Here are some amazing facts from the summary.
“The Trustees project that the combined trust funds will be depleted in 2034, the same year projected in last year’s report.”
If changes are not made, reserves will be depleted by 2034, and estimates are that benefits will have to be cut by 25 per cent.
Medicare is in worse shape.
“The Trustees project that the Medicare Hospital Insurance Trust Fund will be depleted in 2028, two years earlier than projected in last year’s report.
The Conclusion of the report is that Lawmakers should take steps that would reduce or eliminate the long term financing shortfalls in Social Security and Medicare, and that it should take those steps sooner rather than later.
There are not any easy decisions to make. All decisions will be negative to some or all of our population.
In the past year two major changes were made to help stabilize social security. One was to take away a method of filing that benefited a married couple, where one spouse earned more than the other. Another change, late in the year, changed the amount of income subject to social security tax.
Raising the full retirement age would lower the amount of years, someone would collect Social Security. This would probably change gradually. Most proposals I have read about would add 3 months to the full retirement age each year, until the full retirement age was 68. These proposals would also let you delay the maximum age until you begin drawing social security to 72.
That shrinks the amount of time between when you start collecting social security, and are seriously considering knee or hip replacement.
You would probably still be able to collect at age 62, but the monthly benefit would be less.
Increasing the amount of income that is subject to social security tax is probably going to happen. In 2016 the amount of income tax subject to social security tax was $118,500. The way it works now is that you pay 6.2% of your wages for social security, and your employer pays 6.2% of your wages for social security. This tax is assessed on the first $118,500 of income. It is a substantial tax.
Starting in 2017, the amount of your payroll subject to social security tax will increase to $127,200. Proposals for improving the fiscal health of social security include raising or uncapping the amount of income subject to social security. Other proposals call for increasing the 6.2% rate.
Means testing is another area under consideration. Means testing is a method of denying some citizens the benefit they paid for, because they have been successful enough and do not need it as much as lower income citizens.
New formulas for calculating COLA, (cost of living increases) are under consideration. This would lower the annual increases provided by social security.
You may be getting the feeling, and you would be correct, that are not any painless solutions. This is the reason that politicians have a hard time confronting this problem. Try not to attack the messenger, or the people brave enough to suggest some solutions. It is a national problem. We have to be adults, educate ourselves, and encourage our politicians to work together to start fixing the problem. The longer we wait, the more drastic the negative changes will have to be.
In closing, it should be obvious by now that you need to take personal responsibility for your own financial planning for retirement. The government has made promises that they do not have the ability to keep. This will play out in reductions of benefits and increases in taxes. Social Security is the focus of this article. Medicare and some pensions are also suspect.
Now is the time to take your ownership of your retirement plan. Most people need to save more. I have seen people of average means that have excelled in saving for retirement, and I have seen people with high net worth, who have done a poor job saving for retirement. I know it can be done.
I think Social Security will be there for everyone reading this article. But I think a lot of people miscalculate the purchasing power their social security check will have after reduced COLA’s, taxes, and increased Medicare payments.