– There are many possible changes to make to Social Security and Medicare that would reduce or eliminate the long-term financing shortfalls, but with each year that lawmakers don’t take action, the public has less time to prepare for the changes.
In this episode, Jeremy Keil talks about 2023’s Social Security Trustees Report. He breaks down the misconceptions surrounding Social Security, reveals the silver lining in the Social Security Trustees Report by highlighting the benefits of hospital and disability insurance, unpacks the challenges that need attention, explains why raising taxes isn’t a sole solution for Medicare Supplement, and shares suggestions for addressing Social Security concerns.
- Three things people commonly misunderstand about Social Security
- The positives about hospital and disability insurance from the Social Security Trustees Report
- The problems the Social Security Trustees Report lists that need to be addressed
- Why raising taxes alone won’t solve the problem with the Medicare Supplement program
- Some things we should consider when we try to fix Social Security
- And more
Breaking Down 2023’s Social Security Trustees Report
3 Common Misunderstandings About Social Security
1. How survivor benefits work:
Many people misunderstand how survivor benefits work in Social Security. For couples who are both receiving benefits, it doesn’t matter who dies first, the lower benefit goes away. This means that if one spouse has a higher benefit amount, it may be more advantageous for them to delay claiming Social Security to maximize their benefits for the surviving spouse.
However, some people may mistakenly file for benefits based on their own benefit amount without considering the impact on their spouse’s survivor benefit, resulting in potentially lower lifetime benefits for the couple.
2. Social Security is going bankrupt:
While it is true that the Social Security trust fund is projected to run out of reserves by the year 2033, this does not mean that Social Security itself is going bankrupt.
Social Security is a pay-as-you-go system, and even if the trust fund is depleted, our taxes will continue to pay into the system, and benefits will still be paid out.
However, it may result in reduced benefits in the future if no changes are made to the program.
3. How longevity works:
Many people underestimate the impact of living longer on their Social Security benefits. Delaying claiming Social Security benefits beyond the full retirement age can result in higher monthly benefits for the rest of one’s life. However, some people may claim benefits early, resulting in permanently reduced benefits for the duration of their retirement, especially if they live longer than expected.
It is important to consider one’s life expectancy and financial situation when deciding when to claim Social Security benefits to maximize lifetime benefits. For more information about how you can calculate your longevity, visit longevityillustrator.org.
Many people feel like they’ve lost a sense of control over their Social Security benefit because of all the negative news and misconceptions about it. Please remember that you have a significant level of control over your Social Security decisions.
The difference in benefits between filing at age 62 versus age 70 can be as much as 76%, which is three times greater than the potential impact of political and congressional decisions on Social Security. This highlights why it’s important to make informed choices about when to file for Social Security benefits and not solely relying on assumptions about the program’s future.
The Social Security Trustees Report Negatives
The Social Security Trustees report identifies several negative things in our Social Security system.
One major concern is the projected depletion of the Social Security retirement and survivors trust fund by the year 2033. This means that if no changes are made, the trust fund will not have enough funds to cover the promised benefits to retirees and survivors. Additionally, only 77% of the projected benefits could be covered by the taxes collected, which means that there may be a 23% reduction in benefits for future retirees and survivors.
Another issue highlighted in the report is the increasing costs of Social Security. It indicates that the costs of Social Security, based on average incomes of Americans, are projected to rise from about 14% to 18% in the future. However, the money coming in from taxes is relatively flat at 13% of the average income of $100,000. This means that there is a difference between the costs and the revenue, and there may be a need to increase taxes to cover the rising costs of Social Security.
There are also challenges related to Medicare Supplement Insurance. While Social Security taxes do not directly fund it, Medicare Supplement is funded mostly by general revenue taxes from the federal government, with some contributions from premiums and states. The lack of transparency in the funding of Medicare Supplement is seen as a concern, and the report suggests that there may be a need for additional funding to fully cover the costs of it.
Overall, these issues suggest that change is needed to ensure the long-term sustainability of the Social Security program, and simply raising taxes may not be sufficient to address these challenges.
The Social Security Trustees Report Positives
There are many positives highlighted in the Social Security Trustees report to go along with the negatives.
One of the encouraging factors is the funding for hospital insurance, also known as Medicare Part A, which is primarily financed through taxes. Although the trust fund for hospital insurance is projected to be depleted in 2031, the taxes collected are expected to cover 89% of the costs, which suggests that a relatively small increase in taxes or cost-cutting measures could potentially address the shortfall.
We should also note the Social Security disability insurance program, which is currently 100% funded and projected to remain stable for the next 75 years, providing support to approximately 9 million people.
Another positive aspect of the Social Security program is its cost-effectiveness. Despite being a trillion-dollar program with a massive budget, the amount needed to run Social Security is only 0.5% of that budget.
So, we have some assurances about the sustainability of certain aspects of our Social Security program’s funding and benefits.
What We Should Consider When We Fix Social Security
When considering how to fix Social Security, several important factors should be taken into account.
First and foremost, the program is a critical source of income for many Americans, particularly those aged 65 and older, with 30% of their income coming from Social Security. Almost half of Americans rely on Social Security for at least half of their income. So any changes to the program need to prioritize protecting those who need it most.
While the idea of gradually raising the full retirement age or increasing taxes across the board may seem like simple fixes, it’s important to consider the significant disparities in life expectancy based on income and race. Studies have shown that lower income individuals tend to have shorter life expectancies compared to higher income individuals, with a difference of up to 12 years. Similarly, there are disparities in life expectancy based on race, with minority groups often having shorter life expectancies compared to white individuals. So a blanket approach isn’t the best option because it can disproportionately affect certain groups of people.
Lawmakers have many options for changes that would reduce or eliminate the long-term financing shortfalls. Congress needs to consider such options for both Medicare and Social Security, like the proposal for Medicare in the president’s budget. With each year that lawmakers do not act, the public has less time to prepare for the changes.
To learn more about The Social Security Trustees Report, check out the resources below!
If you have any questions, feel free to contact us using the contact information provided below!
- How To Fix America: Social Security with Dr. Kotlikoff
- A Summary of the 2023 Social security Trustees Report
- Free Retirement Planning Video Course: 5stepretirementplan.com
- 3 Things You Should Know Before Choosing A Financial Advisor
- 7 Questions That Could Make or Break Your Retirement
- Subscribe to Retirement Revealed on Google Podcasts
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