There has been a lot of bad news about Social Security lately. Most notably, the June Social Security Trustees report revealed that the Old-Age and Survivors Insurance (OASI) Trust Fund will run short in 2032, leaving Social Security with only enough income to pay 78% of promised benefits.
If the OASI trust fund is combined with the Disability Insurance trust fund, this buys some time, but the combined fund will last only through 2034. Then, there will be enough money to cover only 83% of the promised benefits.
While this is not great news for retirees, it’s also not the only problem they face that could affect their Social Security benefits. There’s another issue that may not be on their radar, but that should be.
Image source: Getty Images.
Social Security retirees could bring a far smaller retirement benefit home in 2035 for a different reason
Seniors who depend on Social Security could face a financial shortfall for reasons beyond trust fund issues.
This other problem was highlighted in a brief prepared by the Joint Economic Committee, which warned that rapidly rising Medicare premiums will significantly affect Social Security checks.
According to the JEC report, Medicare Part B premiums have been rapidly increasing due to overpayments to Medicare Advantage plans.
Medicare Advantage plans cost more to provide coverage than traditional Medicare. Because the standard Part B premiums are set to cover 25% of expected Part B spending per enrollee — and this calculation does not distinguish between retirees covered by traditional Medicare versus Medicare Advantage — premiums for all Part B recipients end up being pushed higher.
This has contributed to rapid increases in Medicare costs. By 2035, per-person premiums are expected to more than double, from $2,440 to around $5,000. Around $450 of that increase is attributed to overpayments, assuming they continue at the same rate.
Why do surging Medicare premiums mean Social Security benefits are reduced?
The expected increase in Medicare premiums is approximately $2,560, according to calculations in the report. This will directly affect Social Security checks, since most seniors have Medicare premiums deducted from their Social Security benefits. Retirees paying the standard Medicare premiums will effectively see an extra $2,560 of their take-home pay from Social Security benefits disappear if these predictions pan out.
For many retirees already struggling to cope with rising inflation in the post-pandemic era, losing even more of their Social Security benefits due to steep Medicare premium increases could be devastating. Current and future retirees need to keep this issue on their radar when making retirement planning decisions so they can prepare for this major threat to their financial security.
