Social Security: What you need to know now and down the road
In January, Social Security checks to seniors will increase by 2 percent. That means the average monthly check, currently at $1,377, will go up by $27. While this does not seem like much, it is the
biggest annual increase in seven years thanks to the slow recovery from the
In the near term, Social Security benefits continue to be a reliable income stream for 42 million recipients. In the longer-term, Congress must make changes to support
First the short term
The $27 a month raise will mean a lot to the millions of people who count on their Social Security payment for more than half of their monthly income — which is nearly half of all Americans receiving a Social Security check.
That's the good news. The bad news is that for some, the 2 percent increase will be eaten up by rising Medicare Part B insurance costs. Part B is Medicare coverage that pays for physician's services, outpatient care in hospitals, medical equipment and among other things, lab tests. About 90 percent of Medicare enrollees sign up for Part B.
Part B coverage is paid for with a surcharge based on income and is withheld from most Social Security benefit checks. This year, the surcharge is $134 a month for singles earning $85,000 or less a year ($170,000 for married couples). However, Part B expense costs have been rising
faster than other parts of Medicare, so the 2018 surcharge will increase for some (higher income) Social Security recipients.
But for most of us (70 percent), there's no change since a "hold harmless" provision protects us. The provision says that no increase in Medicare Part B costs can reduce a Social Security recipient's monthly check below the prior year. That means the monthly withholding for many will remain at $134.
Some with income exceeding $214,000 (joint taxable income of $428,000) will see an increase in the Part B premium. For those folks, the premium could reach $428.60 per month.
Meanwhile, everybody talks about Social Security going broke sometime soon. That won't happen if working Americans keep paying a withholding (6.2 percent) on their earnings with each paycheck. The money, along with employer matching money, goes into the Social Security Trust Fund. In about 2034, however, Social Security pay-outs could drop, if Congress fails to make adjustments. Here's why.
Right now, payroll taxes coming out of our paychecks and matched by employers are covering about 77 cents of every dollar going out in Social Security benefits to seniors. That means the Social Security Administration is paying out 23 percent more than it is taking in.
To make up for the negative 23 cents in benefit payouts, withdrawals are coming out of the Social Security $2.8 trillion trust fund. When that money runs out in about 15 or 20 years, Social Security payments won't disappear but certainly will be reduced to match whatever payroll tax money is coming in. The U.S. Congress easily can fix this situation by:
Increasing the amount of earnings subject to the payroll tax. Right now, income subject to the payroll tax is capped at $400,000. Ultimately, the cap could be eliminated.
? Gradually increasing payroll taxes
on all working Americans by say 50 cents
? Raising the age when people can start collecting Social Security. Right now, it's 62.
? Cutting the annual cost-of-living adjustments like the one coming in 2018. Or it could do all the above.
Bottom line: Social Security is not going to completely run out of money because our payroll tax will continue to support it. But without adjustments from Congress, the benefits could be cut, sharply.
Congress (under pressure) will likely deal with it.
That said, Social Security was never intended as our only source of retirement income. No one can live on just Social Security now and they can't in the future. Serious retirement planning and saving must be a part of everyone's long-term agenda. For more, visit socialsecurity.gov, set up an account and start your research.
Julia Anderson writes for women about money at sixtyandsingle.com. Her Smart Money show with Joe Smith appears on Beaverton-based TVCTV public television.