Anderson, president and CEO of Eagle Legacy & Financial in Eagle, Idaho, wrote in an email.
Nothing is certain, but here’s how it could impact retirees.
Financial Instability
Retirees are at risk of seeing a major drop in benefits. As Shah explained, “Retirees face a looming 23% cut to Social Security checks and an 11% gap in Medicare hospital payments as soon as 2033,” Shah explained. “That’s the year today’s 59-year-olds hit full retirement age.”
Although Social Security is only supposed to supplement about 40% of pre-retirement income, two-thirds of retirees rely on Social Security for more than half of their income, according to the National Reverse Mortgage Lenders Association.
“These future cuts would thrust many of those who rely on Social Security alone beneath the federal poverty line,” Anderson added.
Higher Healthcare Costs
According to Anderson, Medicare is a much larger issue, and out-of-control medical costs have been exponentially increasing.
“No one is really talking about solutions, though recent policies proposed by the Trump administration regarding fraud, waste, abuse and potential regulations regarding what pharmaceutical companies can charge in the U.S. may have an impact,” he noted.
Whitney Stidom of eHealth, a nationally licensed online health insurance marketplace specializing in serving Medicare beneficiaries, noted that healthcare costs are the number one financial concern in retirement, according to their research.
“Since healthcare and financial security are so closely linked, any threats to the viability of the Medicare or Social Security programs could have a major impact on seniors, many of whom live on a fixed income,” she added.
Shah also recommends fighting every denied health insurance claim. “Medical care is the leading cause of bankruptcy for older adults and there are ways to push back on bills,” he explained.
Delayed Retirement
If benefits are cut and healthcare costs rise, it could throw a wrench into people’s retirement plans.
“This could mean delaying your retirement and working longer than you expected, downsizing and/or budgeting more strictly now (and later), or selling off certain assets to make up for the difference in the lack of benefits,” wrote Steve Sexton, retirement planning expert at Sexton Advisory Group, in an email.
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This article originally appeared on GOBankingRates.com: Social Security and Medicare Could Run Out One Year Earlier Than Anticipated — 3 Impacts on Retirees
