How Secure is Social Security?
Entrusted Legacy Law
Mar 17, 2023
Pennsylvania - Greater Pittsburgh Area
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For years people have been worried about Social Security’s future, but what is the actual outlook? According to the federal government, unless Congress acts to intervene, Social Security shortfalls are expected beginning in 2035.
Social Security retirement benefits are financed primarily through dedicated payroll taxes paid by workers and their employers, with employees and employers splitting the tax equally. Employers pay 6.2 percent of an employee's income into the Social Security system, and the employee kicks in the same. Self-employed individuals pay the entire 12.4 percent Social Security payroll tax. This money is put into a trust fund that is used to pay retiree benefits.
The trustees of the Social Security trust fund have reported that if Congress doesn’t take action, the fund’s balance will reach zero in 2035. This is because more people are retiring than are working, so the program is paying out more in benefits than it is taking in. Additionally, seniors are living longer, so they receive benefits for a longer period of time.
Once the fund runs out of money, it doesn't mean that benefits stop altogether. Instead, retirees’ benefits would be cut. According to the trustees’ projections, the fund’s income would be sufficient to pay retirees 77 percent of their total benefit.
Congress can act to shore up Social Security before this happens. Some ideas include eliminating the cap on income subject to tax. Right now, workers only pay Social Security tax on the first $137,700 of income. That amount can be increased, so that higher-earning workers pay more in taxes. The Social Security tax or the retirement age could also be increased.
Social Security is immensely popular and lawmakers are unlikely to allow steep benefit cuts to take place. The last time the program was in financial trouble and received a major overhaul was in 1983, when President Ronald Reagan and congressional Democrats struck a deal to increase taxes and gradually raise the retirement age from 65 to 67.
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But given the complexity of the federal benefits system, there may be exceptions to these general rules on a case-by-case basis that need to be discussed with a disability attorney.Age 65 and Full Retirement AgeFor most of Social Securitys history, full retirement age, or the age at which someone could receive the maximum amount of Social Security retirement benefits based on their work history, was 65 years old.Reforms to Social Security in the 1980s raised the full-benefit retirement age to between 66 and 67 years old, depending on when somebody was born. For anybody born in 1960 and later, full retirement age is now 67.When Does Social Security Disability Convert to Regular Social Security?The Social Security Administration (SSA) does not permit a person to receive both disability and retirement benefits on one earnings record at the same time.For anyone receiving SSDI payments, their monthly disability benefit automatically switches to Social Security retirement upon reaching full retirement age. Again, this is age 66 or 67 for most people.When this switch takes place, the monthly payment amount stays the same.How Long Do Social Security Disability Benefits Last?SSDI lasts for as long as the recipient has a disabling condition and is unable to work, or until they reach retirement age, at which time the disability benefit converts to a retirement benefit.Social Security performs a continuing disability review (CDR) of SSDI recipients every three to seven years.Turning 65 or reaching full retirement age does not trigger this review. And once SSDI benefits change over to retirement benefits, there is no need for a medical review, since a recipient doesnt have to be disabled to receive Social Security old age benefits.SSI and Retirement AgeA person may qualify for SSI with a disability if they have little or no income and resources and are age 64 and younger, or they have little or no income or resources and are age 65 and older.Qualifying for SSI does not require a work history the way that SSDI does. So, someone can qualify for SSI without ever having worked. But because the SSI benefit payment is not tied to a work history, SSI benefits do not convert to retirement benefits upon reaching full retirement age.If someones receiving SSI for a disability, their benefits can continue after they reach retirement age as long as they still meet the programs financial requirements.Disabled SSI recipients are subject to a CDR at least once every three years, or every five to seven years. During the CDR, the SSA also reviews a recipients income and resources to ensure they are still eligible for and receiving the correct SSI benefit amount.Disability, Medicare, and Turning 65Medicare eligibility ordinarily begins at age 65. But people under age 65 whove gotten SSDI benefits for at least 24 months can start receiving Medicare.SSDI recipients automatically get Medicaid Part A and Part B, collectively known as Original Medicare, after receiving their 25th month of benefits. They can choose at that time to decline or keep Part B, which covers services from doctors and other health care providers. They must typically keep Part A, the portion covering inpatient hospital care.When individuals with qualifying disabilities turn 65 and gain age-based Medicare eligibility, they dont have to re-enroll or complete additional paperwork to continue receiving health care benefits.Turning 65, though, amounts to a secondary initial enrollment period. This could be a good time to re-evaluate current Medicare coverages and make changes.For example, a disabled Medicare recipient may have declined Part B coverage when they first enrolled but decide to keep this coverage when they enroll again at age 65. They can also choose to enroll in another Medicare program, such as Part C or D.Disability, Medicaid, and Turning 65Medicaid is government health care for people with limited income, including those with disabilities.In many states, SSI recipients automatically qualify for Medicaid. Medicaid eligibility thats based on receiving SSI should not be impacted by turning 65, but there could be considerations related to special needs trust funding at age 65.Medicaid covers some costs that Medicare does not, such as long-term care. Special needs trusts can help to preserve a beneficiarys access to benefits like SSI and Medicaid. But the window of time to fund a first-party special needs trust closes at age 65.Some people are also eligible for both Medicaid and Medicare. They may be able to enroll in a Dual Eligible Special Needs Plan, a type of managed care plan that helps to coordinate coverage for those with complex medical needs.Work With a ProfessionalSSDI, SSI, Medicare, and Medicaid all have complex rules that may vary by state. Whether youre turning 65 or reaching retirement age, contact Ashley Day at 251-277-3377. She can provide answers and assist with any necessary paperwork.
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Turning 65? Avoid Paying a Medicare Penalty
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