The annual report from the Trustees of the US Government’s two largest entitlement programs (Social Security and Medicare) was released on July 13, 2017. Not surprising, the report relayed the same information regarding Social Security and Medicare as it did last year; without revision and additional funding, both programs will see cuts in payments to Americans that receive benefits by 2034. Because both of these programs pay out based on present day FICA tax collection, there are less Americans working now than are supporting current retirees. The reason for this is twofold; a smaller population (average birth rate in 2016 was 12.4 births per 1000 women per year) can’t support a large aging population (Boomer birth rate in 1950 was 122 per 1000 women) and a job pay rate that hasn’t kept up with inflation resulting in low wages and low FICA tax collection. Regardless of your political preference, Social Security and Medicare reform is a problem facing every American with no easy solution.
The report indicated that Social Security and Medicare are not predicted to ‘run out’, but that payments will be cut by 23% for those retiring after 2034. Future generations will not receive payments to the level that current retirees are receiving. One fallacy that people believe is that when they pay in to FICA, that money is ‘banked’ for them for when they need to access it through Social Security or Medicare. The FICA taxes collected present day is used for the present day Social Security and Medicare payments benefit retired Americans.
What can you do if you are not a retiree? Plan to not receive Social Security or Medicare and don’t include any calculations in your financial plan. Because we do not know the amount of the payment you may receive, or if the mathematical formulation will be changed, view these benefits as something you will not benefit from. Although you may believe that to be extreme, putting aside more into your other retirement investments may help to offset the shortage from these two benefit sources.
For updates to Social Security and Medicare, visit https://www.ssa.gov/myaccount/ and register for an account. This is the same account you will use when you sign up for Social Security and Medicare benefits. If you’re retiring in the next ten years, attend a meeting sponsored by the Social Security Administration regarding benefits. Using your SSA account, you can also find a sponsored meeting close to where you live where you will have access to a Social Security Administration employee to answer questions you may have.
Contact our Las Vegas Certified Financial Planners if you would like to visit regarding developing a plan to offset Social Security retirement benefits in your financial plan, or discuss other options for saving for your retirement.