Retiring comfortably has rarely been so difficult. Expenses are rising faster than wages, you might live for 30 or more years after leaving the workforce, and the social safety nets that previous generations relied upon for help with their retirement costs are struggling.
You’ve probably heard about Social Security running out of money, but Medicare is on a similar course. The coming changes to the two programs could make life a lot more complicated — and expensive — for seniors. But the right preparation could help you better weather whatever comes next.
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What’s going on with Social Security and Medicare?
Social Security has been struggling for a while now, with its annual costs exceeding income since 2021. This is largely due to changing demographics. So far, the program has been able to pay benefits as scheduled by tapping its trust funds to make up the difference. But that can’t last forever.
The latest Trustees’ Report predicts that Social Security’s Old Age and Survivors Insurance (OASI) trust fund will be depleted in 2032 and that it will be able to pay out only 78% of scheduled benefits thereafter. This would drop to 62% by the year 2100.
Medicare isn’t far behind. The latest Medicare Trustees’ Report revealed that its Hospital Insurance (HI) trust fund, which pays for Part A benefits, is expected to be depleted in 2033. After that, it would only be able to pay out 89% of scheduled benefits going forward.
If nothing changes, seniors will find themselves with fewer Social Security benefits and increased out-of-pocket healthcare costs, which could cause them to drain their savings much more quickly than previously expected. However, it probably won’t get this bad.
What could happen to Social Security and Medicare if the government intervenes?
Social Security and Medicare have faced financial crises before, and the government has intervened to prevent benefit cuts. It’ll likely do the same this time, though we don’t yet know what the fixes will look like.
Raising the programs’ revenue is the only way to avoid cuts, but that will likely involve raising payroll taxes on workers. Seniors could also face higher Social Security benefit taxes, and workers could face a higher full retirement age (FRA), which would constitute an indirect Social Security cut.
Until the government decides on a plan, all we can do is focus on what’s within our control. Save as much as you’re able to for retirement right now, and have a plan for what you’ll do if you find yourself draining your savings more quickly than expected. Once we know what’s going to happen with Social Security and Medicare, review your retirement plan and make any necessary changes to keep yourself financially secure.
