When to Collect Social Security: Why You Should Wait

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The New York Times 02 September, 2021 - 10:46am 17 views

Is Social Security going to run out?

Thanks to the economic impact of the Covid-19 pandemic last year, the Social Security trust fund will run out of money by 2034, according to an annual government report published Tuesday. That is one year sooner than was expected last year. Barron'sSocial Security to Run Out of Money Sooner Than Expected

WASHINGTON — The sharp shock of the coronavirus recession pushed Social Security a year closer to insolvency but left Medicare's exhaustion date unchanged, the government reported Tuesday in a counterintuitive assessment that deepens the uncertainty around the nation's bedrock retirement programs.

The new projections in the annual Social Security and Medicare trustees reports indicate that Social Security's massive trust fund will be unable to pay full benefits in 2034 instead of last year's estimated exhaustion date of 2035. For the first time in 39 years the cost of delivering benefits will exceed the program's total income from payroll tax collections and interest during this year. From here on, Social Security will be tapping its savings to pay full benefits.

The depletion date for Medicare's trust fund for inpatient care remained unchanged from last year, estimated in 2026.

In the 1980s, financial warnings about Social Security prompted then-President Ronald Reagan and lawmakers of both parties in Congress to collaborate on a long-term solvency plan, but such action is unlikely in today's bitter political climate. Democrats who control the White House and Congress offered assurances they would protect both programs.

"The Biden-Harris administration is committed to safeguarding these programs and ensuring they continue to deliver economic security and health care to older Americans," Treasury Secretary Janet Yellen said in a statement.

The latest estimates reflected the push and pull of many factors flowing from the pandemic, and the full impact may take years to sort out. The deep but relatively short recession slashed revenue from payroll taxes. But the death toll from COVID-19, concentrated among older people, reduced future Social Security benefit payouts. Hospitals were stressed by the influx of COVID patients, but Medicare didn't have to pay for as many knee surgeries, colonoscopies and other more routine procedures. Birth rates and immigration, which tend to bolster the two programs, both fell.

For Social Security, the loss of payroll tax revenue outweighed any savings from what the program would have paid out to people whose lives were lost in the pandemic. The report noted that employment, earnings, interest rates and economic growth plummeted in the second quarter of 2020 after the pandemic hit the United States.

"The finances of both programs have been significantly affected by the pandemic and the recession of 2020," the trustees said. But "given the unprecedented level of uncertainty" there was no consensus on what the long-lasting effects of the pandemic would be. A looming question for Medicare: Will the population of beneficiaries who survived the pandemic be healthier on the whole, or will a high number suffer from new conditions like long COVID?

Social Security pays benefits to more than 65 million Americans, mainly retirees but also disabled people and survivors of deceased workers. Medicare covers more than 60 million older and disabled people. Together, both programs account for more than 40% of the federal budget, and act as stabilizer not only for families, but for the national economy.

While long-term projections are sobering, in the short run there was some good news for Social Security recipients.

Government economic experts who prepared the Social Security report estimated recent increases in inflation mean the cost-of-living adjustment for 2022 will approach 6%, a whopping jump from the 1.3% COLA awarded for this year.

Some of that may go for higher Medicare costs. The Medicare "Part B" premium for outpatient coverage was projected to rise by $10 a month in 2022, to $158.50 under the report's intermediate assumptions. The official number won't be released until later this year.

Social Security and Medicare remain under intense financial pressure with the retirement of millions of baby boomers, who are living longer than previous generations.

When the Social Security trust fund is depleted the government will be able to pay 78% of scheduled benefits, the report said. When Medicare's trust fund for inpatient care runs short, it will be able to pay only 91% of expected costs, mainly hospital bills.

Because reductions of that magnitude would cause a political uproar, it is likely that a future Congress would find ways to recover the lost benefits, either by hiking the payroll taxes paid by current workers or by increasing government borrowing to cover the shortfall. With Medicare, lawmakers could also raise premiums paid by beneficiaries.

It's unclear how the Medicare projections will affect the debate on Capitol Hill about authorizing the program to negotiate prescription drug prices and then using projected savings to provide new Medicare coverage for dental, vision and hearing services. Republicans have argued that any savings should go to shore up the underlying program, not expand benefits.

The Medicare report steered clear of making any projections about the new Alzheimer's drug, Aduhelm, which has a list price of $55,000. Most of the 6 million Americans dealing with Alzheimer's are covered by the program, though not all would be candidates for the medication.

The trustees' reports, which have been delayed for months, represent the government's effort to assess the impact of last year's pandemic and recession on Social Security and Medicare.

The U.S. economy lost a staggering 22.4 million jobs in March and April 2020 as the pandemic forced businesses to close or cut their hours and the economy went into recession.

