Is Social Security Going Broke?

By Theresa Yarosh,

CGSF Board Member

This is part 2 of a 3 part series.

The Social Security Board of Trustees is reporting through its Annual Report that the trust funds for both the Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI) was little changed from the previous report in 2017, but that “annual balances are slightly worse in the short term and slightly better in the long term.”

The conclusion is that in 2032 the DI Trust Fund will be completely depleted, which is “four years later than projected in last year's report, and ten years later than projected at the passage of the Bipartisan Budget Act of 2015”.

The OASI Trust Fund, on the other hand, will be able to pay full benefits “until 2034”, which is one year earlier than in the 2017 Annual Report, but there are still problems in the future.

The reason for the problems is that the amount that Social Security must pay out annually is larger than what it receives each year.

Social Security receives roughly $800 billion a year in taxes, in 2015 $795 billion (85 percent) of total OASI and DI income came from payroll taxes, while it also generates about another $100 billion from interest earnings on the trust fund to pay current Social Security beneficiaries.

The payout is, unfortunately, much higher as the benefits that the 63 million enrolled beneficiaries received in 2017 totaled close to $965 billion.

At this time, the Social Security Board of Trustees estimates that Social Security has a $13.2 trillion-dollar unfunded liability over the next 75 years. These are the benefits they expect to pay minus the revenue they expect to receive.

Even with this shortfall, there is still a possibility that Social Security will be able to continue as provisions have been created to help minimize what Social Security will have to pay out in the future.

With federal regulations pertaining to retirement, for a person to receive their Social Security benefit they must also accept Medicare when eligible.

Meaning, that when a person is no longer covered by credible health insurance through an employer health plan or a spouse’s employer health plan and they are 65-years old or older, they must accept Medicare or forfeit all of their Social Security benefits.

The other added regulation: the bulk of their Medicare premiums, by regulations, are automatically deducted from Social Security benefits.

You may begin to see what has happened and will, unfortunately, happen in the future; Medicare premiums will inflate at a higher rate than what your Social Security benefit will increase at through Social Security’s cost of living adjustment (COLA)

To further complicate matters, in 2003 Congress, through the Medicare Modernization Act, granted the power to the Centers of Medicare and Medicaid Services (CMS) to implement a surcharge on top of the standard Medicare premiums for those retirees who are earning too much income.

Below are the current 2018 Income-Related Monthly Adjusted Amounts (IRMAA) for Part B and Part D of Medicare (Table 1.)

Thus, those who happen to have not planned accordingly for health coverage costs through Medicare will be subject to not only higher premiums, but they will also realize a much lower Social Security benefit throughout retirement.

Because of these provisions, Social Security is afforded the luxury of not having to pay out the total amount that is due to retirees as their Medicare premiums will work to reduce that benefit.

For those who are not subject to Medicare’s IRMAA, their income is lower throughout retirement; thankfully, there is the Hold Harmless Act.

The Hold Harmless Act of 1984 stipulates that no retiree who is enrolled in Medicare and Social Security can see their Social Security benefits decrease due to Medicare increases.

The result is that those who experience a higher Medicare premium while also seeing their Social Security benefit not increase will be afforded the luxury of having their Medicare premium remain constant while their Social Security benefit will remain the same in that given year as well.

Again, with federal regulations working with both Social Security and Medicare the total amount that is paid out from Social Security will never be as high as previously projected.

Regulations even further the possible viability of Social Security since the Hold Harmless Act was ratified by Congress in 2009 to disqualify those who reach any Medicare IRMAA bracket.

Essentially, only the Standard Premium of $134 per person is going toward the Medicare Trust Fund because the Hold Harmless Act was a subsidy for those at the Standard Premium of Medicare and as such that subsidy is being paid back to the general account via the Medicare IRMAA Surcharges.

Dan McGrath, Co-Founder of Jester Financial Technologies and author of the bestselling retirement planning book “What You Don’t Know About Retirement Will Hurt You” believes “that the main solution to this problem is obvious, and it’s not pretty.”

Mr. McGrath believes that there is not just one solution, but a multiple number of steps that CMS and Social Security can take to ensure that both these programs will remain viable in the future.

For Medicare, Mr. McGrath believes that the first step is to “lower the expenditures paid to healthcare professionals in order to have Medicare being able to control its budget.”

For Social Security, he is under the impression that the federal government will increase the tax on payrolls for those who are still working to generate even more revenue to cover benefits.

The last action Mr. McGrath believes may happen is that the government will take the Medicare IRMAA brackets and adjust them lower so even more retirees will be impacted by it in the future.

Ultimately, with a higher and higher percentage of an individual and couple’s Social Security checks being allocated toward Medicare-related expenditures the ability for Social Security to remain solvent in the future can be achieved.

The issue though is that for many people who will rely on their Social Security benefit to help pay for their expenses in retirement may find themselves having to work longer or changing their lifestyles even more.

As for those in the higher income tiers they may see a day when they are writing checks to the US Treasury to pay for their Medicare.

