Medicare is going broke!!
Time to panic!
Everybody pack your bags and move to Canada because the the entire country is going broke…. Or is it?….
We’re going to break it all down and help you make sense of the headlines.
A Washington Post article made waves this week, stating that a crucial Medicare trust fund will run out sooner than expected. This fund is forecasted to run out in 2026 – three years sooner than the same report projected last year.
Blame for the quicker-than-expected depletion of the trust fund has been placed on recently passed tax cuts.
So what’s a near-retiree to do?
The 1st step to understanding what to do is to understand the impact of the funding shortfall. If we fast-forward to 2026, the report projects that the dedicated revenues will fall to 91% of “HI” costs (HI is Medicare Part A). The dedicated revenues the report is referring to are our payroll taxes. These taxes aren’t voluntary and are magically subtracted from your paycheck before you even see them, making them pretty dang dependable!
The report goes on to say that 91% funding level will get slowly worse until it hits 78% in 2039, then gets better for a bit, raising to 85% in 2092, before falling beyond that.
I don’t know about you, but I don’t have many plans beyond 2092.
For the other parts of Medicare, B & D, the report States that they are fine, “Trustees project that both Part B and Part D will remain adequately financed into the indefinite future because current law provides financing from general revenues and beneficiary premiums each year to meet the next year’s expected costs.”
Medicare Part A needs help, Parts B & D are fine. While that statement is accurate, it doesn’t make for a very good headline…
Read the full report here: https://www.ssa.gov/oact/trsum/
While the situation doesn’t sound dire, the program is massively important to retirees (Health care is often cited by our retired clients as a main concern) and deserves to remain funded at 100% levels.
What can our lawmakers do to fix Medicare and how can retirees prepare in the event lawmakers don’t fix it?
Raise the percentage of our salaries that fund Medicare.
1.45% is paid by the employer and the employee for a total of 2.9%.
For high income households with annual incomes over $250,000 – an additional Medicare tax of 0.90% is added to the employee’s tax liability while the employer’s bill remains at 1.45%.
Can’t raise the cap because there is no cap on income for Medicare, there is a cap of around $128,000 for Social Security (easy to confuse these two).
Higher premiums for Part B based on income. Married couples with incomes over $94,000 could be expected to pay more. Currently, only married households with incomes over $170,000 pay more than everyone else for their Part B premiums.
Raise the Medicare eligibility age to coincide with your Social Security Full Retirement age.
What can a retiree do to prepare?
Learn as much as possible about your available healthcare options before and after age 65. If you aren’t already, join our email list to be notified of our next “Healthcare in Retirement” webinar.
There are many health care options, each with different risk compromises between the insured and the insurance company. The better educated you are, the better decision you be able to make to suit your unique situation.
Consider max funding a Roth IRA or planning for Roth IRA conversions.
This will give you more flexibility with your income taxes.
Stay disciplined in your investments.
One sure-fire way to guard against the unknowns in life is to hedge your risks with cash. Use your net worth to outgrow the uncertainty around you. For many investors, that means creating a well-diversified, low cost portfolio around the guidelines of a written financial pan. Maintaining a long-term growth portion of our retirement portfolio will boost our net-worth long term. If you don’t have the risk taking ability to invest at least a portion of your retirement savings in the stock market, I would you encourage you to educate yourself into an appropriate risk-tolerance to think long term.
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