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And how we can (hopefully) prevent that from happening.

Written by: Michael Douglass at TMF Enterprise

Americans are worried about Social Security.

Whether it’s Transamerica’s annual retirement survey (44% of workers fear a reduction in or elimination of Social Security benefits), Gallup (67% of workers worry a “great deal” or “fair amount” about the Social Security system as of March 2019), or any of a variety of other surveys, the trend is clear. Americans fear that Social Security won’t be around (or at least won’t be as generous) in the future.

As the ratio of workers to retirees narrows — from between 3.2 and 3.4 between 1974 and 2008 down to a projected 2.2 in 2035 — the program will certainly be put under additional strain, and it is currently slated to run out of reserves in about 16 years.

Social Security’s Board of Trustees issues an annual report which reveals its exact prediction as to when Social Security will run out of money — and what happens next.

The deficits start shortly

According to the trustees’ report, the Old Age, Survivors and Disability Insurance (or OASDI) funds will start paying out more than they’re taking in next year. And by 2035, the combined funds of OASDI will be depleted.

(Technically speaking, OASI and DI are two separate programs — OASI is slated to deplete its reserves in 2034, with DI hanging on until 2052. But I digress.)

So, in short, Congress has about 16 years left to fix Social Security before it goes broke.

Here’s what happens if those efforts fail

If Social Security continues in its current arc and the trustees’ predictions are accurate, when the combined OASDI funds run out of money in 2035, Social Security will have to immediately reduce the benefits it pays out. OASDI will still be receiving money from payroll taxes, so the Social Security Administration will be able to pay out 80% of previously promised benefits.

Again, that differs between OASI and DI — OASI would be able to pay 77% of promised benefits when funds are depleted in 2034, and DI could pay 91% of benefits when its reserves empty in 2052. 

That’s certainly quite a bit better than “Social Security folds up shop and stops all benefits” (which was never a serious risk — though a persistent myth), but it’s still not great. Consider that Social Security represents at least half of income for 48% of married retirees and 69% of unmarried retirees. That’s a hefty cut to their retirement livelihood — at a time when it can be difficult to make up the deficit. (And given how expensive healthcare is in retirement, it’s not as if they necessarily have a lot of wiggle room.)

So what can be done?

To ensure 75 years of solvency going forward, the trustees recommend either immediately increasing taxes or reducing benefits (or both). To solve the issue using only additional tax revenue, they recommend increasing the payroll tax to 15.1% (from today’s 12.4%). Their benefit cut solution is to either reduce Social Security payouts by 17% for everyone (including current retirees), or by 20% to all new beneficiaries starting in 2019. Or, again, some combination of the above.

As you can imagine, neither of these solutions is terribly politically palatable. Nonetheless, there are plenty of historical precedents — the 1983 bill that stabilized Social Security increased both funding and the retirement age. (Increasing the retirement age functions as a benefit cut for future retirees, even if it isn’t explained that way.)

Of course, waiting longer makes it worse. The trustees predict that waiting until 2035 — when the combined funds net run dry — would necessitate a 3.65 percentage point increase in the payroll tax (to 16.05%) or a permanent 23% benefit reduction.

One way to ease the pain

An intriguing third option — albeit with some risk attached — involves investing a portion of Social Security funds in the stock market. Currently, Social Security’s roughly $2.9 trillion fund surplus is invested in U.S. Treasuries. While those are certainly safe securities, they don’t offer a lot of opportunity for growth.

Boston College’s Center for Retirement Research released a report back in 2017 that makes a compelling case for the Social Security funds taking on some investing risk in exchange for significantly better potential returns. The authors analyzed stock market returns and concluded that the Social Security funds would be in better shape today had they been invested in stocks starting in either 1997 or 1984 — despite the 2001 and 2008 stock market slumps. Their simulations also predict that “investing a portion (a maximum of 40%) of Social Security trust fund assets in equities would reduce the need for greater payroll tax contributions or benefit reductions.” (To be precise, 97% of their simulations found the trust fund strengthened, assuming stock investment began as of the study’s publication in 2017.)

What does this mean for you?

If you’re retired, I sincerely doubt you’ll face a benefit cut. It’s far more likely that the pain will fall on non-retired generations because most people understand how terrible it would be to force a massive benefit cut on current retirees.

If you’re still working, know that Social Security isn’t going to go belly-up and suddenly stop paying out benefits — even in the worst-case scenario. But you can’t necessarily depend on it as much as your parents’ generation did — so now’s the time to turbocharge your savings and build up your retirement income base. (And consider calling your Congressperson, if you have a strong opinion as to how the government should fix Social Security.)

CNBC – Sunday, June 2, 2019

Sharron Epperson and Jessica Dickler

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Why You Should Pay for Disability Insurance:

One in 4 adults will become disabled at some point before reaching retirement age, according to the Social Security Administration. Yet few people prepare for the possibility that any one ailment could cause them to miss work for an extended period of time.

A total of 20.1 million adults of employment age report a work related disability, according to research published by the National Institutes of Health.

Common causes include back or neck problems, depression, anxiety or other emotional issues as well as arthritis or rheumatism.

“Most disabilities you can’t even see,”said Leston Welsh, the head of disability and absence management at Prudential Group Insurance.

There are two basic kinds of insurance that can protect you financially if you are unable to work: Policies for short-term disability, which maternity leave is typically covered under, and which generally replace 60% to 70% of your base salary. Long-term disability, which ordinarily kicks in after three to six months and typically replaces 40% to 60% of your income.

“Understanding both short- and long-term disability coverage options is one of the most important ways individuals can protect themselves, their families and their finances,” said Bill Smith, the president of Cigna Group Insurance.