As their Medicare premiums increase with surcharges from IRMAA and the possibility of their Social Security never increasing and quite possibly decreasing, the bulk of their Social Security benefit will be consumed in its entirety.

The added insult to injury, they will also be taxed on the very same Social Security benefits that they never received.

Is this possible, is Mr. McGrath correct in his assumptions?

Well, according to the Medicare Board of Trustees, in 2026, it may just happen as the proposed Income Related Adjusted Amounts (IRMAA) surcharges are expected to be adjusted due to federal regulations.

With the passing of the Bipartisan Budget Act of 2015 and 2018 not only will the IRMAA brackets change, but they will not be adjusted for inflation until 2028.

At that time the brackets will be adjusted to the CPI-U (Consumer Price Index for all Urban Consumers) on an annual basis to keep Medicare solvent. (Table 2).

Table 2. Proposed 2026 Income-Related Monthly Adjusted Amounts (IRMAA)

These changes are being proposed in conjunction with the expected depletion of the Social Security and Medicare Trust funds as well as containing the future unfunded liabilities.

Dr. Murray Sabrin, Professor of Finance at Ramapo College, states the following situation with regards to the data above “as what I call trickle-down economics, namely well-intentioned but structurally flawed federal programs cannot meet the needs of retirees in a cost-effective manner. Thus, we need to have a national conversation— and action--on how to address the financial tsunami that seniors will be facing for the next couple of decades. In addition, with that said there needs to be a focus on solutions that will properly address these costs not only on the individual level but on the level of National and State pensions.”

Regardless of the unfunded liabilities as it pertains to both Social Security and Medicare, it is important that individuals and couples start planning now for higher healthcare costs in retirement. It is essential to seek out an advisor who is trained in healthcare regulations, the associated inflation rates as it pertains to Medicare and the planning strategies that need to be utilized to restore the purchasing power of retirement assets and Social Security throughout retirement.

Theresa J. Yarosh, CFP®, CLU®, ChFC® is the Founder and President of Macro Wealth Management, LLC. She has been in the financial services industry for over 20 years. She has worked closely with Dan McGrath over the last three years as it pertains to understanding the Impact of Healthcare Costs in Retirement. She is considered to be on the leading edge of financial planning as it pertains to the impact of healthcare costs in retirement. This specialization has given her the focus to identify what financial products in a retirement plan result in higher healthcare costs versus what financial products do not. This allows for a plan that seeks to contain and reduce ongoing healthcare costs to restore the purchasing power of retirement assets.

She is also the Founder and President of Main Street Medigap, LLC. Main Street Medigap, LLC provides Medicare Supplement Insurance policies to seniors ages 65 and over. Also, Main Street Medigap, LLC also consults Attorneys. Banks, CPAs and other Financial Advisors on Medicare and its related cost structure. She can be reached at tyarosh@macrowealthmanagement.com.

Representatives are registered through, and Securities are sold through Nationwide Planning Associates, Inc., Member FINRA/SIPC, located at 115 West Century Road, Suite 360, Paramus, NJ 07652. Investment Advisory Services are offered through NPA Asset Management, LLC. Nationwide Planning Associates, Inc. and Macro Wealth Management, LLC are non-affiliated entities.

Did You Know You Have A Mandatory Government Expense In Retirement?

By Theresa J. Yarosh,

Board member CGSF 

The first in a series of three articles.

When asked what I do for a living the response I give is that I help people plan for their only government mandatory expense in retirement. 

This is followed up by me with the question of “has anyone discussed this with you?”

The harsh reality is that most people do not realize they have a federally mandated expense in retirement which happens to be Medicare.

In fact, according to SunLife, in its Flying Blind Survey, not only do many people not realize that they have a mandatory expense in retirement, but that less than 10% of those polled have even planned for health costs in any financial plan.

According to federal regulations, anyone who wishes to receive their Social Security benefit must also accept Medicare when eligible. Eligibility is defined as the time when a person is 65 years-old or older and is no longer covered by creditable health insurance through an employer or spouse’s employer.

Failure to accept Medicare at this time will result in an immediate forfeiture of all current, future and even any already accepted Social Security benefits.

This, unfortunately, is not the only regulation that the federal government has implemented when it comes to health costs in retirement as there are three other regulations that you should be aware of.

On top of Medicare being mandatory to receive your Social Security benefit, this exact same expense is also means tested as well.

With the passing of the Medicare Modernization Act of 2003 and the Affordable Care Act of 2010, Medicare was authorized to create its Income Related Monthly Adjustment Amount (IRMAA) brackets.

Ultimately, if you happened to earn too much income in any given year then Medicare will assess a surcharge on top of your current Medicare Part B and Part D premium through IRMAA.

Income is defined as your “adjusted gross income plus any tax-exempt interest you have or everything on lines 37 and 8b of the IRS Form 1040.”

Some examples of income are: Wages, Social Security benefits, capital gains, all dividends and interest (including tax-exempt interest and dividends), and withdrawals from any qualified tax-deferred investment (i.e. a traditional 401(k) or IRA).

