The recession is taking its toll on Social Security and especially Medicare. This year’s annual checkup found that the Social Security trust fund is predicted to be exhausted until 2037, 4 years sooner than last year, according to the Social Security Board of Trustees report. Medicare’s hospital insurance trust fund is expected to be emptied even sooner, in 2017.
Costs for Medicare Parts B and D, which cover doctors' bills and prescription drugs respectively, are predicted to increase an average of 6.4 annually over the long-term, according to the report. That means higher enrollee premiums and the need for more general revenue funding.
Most retirees won’t have to pay higher premiums in the near future because a current law doesn’t allow Medicare Part B premiums to be raised higher than Social Security increases for most retirees. The Congressional Budget Office predicts that there will be no cost-of-living increases for Social Security beneficiaries in 2010 through 2012, which also means no Medicare Part B premium hike for the majority of beneficiaries.
But about one quarter of Medicare Part B enrollees will be subject to unusually large premium increases in the next two years, according to the Trustees report. New enrollees and current beneficiaries with incomes above $85,000 in 2009 ($170,000 for couples) are not covered by the law and could see premium spikes. Plus, high income Medicare beneficiaries already pay higher premiums. While most Part B recipients pay the standard premium, $96.40 in 2009, beneficiaries whose modified adjusted gross income exceeds that income threshold currently pay between $134.90 and $308.30 per month this year.
It’s a good idea to start preparing for these predicted premium hikes now. “Ordinary Americans… don’t know how the system will be reformed, when reform will happen, or who will be most affected,” says Andrew Biggs, a resident scholar at the American Enterprise Institute and a former deputy commissioner of the Social Security Administration. “The key thing at this point would be for people to save a little more through their 401(k), IRA, or other retirement plan. Doing so is the best insurance in case benefits are reduced in the future.” Spending an extra year or two in the workforce could also help boost your retirement accounts and reduce the number of years your savings must last. “Individual Americans … need to rely more on savings, private pensions, and their labor supply and that of their families in their retirement years,” says Hugo Benitez-Silva, an associate professor of economics at the State University of New York.
Check out these 5 ways that Social Security’s projected shortfall could affect you.