Will Social Security and Medicare Be There When You Need Them?

Social Security and Medicare
Marla Brill

By Marla Brill | Nov 12th, 2018

I remember starting my first job in the 1970s as a 16-year-old waitress at a downtown dime store lunch counter. Ever since then, the pleasure of receiving paychecks has been dampened by how much is eaten up by taxes, including Social Security and Medicare. At least, I assured myself over the years, I’d get some benefit from those nasty wage gobblers down the road.

Now, as I begin to think about tapping the benefits of a system I’ve been paying into for over 45 years, the tone coming out of Washington on Social Security and Medicare is disturbing and alarming. In an effort to lower the budget deficit, which ballooned soon after Republican tax cuts for companies and the wealthy became effective, talk of cutting “entitlements,” including Social Security, has reached a fever pitch. Just a couple of weeks ago Senate majority leader Mitch McConnell singled out cuts to Medicare, Social Security, and Medicaid as ripe for the chopping block. Trump’s chief economic advisor recently said cuts to entitlements could begin “as soon as next year.”

Let’s get one thing straight here. When McConnell and others use the word “entitlements,” it implies that people are accepting handouts they haven’t paid for. In the case of Social Security, you and I have paid into the system an entire lifetime in exchange for what amounts to a promised pension. It’s not a free ride, but a forced savings program for millions of Americans. The same applies to Medicare.

Both cost taxpayers a lot of money. The current tax rate for social security is 6.2 percent for the employer and 6.2 percent for the employee, or 12.4 percent total. The current rate for Medicare is 1.45 percent for the employer and 1.45 percent for the employee, or 2.9 percent total. Self-employed people like myself pay the full freight for both these programs.

At the same time, the reason for these taxes is clear. Among older people receiving benefits, 48 percent of married couples and 69 percent of unmarried persons get half or more of their income from Social Security. Twenty-one percent of married couples and about 44 percent of unmarried persons rely on Social Security for 90 percent or more of their income.

Stress Cracks Growing

Social Security and Medicare have become increasingly stretched. The population is aging, leaving fewer workers to foot the bill for the growing ranks of retirees. Last year there were 2.8 workers for every benefit recipient, compared to 3.3 in 2007.

Medicare’s signs of stress are also clear. For years, medical costs have challenged Medicare by rising much faster than the inflation rate. In September the Social Security trustees predicted that the Medicare hospital insurance fund would be depleted in 2026. After that, scheduled benefits that can be paid from payroll taxes will drop to 91 percent of costs and decline slowly to 78 percent of costs by 2039.

Previous administrations have attempted to shore up Social Security through maneuvers such as raising the age for collecting a full retirement benefit, eliminating certain loopholes, and levying additional taxes on for high incomes. In the Medicare program, attempts to rein in skyrocketing health care costs and generate more tax revenue have met with some success, but the program’s future remains clouded because of rising costs and a growing elderly population.


Programs Safe, But Changes Likely

With all the talk of “entitlement” reform going on, and longer-term problems looming, will any of us see the benefits we’ve worked long and hard for?

” Social Security and Medicare, the “third rails” of American politics, will be more difficult targets. But something will have to happen, and likely will. “

A lot depends on how the political winds blow. In the short-term cuts to Medicaid, which are more politically palatable than paring back Social Security and Medicare, are likely to happen first. Social Security and Medicare, the “third rails” of American politics, will be more difficult targets. But something will have to happen, and likely will.

While Social Security and Medicare will be around in one form or another years from now it appears likely that benefits will go down or become more restricted, or that people will have to wait longer to get them. If Democrats have their way shoring up the system could mean more taxes for those with high-incomes, which has already happened with Medicare. For Republicans, answers are likely to focus on benefit cuts rather than additional taxes.

It’s still unclear how the battle over Medicare will shake out. Republicans have floated the idea of a program that requires the use of vouchers to buy private insurance or traditional Medicare through a Medicare Exchange. Another possibility is raising the age of Medicare eligibility from 65 to 67. Both would shift the burden of health care costs from the government to individuals.

President Trump has hinted that economic growth and additional tax revenues from it could brighten the picture and make belt-tightening measures such as these unnecessary. For a variety of reasons, including overly optimistic predictions about economic growth and renewed calls for even more tax cuts, I seriously doubt that.

In all likelihood, those now in their 50s and early 60s will likely need to accept less generous safety net programs, and more out of pocket costs for health care and income, than our parents and even older baby boomers did. That’s unfortunate in a country where people who have worked all their lives should expect to reap promised benefits from a system they’ve been paying into since they were teenagers.

The opinions expressed in this publication are those of the authors. They do not purport to reflect the opinions or views of Worthy.

Marla Brill

Marla Brill

Marla Brill has been a personal finance journalist for over 30 years,  writing about money topics for Reuters, The Boston Globe, Financial Advisor Magazine, MarketWatch, PBS’s NextAvenue, and other publications.


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