The final federal regulation that is not being discussed is the bulk of your Medicare premiums are deducted automatically from any Social Security benefit you will receive.

By law, any Part B premium, possible late fee and any surcharges due to Medicare’s IRMAA will be taken directly from your Social Security benefit.

Therefore, we are starting to see the emergence of a new understanding of retirement planning because the rules are changing due to Medicare. They will affect many of those who are not only in retirement but are also heading towards it.

It is important that we start with a basic overview of what these expenses for those who are aging into Medicare will potentially be. The source for this information is Medicare.gov.  

It should be noted that these are based on national averages and does not reflect a Medicare beneficiary’s state specific carriers for a Medicare Supplemental Insurance Plan and a Part D Prescription Drug Plan premium as well as associated out of pocket costs. In addition, the Part B amount of $134.00 per month is based on the 2018 income levels of $85,000 or less for a single individual and $170,000 or less for a married couple. It should be noted that Medicare is means tested and this means testing is determined by something called the Income Related Adjusted Amounts (IRMAA). Below are the 2018 IRMAA Brackets and their associated means tested amounts.  

When an individual ages into Medicare the 1040 Federal Income Tax return from two years prior is used to determine the IRMAA Bracket and the associated means tested amount or surcharge. Therefore, an individual currently aging into Medicare in 2018 will have the income used from their 2016 Federal Income Tax return to determine their Medicare costs. This income is determined by line 37 and line 8b of your 1040. In addition, we need to understand what is considered income as it pertains to this calculation as is reflected on line 37 plus 8b of the 1040. Below is an overview of what is income. 

It should be noted that if an individual has not yet started taking their Social Security, Medicare will bill them quarterly for their Medicare premiums. Once a Medicare beneficiary begins collecting Social Security the Part B premiums as well as the associated surcharge amounts for Part B and Part D will be deducted from their Social Security check. 

In addition, it is important to understand the impact that increasing Medicare premiums because of inflation will have on an individual’s Social Security check. According to the Social Security Board of Trustees Report, the cost of living adjustment (COLA) for Social Security will be 2.6% for the “foreseeable future.” In 2017 the Cost of Living Adjustment was 2.0% and in 2016 the Cost of Living Adjustment was 0% (Hold Harmless Act). The Hold Harmless Act of 1984 stipulates that no retiree who is enrolled in Medicare and Social Security can see their Social Security benefit decreased due to Medicare increases. This was updated in 2009, making the Hold Harmless Provision only for those who are under Medicare’s IRMAA limits. Those who are subject to means testing (IRMAA) are not protected under the Hold Harmless Provision. According to the 2015 Medicare Board of Trustees Report, the average inflation rate of Medicare is 7.73% and the projected rate of inflation for 2019 through 2026 is 5.89%. For those who are not protected under the Hold Harmless Act will continue to see their Social Security checks decrease as Medicare costs continue to increase. Therefore, it is imperative that higher income individuals and couples explore planning options which will reduce the impact of Medicare costs over-time by utilizing financial strategies that do not trigger Medicare means testing. Below is a list of items which are not considered income for the purposes of Medicare means testing. 

Based on the current projected inflation rate of Medicare, a 50-year-old couple, retiring at age 66, the projected costs, with the inflation rate remaining constant through age 85, would be expected to pay the following based on the current IRMAA Brackets. 

In addition, the Medicare Board of Trustees has added additional income brackets for the year 2026 and beyond. Also, starting in 2028 the associated Medicare Part B and related Part D surcharge amounts will be adjusted to the CPI-U (Consumer AAPrice Index for all Urban Consumers) each year. Once an individual is enrolled in Medicare their cost is determined by the tax return filed two years prior. Therefore, it is important to understand how these costs impact your ongoing Social Security check and the associated purchasing power of that check. Below is the proposed IRMAA Brackets for 2026.  

According to the AARP, almost four in ten workers age 50 and over (38%) are not saving for healthcare costs and many (44%) do not have any plans to do so in the future. It is imperative that individuals and couples consult with a financial professional who understands and specializes in the regulations of health care costs in retirement. For those who are younger than 65 and are beginning the planning process for their future retirement it is critical to review strategies which will reduce the overall impact of these costs in their retirement. In a more broader sense, action must be taken to protect every U.S. citizen as the nation’s economic health in the future depends on it.

Theresa J. Yarosh, CFP®, CLU®, ChFC® has over 20 years of experience in the financial services industry and she specializes in the impact of healthcare costs on retirement plans. She is the founder and president of Macro Wealth Management, LLC as well as the founder and president of Main Street Medigap, LLC. 

Main Street Medigap, LLC offers Medicare Supplemental Insurance plans and Part D Prescription Plans to consumers. In addition, Theresa advises Attorneys, Banks, CPAs and other Financial Advisors as it pertains to Medicare and the impact of those costs on retirement plans. She can be reached at tyarosh@macrowealthmanagement.com or theresa@mainstreetmedigap.com.