It’s natural for both working Americans and retirees to worry about what will happen to Social Security in the future. Social Security is going to have money problems in the next few years because of many things, but the biggest one is that baby boomers are getting older.
Since a lot of baby boomers are retiring and will start getting benefits, the program will probably owe more in benefits than it gets in payroll taxes.
Social Security can use its trust funds to make these payments for a short time. As soon as those trust funds run out, though, the program might have to cut payments for everyone. The most recent predictions from Social Security trustees say that this could happen in about ten years.
The impact of Social Security cuts
The thought of these cuts is especially scary for the millions of retirees who count on their monthly Social Security benefits to pay their bills. People who depend on Social Security for most or all of their retirement pay would be hit the hardest by the cuts.
People who are getting close to retirement age but haven’t saved enough are also at a high risk of losing a lot of money because of these possible cuts.
But while the future of Social Security is scary, Medicare is also having major money problems that could mean fewer benefits.
Medicare, like Social Security, is an important program for seniors because it covers health care costs that a lot of older Americans count on. The Medicare budget gap is just as scary, and if it isn’t fixed, it could have very bad effects on millions of seniors.
The Medicare shortfall
In particular, Medicare Part A, which pays for hospital stays, will likely run out of money by 2036 if politicians don’t do something. Without more money, Medicare Part A might have to cut back on the services it gives to people who are enrolled.
It’s not clear what this would mean for seniors, but possible cuts could mean fewer qualified healthcare workers or less access to hospital services. Seniors who depend on Medicare for basic medical care don’t want either outcome.
At the moment, most people who are signed up for Medicare Part A do not pay a monthly fee for it. But if Medicare runs out of money, politicians might think about charging more for Part A coverage.
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This would put a big strain on seniors’ finances, especially if their Social Security payments are also cut. Seniors who already have a hard time making ends meet might be in even worse financial shape if they have to pay more for health care and get less money from Social Security.
Both Social Security and Medicare could be cut, which is bad news for people who will be retiring in the future. If these programs don’t get enough money, seniors could lose their jobs and have to pay more for health care, which could put many of them in financial trouble and even poverty.
People should take steps now to get ready for the chance that both programs will be cut, even though it is hoped that lawmakers will deal with these problems before they get worse.
Preparing for the future without these programs
If you haven’t retired yet, one way to help lessen the effects of possible future cuts to Social Security and Medicare is to save more.
People can build up a bigger nest egg to cover any cuts to their Social Security payments by putting more money into retirement accounts like IRAs and 401(k)s. If you work and save as much as you can, you’ll have more money saved up in case your benefits are cut.
And if you have a health savings account (HSA), it can be very helpful for paying for future medical costs.
By putting money into an HSA now, you can build up money that you can use tax-free for approved medical costs in retirement. This could be especially helpful if Medicare Part A benefits are cut or if a fee is added in the future.
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