But the recession turned out to be brief and hiring has bounced back as economic growth has resumed. Employers have brought back 16.7 million jobs since April 2020 but that gain still leaves the labor force 5.7 million jobs below where it was before the pandemic hit.

The trustees of Social Security and Medicare include the secretaries of Treasury, Health and Human Services, and Labor, as well as the Social Security commissioner. They are supposed to be joined by two "public trustees," knowledgeable private citizens who act as the eyes and ears of taxpayers and beneficiaries. But those posts have been vacant since July 2015 — before the end of the Obama administration. And this year there's no Social Security commissioner either, since President Joe Biden fired Andrew Saul, a holdover appointee from the Trump administration.

Read full article at The New York Times

Social Security won't be able to pay full benefits by 2034. Now there's renewed pressure on Congress to come up with a fix

CNBC 01 September, 2021 - 02:56pm

Social Security's latest report on the status of the trust funds on which it relies to pay benefits has both good and bad news.

The good news is that the funds have not been as hard hit by the Covid-19 as was initially feared, due the economic recovery that has taken place.

The bad news is that the funds' depletion dates have moved up sooner, prompting a chorus of calls for Congress to act swiftly to correct the problem.

"If this report does not trigger a pretty serious and swift discussion on Capitol Hill among lawmakers about what needs to be done to put Social Security back on a financially sustainable track, it's really hard for me to imagine what could," said Charles Blahous, who served as a public trustee for Social Security and Medicare from 2010 to 2015 and is now a senior research strategist at the Mercatus Center at George Mason University.

Here's a look at more retirement news.

This year's annual report moved up the projections for when the combined trust funds that pay retirement, survivors and disability benefits will deplete their reserves to 2034, one year earlier than had been projected last year. At that point, 78% of benefits would be payable.

The concept is similar to running out of money in a savings account, said Social Security Administration Chief Actuary Stephen Goss. At that point, the program would only have money to pay benefits based on the payroll taxes coming in at the time.

"The meaning of this is simply to tell Congress that we have shortfalls, that we will deplete our reserves if you don't act, so act," Goss said of the annual trustees report.

Changes to fix the program could include tax increases, benefit cuts or a combination of both.

But so far, Republicans and Democrats have not agreed on a way to approach the issue.

One plan on the Democratic side, called the Social Security 2100 Act, was last introduced in 2019 and had 209 co-sponsors. Notably, all of that support was from Democrats.

Rep. John Larson, D-Conn., who proposed that bill and who serves as chair of the House Ways and Means Subcommittee on Social Security, on Wednesday reiterated his commitment to addressing the program.

"I am working with my colleagues in Congress and President Biden to strengthen Social Security," Larson said. "We simply cannot afford to let politics get in the way of saving this program and securing this trust fund."

Social Security relies on the Old-Age and Survivors Insurance trust fund to pay retirement and survivors benefits. That fund is now expected to be depleted in 2033 — one year earlier — at which point 76% of scheduled benefits will be payable.

The Disability Insurance Trust Fund, which pays disability benefits, will be able to pay full benefits until 2057 — eight years earlier than the last projection — when 91% of benefits will be payable.

Combined, those two funds will be able to pay benefits as scheduled until 2034, at which point just 78% of benefits will be payable.

Experts, including Blahous, said that fixes cannot come soon enough. One key reason for that is that the 2034 depletion date is misleading, he said.

"By the time that trust fund depletion date rolls around, the game is long over," Blahous said. "At that point, the size of the shortfall is so large and so vast, that there really isn't a realistic prospect of closing the shortfall."

If lawmakers were willing to act immediately to fix the system, that would result in a 21% benefit cut for everyone, including current beneficiaries, according to Blahous. If instead that were limited to future claims starting next year, it would instead by a 25% benefit cut.

"The problem is enormous," Blauhous said. "If and when we do make a change to the benefit structure, lawmakers will want to phase it in more gradually."

Reid Ribble, a former Republican congressman for Wisconsin, said there needs to be more pressure on Washington leaders to address the issue.

"We elect members of Congress to solve these problems and if they don't solve them, they ought to be fired and replaced with people that will," Ribble said.

One reason politicians shy away from addressing Social Security is fear of senior citizens, who represent the largest voting bloc in America, Ribble said.

However, that cohort is often willing to accept changes to the program if it means preserving it for the sakes of their children and grandchildren, he said.

Another reason Washington leaders hesitate is because they do not hear from the vast majority of voters who just want Congress to solve the problem.

Members of that quieter group of Americans should not underestimate the power of sending a polite, thoughtful email or letter or making a phone call to both Democratic and Republican leaders saying, "I will be with you if you show the courage to solve this problem," he said.

"They need to get engaged on this issue," Ribble said. "If they did, members of Congress would like a miracle find the courage necessary to solve the problem."

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