Concerns Over Social Security and Medicare Funding

Panelists on “The Big Money Show” express worries over new findings indicating that Social Security and Medicare are on a path toward bankruptcy. They caution that without immediate action from policymakers, retirees could see significant reductions in their benefits.

For those preparing for retirement, there’s a potential to increase the value of your Social Security benefits. I mean, delaying your application can be beneficial. It’s often advised to wait until you reach your full retirement age before claiming benefits.

The amount you receive monthly varies based on individual circumstances and, of course, your full retirement age, or FRA, which is dependent on your birth year. For example, if you were born after 1960, your FRA is 67. For those born before 1960, it decreases by two months for every year until it reaches 66 for individuals born between 1943 and 1954.

If you plan to work beyond your FRA but choose to delay claiming Social Security benefits, you might see your monthly benefits grow. In fact, they can increase by 8% each year until you hit the maximum benefit level at age 70.

Financial Outlook for Social Security

The main trust fund for Social Security is projected to run out by 2032, leading to potential benefit cuts.

Though you can start receiving Social Security benefits at age 62, keep in mind that your monthly payments will be reduced. For instance, if your full retirement age is 67 and you claim early at 62, you might see benefits reduced by up to 30%. So, instead of $1,000, you could only receive about $700 monthly. This could also impact spousal benefits.

Interestingly, beneficiaries who reach their FRA have the option to temporarily suspend their payments, which can mean increased benefits later on. When they resume at age 70, the beneficiary may receive more than before due to the annual increases that occur during the suspension period.

Potential Legislative Changes

There’s been talk about new legislation that could have implications for how Social Security benefits are taxed upon reinstatement. It’s something both workers and beneficiaries should keep an eye on.

During the time when benefits are suspended, they increase at a rate of about 8% annually. So, there’s a potential for more robust support once benefits resume. Couples need to consider that suspending their benefits will also stop spousal benefits, which could be up to 50% of the primary beneficiary’s amount unless divorced.

Lastly, those who had their benefits suspended can still apply for their reinstatement before age 70. Once that point is reached, the benefits automatically start again.

It’s worth noting that during benefit suspension, Medicare premiums won’t be deducted, leaving beneficiaries to handle those charges directly with the Centers for Medicare and Medicaid Services.