The government projects Medicare and Social Security will face budgetary shortfalls sooner than expected. Now might be the right time to help your clients prepare their retirement finances.
Recent reports on Medicare and Social Security conclude that each program will run out of money sooner than previously expected. Of the two, Medicare’s Part A program, which pays for hospital stays and nursing care, will face a deficit by 2026. Social Security is on track for a fiscal crunch by 2034.
Last year, Medicare’s Board Trustees projected the shortfall would happen three years later in 2029. Similarly, Social Security’s Board of Trustees predicted last year that the program’s reserves would be drained by 2035, although the report emphasized the government would still be able fund 77% of scheduled benefits.
Regardless, the volatile nature of such programs — not to mention the shifting goal posts of these predictions — underscores the need for insurance agents to talk with clients about their long-term finances. For those who are dependent on Medicare and Social Security, it may be best to explore how else they can ensure their quality of life after they retire.
Payouts Exceed Income
In 2017, Medicare Part A income totaled $705.1 billion, well below the $710.2 billion it spent on rising healthcare costs. The Federal Hospital Insurance Trust Fund, which oversees Medicare’s Part A, expects that trend to continue due in part to a projected drop in payroll taxes.
Less at risk for funding shortfalls are Medicare Part B, which covers outpatient visits, and Medicare Part D, which helps with prescription drugs. Those programs are move solvent because they are supported by a combination of general revenues and individual premiums.
For each beneficiary, Medicare currently pays out an average of $13,600 per year, with that figure anticipated to rise to $17,000 in five years. About 60 million Americans now get healthcare through Medicare. By 2040, the program’s ranks are expected to swell to 87 million as the population ages.
With Baby Boomers leaving the workforce in increasing numbers, Social Security will witness a similar surge in beneficiaries. By 2040, Social Security will provide monthly checks to 90 million, up from the current 62 million. Like Medicare, Social Security also projects its expenses will exceed revenues this year for the first time since 1982. According to the program’s trustees, expenditures will hit $2 billion more than the program’s total income, and $85 billion above its non-interest intake for 2018.
How Agents Can Help
For insurance agents whose clients are considering retirement, these reports certainly raise the stakes of long-term financial planning. Importantly, they provide a key opening to broach the topic of retirement income with those who expect to lean heavily on government programs going forward.
It might be wise to encourage your clients to invest in tax-advantaged retirement income products such as annuities. Although Medicare Part A covers hospitalizations, your clients should also consider purchasing a long-term-care insurance policy that pays for in-home care. If your clients balk at paying for benefits they may never use (a common objection to long-term care insurance), present them with hybrid policies such as life insurance or an annuity with a long-term care rider.
You can also explore health savings accounts (HSAs) with your clients. The government permits workers enrolled in high-deductible health insurance plans to contribute money into an HSA without paying a tax. Though contributions end at 65 when an individual enrolls in Medicare, the money from an HSA can be withdrawn to pay for out-of-pocket medical expenses.
Your retired or near-retirement clients will, of course, depend on Social Security and Medicare to some extent — and to the degree that the two programs can make good on their obligations. Nevertheless, it’s probably wise to sit down with them to ensure that they have everything they need to enjoy their retirement with security and peace of mind.