FORT KNOX, Ky. — Have your heard about how two of our nation’s preeminent safety net programs are being reformed?
Social Security and Medicare are going to experience major changes within the next few years. Both have been bedrock programs for Americans who rely on income from them for financial security.
A report published by the Social Security Board of Trustees predicted that the Social Security trust fund for retirement benefits will deplete its reserves by 2033, one year earlier than was projected in 2022.
And Medicare? That board of trustees anticipates the hospital insurance fund is projected to be depleted by 2026, which would force patients to bear the responsibility for cuts in coverage.
Recently, the U. S. Department of Treasury, joined by the Department of Health and Human Services, Department of Labor, the Centers for Medicare and Medicaid Services and the Social Security Administration, released the annual trust reports for Social Security and Medicare, giving us the latest updates on how these programs are doing.
The American Association for Retired Persons, or AARP, reports that if Congress takes no action, there will not be enough money to pay full benefits, and 66 million recipients would see their Social Security benefits cut by 23-25% as well as an 11% pay cut to Medicare providers. This would result in an 80% change in costs by 2031.
This, unfortunately, would not only affect our economy but the money in our back pocket, forcing many into poverty.
Both Social Security and Medicare are government social safety net programs designed to help Americans by providing financial support. This includes providing individuals and families with financial assistance that can be used to cover cost-of-living expenses and medical care. The programs are there to safeguard the security of our future and provide health care to all Americans, especially the elderly, for generations to come.
Many are questioning what can be done? First, let’s look at why this is happening.
Both programs have significantly been affected by the COVID-19 pandemic and the economic recession of 2020, according to the U.S. Treasury Department.
“The dive in employment, increased interest rates, as well as higher mortality rates have all attributed to the future of these programs,” according to the Treasury. “The benefits paid out have exceeded the money coming in since 2021.”
To top things off, AARP reports 74 million baby boomers are predicted to begin taking retirement benefits, reducing the number of people in the workforce. Enhanced technology is allowing Americans to live longer. Let’s not also forget that the average life expectancy is increasing to 77.5 years per the Centers for Disease Control and Prevention.
For years, Americans have assumed that payroll taxes withheld for these programs would ensure a secure retirement for us all. Will they?
Here’s the good news: A new proposal, called House Resolution 4583, was recently introduced in the House of Representatives that is aimed at improving the financial standing of the Social Security program by repealing the federal taxation of benefits while phasing out the current wage cap on taxable earnings.
This bill is called the You Earned It, You Keep it Act. It proposes reforms to protect the solvency of the Social Security retirement trust fund up to 2054.
If passed, the proposal would eliminate the federal taxation of Social Security benefits for personal income tax filers beginning in 2025, according to officials. In return, this would reduce the federal debt by $8.9 trillion over 75 years with positive increases in overall cash flow by phasing out the taxable maximum wage cap.
The bill has already been referred to the House Committee on Ways and Means along with a companion bill, Senate 2280, which has been introduced to the Senate as well as the Committee on Finance. Clearly, some changes are warranted to keep Social Security from going insolvent.
If you are a “baby boomer,” you might reflect on the impact these changes will have on your personal retirement income. Consider where you are now and what you will need financially once you retire. What will be your sources of income then? Will you be reliant on Social Security and Medicare benefits? If so, give thought to this forecasted reform and the impact of those projected changes.
Now is the time to review your strategy; consider changes you can implement to make your retirement successful.
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Editor’s Note: If you have financial questions, consider making an appointment with an Army Community Service financial counselor to assist in making informed financial decisions. To schedule an in-person or virtual appointment, call 502-624-5989.
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