For years people have been worried about Social Security’s future, but what is the actual outlook? According to the federal government, unless Congress acts to intervene, Social Security shortfalls are expected beginning in 2035.
Social Security retirement benefits are financed primarily through dedicated payroll taxes paid by workers and their employers, with employees and employers splitting the tax equally. Employers pay 6.2 percent of an employee's income into the Social Security system, and the employee kicks in the same. Self-employed individuals pay the entire 12.4 percent Social Security payroll tax. This money is put into a trust fund that is used to pay retiree benefits.
The trustees of the Social Security trust fund have reported that if Congress doesn’t take action, the fund’s balance will reach zero in 2035. This is because more people are retiring than are working, so the program is paying out more in benefits than it is taking in. Additionally, seniors are living longer, so they receive benefits for a longer period of time.
Once the fund runs out of money, it does not mean that benefits stop altogether. Instead, retirees’ benefits would be cut. According to the trustees’ projections, the fund’s income would be sufficient to pay retirees 77 percent of their total benefit.
Congress can act to shore up Social Security before this happens. Some ideas include eliminating the cap on benefits. Right now, workers only pay Social Security tax on the first $137,700 of income (in 2020). That amount can be increased, so that higher-earning workers pay more in taxes. The Social Security tax or the retirement age could also be increased.
Social Security is immensely popular and lawmakers are unlikely to allow steep benefit cuts to take place. The last time the program was in financial trouble and received a major overhaul was in 1983, when President Ronald Reagan and congressional Democrats struck a deal to increase taxes and gradually raise the retirement age from 65 to 67.
For more information about a the potential Social Security shortfall, click here and here.
“Many seniors may be more focused on their bucket lists, than worrying about having their financial affairs in order.”
Seniors should be having some heart-to-heart discussions with their spouses and loved ones about their wishes concerning their assets and their final days, according to Intermountain Catholic in “Retirees Have Several Financial Issues to Consider.” After a loved one dies, family members are often left dealing with the expenses of their medical care and funeral. To be left to deal with these issues while grieving, adds another layer of heartbreak. It doesn’t have to be this way.
Many people put off making a will. This means that their property won’t be distributed as they would want. If you don’t already have a will, contact an estate planning attorney and get started right away. Without a will, your estate will be distributed according to the laws of your state.
Ask your estate planning attorney if a “pour-over trust” is appropriate for your situation. It puts the property that you own at the time of death into an already-prepared trust, so your trusted heir can succeed you as a trustee and then divide the estate, according to your wishes.
Don’t put your 401(k) or IRA savings accounts into trusts. The IRS will see that as a 100% withdrawal and you’ll be charged the taxes on it for the year the withdrawal was made. That one mistake could, and has, decimated lifetimes of savings.
You’ll want to grant a trusted family member or friend the power of attorney and medical power of attorney, so your affairs can be handled, if you should become unable to do so. If you do not want “heroic measures”—CPR and other medical procedures done to bring someone back to life, if they are unresponsive—then you’ll want a Do Not Resuscitate (DNR) form. That form will need to be with you and you should tell others about it, so they can instruct medical personnel accordingly. Otherwise, EMTs and doctors are required by law to take whatever measures they deem necessary to keep you alive.
If you haven’t already applied for Social Security, you may wish to go to your local Social Security office to discuss what benefits are available to you and how to collect them.
Most seniors qualify for Medicare, but there are many different plans. It is also likely that you’ll need supplemental plans to cover costs, including prescriptions.
Your best bet: sit down with an experienced estate planning attorney who can help you create an estate plan that is best for you and your family. You should also have conversations with your family members about tough topics, so when the time comes for them to act on your behalf, they’ll be ready.