People shouldn't panic on fears that Social Security and Medicare will disappear and seniors will be left to fend for themselves in the streets.
While Medicare is expected to be exhausted in 2024 and Social Security's reserves in 2036, according to recent trustee reports, policymakers have known of such possibilities for decades now, and remedies can by prescribed, experts tell Market Watch.
"The Social Security system has some financial pressures that are not that difficult to address," says Matthew Greenwald, president of Matthew Greenwald & Associates, a research firm.
"It could be some affluent retirees will get less and/or that affluent workers will pay more, but these will be at the margins."
|Three women hold signs supporting Social Security, Medicare.
(Getty Images photo)
Lawmakers in the past have ensured that benefits were always paid on time and will continue to do so in the future.
"It is important to understand that Social Security is currently in surplus and is projected to remain so for more than another decade, even with no Congressional action whatsoever," says Nancy Altman, co-chair of the Strengthen Social Security Campaign and chair of the Pension Rights Center.
"The question of how large the benefits should be and how to finance them are political questions, not economic ones."
Still, nobody has a crystal ball, especially when the economy is concerned, and budgetary pressures could change the shape of the program, including raising retirement ages.
"I would tell anyone who can wait to take Social Security until 70 to do so. I tell people to assume they will get between 75 percent and 100 percent of the promised benefit. To try to build a plan that works with the 75 percent and view any more as gravy," says Dallas Salisbury, president and CEO of the Employee Benefit Research Institute.
For Salisbury, Medicare may be a bigger problem.
"Medicare now pays an average of half with new income-based premiums," says Salisbury.
"Assume it drops over time to pay 25 percent and that premiums continue to rise. Plus health costs continue at a high rate. At retirement at 65 or older assume you need $300,000 set aside for retiree medical and $300,000 for long-term care if you do not buy a long-term-care insurance policy. This is individual not couple. Then customize this to your family history, and the like. Better to have over saved and under consumed than the opposite."
People should still save more even if Social Security and Medicare don't meet their worst-case scenarios.
"Workers must adjust to any changes, which are fairly limited to saving more or working longer," says Craig Copeland, Ph.D., a senior research associate at the Employee Benefit Research Institute.
Combined, the cost of the programs represented 8.4 percent of the size of the nation's economy last year — a figure that would jump to 11.8 percent by 2035, CNNMoney reports.
Treasury Secretary Tim Geithner wants to shore up the two programs.
"We should not wait for the trust funds to be exhausted to make the reforms necessary to protect our current and future retirees," says Geithner, according to CNN.
"Larger, more difficult adjustments will be necessary if we delay reform."
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