(5 Minute Read)
Some folks who are looking to retire soon might be worried about the future of social security. Fortunately, according to the most recent trustee report on Social Security, it seems that Social Security should remain solvent (with some key tax adjustments to address a gap in 2037) through 2092. While the future might be sustainable for Social Security as a program, the current state of SS payouts is downright bleak for the 90% of the population who currently draw SS benefits and even bleaker for those who plan to rely on Social Security as their primary source of income in the near future. Some important changes are coming to your Social Security benefits, so here’s what current and soon-to-be Social Security beneficiaries need to know about the program in 2018 with an eye toward the future.
How Much Do People on Social Security Have to Live On?
In the Unites States, the average monthly social security check is about $1,400 per person. According to the Social Security Administration (SSA), 23% of married couples and about 43% of unmarried persons rely on Social Security for 90% or more of their income. First the good news: current Social Security recipients are getting a raise. The Social Security Administration has approved a cost of living adjustment of 2%, which is the largest increase since 2012.
The bad news is that this isn’t nearly enough. Essentially this will add roughly $27.00 to the average person’s benefit check. While it is a cost of living increase, cost of living is one thing and inflation is another. On top of that, the average property tax per home has increased by 3% in 2017. Money is getting tighter and tighter for those who rely on SS to live and those who want to supplement a trip on their retirement bucket list. In 2018, the average cost of living for a household run by someone 65 and older is $3,800 a month. People want to enjoy their retirement by taking trips and spending time with their families, not by fretting over prescription drug prices and Medicare premiums.
What Is Cost of Living?
Another issue isn’t just that Social Security isn’t raising income to match inflation, but that benefits might be getting cut drastically in the next two decades. The cost of living adjustment is calculated by tracking price changes due to inflation in everything from sweaters to gasoline, about 80,000 different products total. Retired people spend more money on things like prescription drugs, the average price of which is currently seeing an increase of 8%. This spike in drug prices is largely due to the fact that drug manufacturers set their own prices, which is unregulated by the U.S. Government (a practice pretty unheard of in other countries with national healthcare programs).
Medication (which is only sporadically covered by Medicare Part B and in a limited capacity by Part D) is something that retirees will spend disproportionally more on compared to other demographics. The 8% hike on prescription drugs, while factored into the adjustment, outweighs the actual dollar amount awarded by the SSA. So, seniors end up paying more for medication than what they receive from the adjustment. With 44% of retirees worried about the future of their Social Security benefits, it’s important to understand that Social Security affects another important retirement benefit: Medicare.
Will Social Security Be Around When I Retire?
Medicare is an invaluable program for many, but it may adversely affect your cost of living adjustment. To offset the cost of Medicare part B, the government uses a portion of a Part B enrollee’s social security check to help cover costs. Right now a person whose income is $85,000 dollars or less pays a premium of $134 a month. Last year’s premiums were (for the most part) $109 a month; a difference of $25. The increase is somewhat by design as Medicare B payments are not allowed to rise more than the cost of living adjustment, but with a cost of living adjustment of $27 it nets most Part B enrollees a whopping $2.
Of course, the SSA reviews the average cost of living every year, so there is always the possibility of another increase in 2019. In fact, it is being projected the cost of living will rise by another 3% next year. Again, the rise of Medicare plan B coverage may inversely affect any cost of living adjustment to your social security benefits.
Of course, looking to the future, if the Social Security program continues its current trends, the “gains” made by cost of living adjustments today will look rather generous. By 2034, it’s quite possible that most people who retire today could receive a 21% cut in benefits (with possible cuts to Medicare benefits in 2026 as well). For the last 40 years, Social Security has been able to exist outside of the general budget. However, due to a growing population of people closing in on retirement age, the U.S. will need to pay out to more and more people. This year 85 million dollars will come from the general fund to help pay for Social Security with $1.7 billion in costs in the next ten years pulling more money out of the budget to help pay for Social Security.
On the bright side, a larger population means a larger voting bloc. Many people assume that Washington has the answers on how to solve the Social Security problem. It seems that they could in fact reform the beleaguered program, but perhaps lack a certain amount of motivation. The best incentive for them to act on this would be to hear from their constituents that are most affected by the possible decrease in Social Security benefits.
As each year passes, the Social Security Administration grants cost of living increases, unfortunately these adjustments may not represent the true cost of living for a senior living on a fixed income. If you’re worried about spending your retirement relying on Social Security income, or if you feel like your savings aren’t adequate, don’t worry, you have options. Did you know you can sell all or a portion of your life insurance policy, even term insurance? Many retired people have been paying into life insurance their entire lives. And a large portion of those people may not need it anymore or they want to stop making their monthly payment, so they may spend it elsewhere. At Life Settlement Advisors we can help assess the true worth of your life insurance policies. This option could help ensure that your retirement is spent doing what you dreamed, instead of worrying about next year’s Social Security Cost of Living Adjustment.
Life Settlement Advisors
Pingback: The Benefits of a Life Settlement for a Senior - Life Settlement Advisors