Despite what President Donald Trump said during campaign speeches of not wanting to reduce Social Security benefits, the fact is that, for recipients on Medicare, their Social Security benefits will be effectively cut next year. That’s because of an increase in Part B of their Medicare premium (covering outpatient care and other services). It will wipe out the 2% cost-of-living adjustment (COLA) to Social Security recipients set to begin in January.
There are a few relatively minor additional changes to the program in 2018, such as full retirement age rising to 66 and four months, and, for higher earners who collect benefits at full retirement age, maximum income increasing from $2,687 to $2,788.
Though the claiming strategy known as “file and suspend” for spousal benefits was axed in a round of massive cuts in 2015, folks can still use a method called “restricted application for spousal benefits.”
“This is huge and available to two-thirds of people around the country,” says Marc Kiner, co-founder of the National Social Security Association and the NSSA Advisor Certificate Program. “When you file, you can restrict the scope of your application to spousal benefits and not touch your own. Later, you can turn on your own benefits and get some delayed retirement credits.”
More significant in the Social Security big picture is that the system needs a total overhaul, according to some experts. But that would likely require a tax hike and a decrease in benefits, plus full retirement age increasing to 70.
The system is funded by FICA withholding taxes (inclduding a 6.2% Social Security tax) and taxes paid to the Treasury with federal income tax returns.
No need now for the Social Security Administration to dip into its trust fund to pay benefits. The fund has about $2.8 trillion in assets on its balance sheet. But starting in 2022, that fund will operate at a deficit and by 2034, is expected to be bone-dry.
The fund’s July 2017 Trustees Report said that if Congress makes no major changes to the system, all Social Security recipients will see a 23% decrease in their checks come 2034, Kiner notes.
Funding Social Security has been a pressing concern as far back as the Dwight D. Eisenhower administration, though failure to address it properly has led to a crisis, according to Laurence Kotlikoff, Boston University economics professor and author of “Get What’s Yours – Revised and Updated: The Secrets to Maxing Out Your Social Security” (Simon and Schuster). He is also the founder of MaximizeMySocialSecurity.com, a software tool for making Social Security decisions; he operates the company as a charity.
“Politicians have been running Social Security as a Ponzi scheme from presidents Eisenhower through Obama. They’ve all presided over a take-as-you-go policy, taking from the old and promising the young,” Kotlikoff says. “Today, Social Security is bankrupt. The country is bankrupt. We have a huge off-the-books bill that’s no different from the kind of thing Bernie Madoff left his investors with.”
Kotlikoff continues: “The government has squandered the contributions by handing them out to older people who aren’t asked to pay for their retirement. The government kept the entire enterprise off the books by using fancy language — no different from what Enron did with its accounting. The [government] accountants are complicit in this fraud on the American public. The government is hiding the truth.
“That Wall Street hasn’t figured this out is testament to how ignorant these people are,” Kotlikoff says. He proposes a system wherein workers would contribute 10% of their pay — on top of FICA tax — to a personal account. These collective funds would be invested by computer in a global index of stocks, bonds and real estate.
As for next year’s 2% COLA offset by a rise in Medicare Part B premiums, Kotlikoff says that in the past, Social Security recipients weren’t required to make up for such hikes because they received “a temporary break.” What the Social Security Administration has done for 2018 is “a very cruel thing.”
“People were given a high check in the past because Congress didn’t want to face the cost of [voters] screaming when their checks declined because of a Medicare premium increase,” Kotlikoff says. “So without telling the public, they set up a system to claw back the money. The politicians are using the accountants to cover what they know. [Speaker of the House] Ryan knows about this. I personally talked to Paul Ryan.”
Another Social Security specialist is worried about the program’s future: William Reichenstein, finance professor at Baylor University and co-founder and research principal of Social Security Solutions, calls the situation “a train going at full speed into a mountain with no tunnel. We’ve known about this, but we’ve refused to force politicians to face it. I don’t think they’ll do anything in 2018. We’ve allowed them to get away with this for 30 years. But we’ve got a big hole — and the sooner we fix it, the better.”
Reichenstein suggests moving retirement age up to 69, raising taxes and lowering COLA measurements, which would “force our generation to pay for some of this and not put it all on our kids and grandkids.”
Other Social Security experts have a quite different perspective, though agreeing that the program’s future hinges on politics.
Says personal finance commentator Jane Bryant Quinn, author of “How to Make Your Money Last: The Indispensable Retirement Guide” (Simon and Schuster): “Social Security is an eminently fundable system that we can have for generations to come if the public is willing to fund it. That means voting for senators and representatives who say they will protect Social Security.
“If you vote for people who say, ‘I think we ought to reduce Social Security,’ it’s going to go broke. And we might lose it,” Quinn maintains. “This will be a question of politics, not of finance.”
For the year ahead, Quinn is far more concerned about Medicare. “Medicare is at risk,” she says. “Now that they’ve passed a big tax bill and have added a trillion dollars to the deficit, they’re going to say they have to do something about it, which means cutting social programs. At the top of Speaker Ryan’s list is cutting Medicare. He has wanted to privatize it for a long time, though in an election year, bringing up cutting Medicare isn’t going to be popular, especially among people who don’t like the tax cut.”
With Ryan’s program, “There would no longer be fixed Medicare benefits. It would be something like Obamacare. The more benefits you want, the more you’d have to pay out of pocket,” Quinn notes.
Revamping Social Security by paying recipients more should be the top priority, others contend. “They need to find a way to double Social Security benefits. Congress needs to think outside the box. As it stands, the $2,000 somebody may receive today is going to be the same $2,000 they’ll be getting 20 years from now — and that’s just wrong,” says Kiner, co-author of “2017 Social Security & Medicare Facts” (National Underwriter Co.).
A $10 increase in disability payments is one Social Security change for 2018.
“Ten dollars is nothing,” says Kotlikoff. “That they’re providing such meager increases or zero increases is indicative of how broke the country is.”
— Related on ThinkAdvisor:
- 7 Tips to Maximize Social Security Benefits From an Ex-SSA Director
- Kotlikoff: Congress Took a ‘Meat Cleaver’ to Social Security Claiming Rules