Over the years there has been plenty of rhetoric about Social Security becoming insolvent in the very near future. So far those predictions have not come to fruition. However, recently the rhetoric has been ramped up again. Syndicated radio talk show host Mark Levin has dedicated countless hours on the subject. Barons has written numerous articles on it. Now there are even Congressmen who are taking up this issue. What is surprising is that in order to actually save Social Security all that is needed is to provide even more benefits than before.
Yes, this may sound absurd considering we have been told numerous times that the problem with Social Security is it may not be able to fund the obligations in the very near future. Absent from most discussions about Social Security and how it should be saved is this one fact: Many people do not truly understand the rules surrounding Social Security.
Rule Number One: In order to even collect Social Security as a retirement benefit, a person must accept Medicare when eligible.
This may sound ridiculous to some, or never really thought about by many. In 1993 there was a change to Social Security’s Programs Operations Manual System (POMs). In order for anyone to receive any Social Security benefit in retirement, they must accept Medicare when 65 or older and when they are no longer covered by a credible insurance plan through an employer. Note that this rule doesn’t apply if they have credible coverage because they are still employed, or they have credible coverage through a working spouse’s employer sponsored plan.
If they choose not to opt in for Medicare, they will forfeit all current and future Social Security benefits they were entitled too. This includes having to pay back any benefit they may have already received.
Rule Number Two: The bulk of the Medicare premiums for coverage, as well as any surcharges or penalties that may go with Medicare, must be automatically deducted from any Social Security benefit a person may receive when retired and eligible for Medicare.
So ultimately the one thing that every retire must have in order to even collect Social Security retirement benefits, must be, for the bulk of the costs, automatically deducted from said benefit or else the benefit is forfeited.
Surprisingly, this ‘little’ federal rule is often omitted at many Social Security seminars that are frequently given which is shocking considering the net Social Security benefit projected will not be what one receives.
Rule Number Three: Medicare is means tested. Meaning, the one expense you must have in order to even receive your Social Security retirement benefit is actually based on the amount of income you receive. The more income you have, the higher your health costs (Medicare) will be. Going back to Rule Number Two, if Medicare costs go up you will receive less Social Security retirement benefits.
Rule Number Four: Income is defined by Medicare as “your adjusted gross income plus any tax exempt interest income you have, or everything on lines 37 and 8b of the IRS form 1040.”
Surprise! Income is your Social Security benefit as well as practically everyting else you may have used to fund your retirement. As of right now, there are a limited number of financial instruments that you could use to reduce your risk of inflating your Medicare costs (and thereby decreasing your Social Security) in retirement. They are Roth accounts, specific annuity contracts and certain life insurance policies as well as a few other options like Health Savings Accounts, the use of equity in a primary residency and 401(h) plans.
Can it be seen yet?
- You have to have health coverage in order to receive Social Security benefits.
- This mandatory expense that you have to have is based on how much income you have.
- The more income you have the higher your health costs.
- The bulk of these costs are covered directly from your Social Security benefit.
Did anyone notice that in April of 2015 Congress agreed to strengthening Medicare’s means testing rules in order to cover the majority of the costs associated with reimbursing physicians? President Obama already signed it into law.
Yes, Congress enacted legislation that will actually lessen the amount of Social Security benefits of those retirees who not only have saved for their future through investing in Traditional IRA’s, 401(k)’s, 403(b)’s, SEP IRA’s and Keough Accounts through Medicare’s means testing, but also include those who just happen to collect too much in Social Security benefits – that will also count as income.
Hopefully it should come as no big shock to learn that the 70 politicians who are currently in office are calling for an increase in Social Security benefits for everyone. They know that many of those retirees who have saved for retirement and who reach the age 70.5 will have too much income.
This will undoubtedly send more Americans into Medicare’s means testing brackets, which will mean not only higher health costs for them, but also a reduction in net Social Security benefits.
Again, the easiest way to save Social Security is to overpay the recipients. It will ultimately act as a double edged sword, especially when they have to take their required minimum distribution (RMD’s) amount from their traditional, tax deferred investment vehicles.
If the lawmakers like Bernie Sanders (I-VT) and Rep John Conyers (D-MI) get their way, many more retirees will get even more Social Security benefits. But in the long run, when these retirees are too old to go back to work and they are more reliant on Social Security than ever before, many will unfortunately see this one benefit that was promised to them actually shrink before their very eyes. But hey, at least Social Security will be saved for the rest of us.