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This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. Please consult with a professional specializing in these areas regarding the applicability of this information to your situation.

Andrew Wood, Dan Simon and Alison Slezak are Investment Advisor Representatives. Advisory services are offered through CoreCap Advisors, LLC., a Registered Investment Advisor. CoreCap Advisors, LLC and Daniel A. White & Associates, LLC are separate & unaffiliated entities. 

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Doing Nothing Will Yield Nothing

September 11, 2015

Unless action is taken, the stark reality of sudden and severe benefit cuts could be around the corner for Social Security and Medicare beneficiaries. You can read all about it in the latest Trustees Report. It’s an annual examination of the current and projected financial status of both the Social Security and Medicare programs.

 

Believe me, the 2015 edition isn’t a pleasant read. The combined trust fund will be exhausted by 2034 – a mere 19 years away. Additionally, once reserves are dry, the report says, “Continuing tax income would be sufficient to pay 79 percent of scheduled benefits in 2034 and 73 percent in 2089.”

 

Those are big cuts, especially for people on fixed incomes! But the situation actually improved. Last year the report estimated the combined fund would exhaust by 2033. So we “gained” a year. The report’s conclusion is simple and direct – something must be done to change these programs’ financial trajectory.

 

Two calculations in the report offer some insight on possible solutions:

  • Raise the payroll tax to 15.02% (a jump of 2.62%)

  • Reduce benefits by 16.4% to current and future beneficiaries (19.6% for those eligible in 2015 or later)


No matter how you slice it, the situation isn’t pretty. And it’s worse with the disability trust fund, which is expected to deplete reserves in late 2016. After that, it’ll be good for 81% of promised benefits.

 

The president has proposed allocating more payroll tax revenue to the programs until they’re more stable. Time will tell if that happens.

 

Either way, you can bet this will be a key issue in the 2016 election. It certainly should be.

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