The Social Security trust fund is now expected to be depleted by 2034, according to a recent report from the Social Security and Medicare trustees. That’s one year earlier than they reported last year, and the pandemic is to blame. Less was collected in payroll taxes when unemployment was high, and more people claimed benefits. Although this information may seem like a death sentence for the program, the truth regarding the future of Social Security, Medicare, and your taxes may be more complex.
Social Security and Medicare
Once the Social Security trust fund runs out, payroll taxes will be able to cover about 78% of promised benefits. The Medicare Part A trust fund is expected to be depleted by 2026, at which point the program would take in enough to pay out 91% of promised benefits. Since Social Security and Medicare support so many Americans and are so popular, it’s unlikely that the government will allow them to go broke. Instead, we could see adjustments as well as increased taxes to help fund these programs.
Could We See Higher Taxes in the Future?
You should know the types of retirement income and how they’re taxed. High net worth retirees may see tax increases in many forms. In the near future, we could see the top marginal income tax rate go from 37% to 39.6%, and the long-term capital gains rate of 20% for gains of over $1 million disappear. This means that capital gains would instead be taxed at 39.6%, plus the additional 3.8% Obamacare tax.
Many retirees do not realize that their Social Security benefits can be taxed. If your combined income as an individual is between $25,000 and $34,000 or is between $32,000 and $44,000 as a married couple filing jointly, up to 50% of your benefit may be taxable. And, if your combined income as an individual is over $34,000 or over $44,000 as a married couple filing jointly, up to 85% of your benefit may be taxable. These income thresholds have not increased since they were first instituted in 1984.
Taking Control of Your Retirement Finances
We could see changes to Social Security, Medicare, or increased taxes in the future that may impact how much you receive or how much of your money you get to keep. It’s important to remember that your retirement finances are in your hands, and you can take control of your financial future. You can do this by working with a professional to create a retirement investment strategy, Social Security maximization strategy, and tax minimization plan.
Make planning for your retirement a priority no matter how many years away you are or if you’re already retired. Schedule a time to talk with one of us about how to plan for whatever the future may hold. We can look at your specific financial situation to create a plan designed for you.