This week I had the brakes on my car worked on. When I picked up my vehicle, the owner/mechanic who I deal with and I got into a conversation.
He is 60 years old and approaching retirement, and I am 77 years old and have been retired for about 15 years. I’ve collected Social Security since I turned 70 and went on Medicare when 65.
His concerns are Social Security and Medicare. Will they be there for him, after he has paid into the system his entire adult life? He is not alone. Many Americans are convinced that Social Security and Medicare will go bankrupt before they get to use it.
The pandemic resulted in many early retirements and the oldest Baby Boomers are in their 70s and this has put additional pressure on Social Security. Currently, it is believed the Social Security trust fund will cease to pay full benefits by 2034.
The Medicare trust fund is in dire shape. It is estimated that this trust fund will run out of enough money in 2026. The Congressional Budget Office estimates that Medicare will have to reduce spending to 92% of benefits in 2026 unless Congress provides additional funding. Congressional action is necessary because there is no statutory provision that allows for automatic transfers from the general fund. If Congress does nothing, the spending cuts will happen.
The Medicare tax rate this year is 2.9%. The employee pays 1.45% and the employer pays 1.45% but the self-employed pay the full 2.9%. In 2020, Medicare covered 62.6 million people and that equates to 18.4 percent of the U.S. population.
I tried to find a credible source that would estimate the necessary tax rate needed to ensure the solvency of Medicare and could not do it, but I do know this nation cannot afford to reduce or end medical coverage for 18% of its population. Congress and the Congressional Budget Office need to address this problem and they need to do it before 2026. They ought to do it now.
I believe Social Security and Medicare can be saved and made financially sound if Congress would only do what it needs to do to save them. This year, the taxation cap for Social Security is $142,800. Any earned income above that amount is not taxed for Social Security. This means someone earning $ 1 million a year, stops paying into the system in February, while anyone earning $142,800 or less, pays into the system until Dec. 31.
If Congress would lift the cap, or remove it entirely, Social Security would be solvent. Medicare is a separate tax, but Congress needs to ensure the elderly, who paid into the system during their working years, are covered in full. Doing less should not be an option.