Most workers have no disability coverage

About three-quarters, or 78%, of employers offer short-term benefits to their employees, according to a survey by the International Foundation of Employee Benefit Plans. Sixty-three percent also offer long-term disability benefits to their workers. However, only 38% of all workers take advantage of short-term disability insurance and just 33% opt for long-term insurance.

Only five states have statutorily mandated disability benefit plans that include limited coverage similar to short-term disability.  Millions of Americans are only $400 away from hardship. As a result, more than half of people who experienced a disabling event took more than two years to recover financially, according to a separate disability study by Cigna.  “You are not only dealing with medical bills but lost wages and income,”Cigna’s Smith said.

Altogether, about 50 million working adults in the U.S. don’t have any disability insurance other than the basic coverage available through Social Security. But the average SSDI benefit is only about $1,200 a month, or $14,000 a year — barely above the poverty line.

Hard to qualify

In addition, the requirements to qualify for SSDI benefits are rigorous. Your condition must be so severe that it will keep you from working for 12 months or more. In addition, there is a significant lag time before the benefit kicks in – even up to two years – which means you must have other coverage or a well-padded emergency fund to bridge the gap.

For all of those reasons, “if your employer offers something, you should consider it,”said Mike Stein, a senior financial analyst at Allsup, a company that helps people file for and receive benefits. (Workers at or near retirement age may be offered short-term disability or long-term disability through an employer; however, long-term disability benefits could be limited.)

“Employer provider options tend to be far more reasonably priced,”he said. You may also want to consider a supplemental disability insurance policy from your workplace to get the most comprehensive coverage you can.

If there is no workplace plan option available, you can get individual disability insurance through any insurance provider, although it will be more expensive, he added.

Further, consider how disability benefits will be taxed. It depends on how they were paid. Benefits are taxed if the premiums were paid by employers or by pre-tax employee dollars, but not taxed if the premiums were paid by your after-tax dollars.

This all factors into a broader financial plan, and that’s where consulting with an independent insurance advisor is the prudent thing to do.

A daily dose of aspirin is a well-known and common method of preventing cardiovascular events for people over 40. However, in some people, a daily aspirin may cause more harm than good. Researchers have found that aspirin is very effective at lowering one’s risk of heart disease; however, it also puts them at risk for major internal bleeding.

New Study Questions Daily Aspirin Use

In the past, the majority of studies involving daily aspirin have focused on how it can help those with an existing heart condition. Therefore, the subjects of the studies were people who had already suffered a cardiovascular event or were at a high risk to experience their first. However, until recently there was very little data on how taking a daily low-dose of aspirin could affect those who were not at an increased risk. That is why a new study focused solely on the effects of daily aspirin treatment on patients with lower risks of heart attack. The results may have some people changing their routine.

The study, which involved 13 trials and over 164,000 patients, focused on how aspirin could prevent heart attack, stroke, or other events in those with and without a heart condition. The researchers found heart attack, stroke or death due to cardiovascular disease would be prevented for every 1 in 265 patients who was treated with aspirin daily for five years. However, 1 in 210 subjects who took aspirin every day in the same time frame would experience severe bleeding that would require hospitalization.

Is Daily Aspirin Right for Everyone?

These results make it clear that taking a daily aspirin is not for everyone. For people who have already experienced a cardiovascular event, taking a daily dose of 81 milligrams as a secondary prevention is typically recommended. These people are at a much higher risk of suffering another cardiovascular event, and this supersedes their risk of bleeding. 

For those who have not experienced a heart attack or stroke and are not at a high risk for heart disease, the benefits are not the same. The danger of severe bleeding without the present risk of heart attack may make the treatment not worth it. This is especially true for those who have previously experienced a bleeding or clotting disorder. A daily aspirin could also be dangerous for those with an aspirin allergy.

Speak to Your Cardiologist about Daily Aspirin

If you are concerned about how aspirin could affect your health, there is no need to panic. If you are currently taking daily aspirin per your doctor’s orders, they have already established its safety, and you should not quit without talking to them first. Quitting daily aspirin can cause a rebound effect and increase one’s risk of heart attack. This is especially true for those who have had a heart attack or had a stent placed in one or more arteries.

Aspirin can be a life-saving medicine, but only in certain cases. If you are considering taking a daily aspirin for the first time, it is also imperative to speak to your cardiologist and discuss whether or not it is the right choice for your health.

The latest Merrill Lynch/Age Wave study finds that most adults 55 and over haven’t taken care of the essentials.

By Bernice Napach| ThinkAdvisor | Feb. 07, 2019  

Death is not taboo, but failing to prepare for it financially is looked down upon. Those are just two of the many findings of a new report from Merrill Lynch in partnership with Age Wave that may interest advisors, especially those with clients who are middle-aged and older.

The study of 3,000 adults, with a focus on those 55 and older, found that nine out of 10 are open to discussing end-of-life preferences with friends and family, and dementia and pain are their biggest fears around dying.

Getting their affairs in order beforehand is key, but only 55% of Americans have wills and only 18% have the three recommended essentials — a will, health care directive and durable power of attorney, according to the study.

Respondents with $1 million or more in investable assets were the most prepared — 41% of them had taken care of the three essentials compared with 27% for those with $250,000 to just under $1 million in assets, but that’s still less than half.

This unpreparedness is a “call to action,” Surya Kolluri, a managing director of Bank of America Merrill Lynch who leads the thought leadership for its retirement group, tells ThinkAdvisor. “If you want to pass along life values and lessons, you need to have your financial affairs in order.”

Passing on values and lessons was considered the most important part of one’s legacy in the study, cited by 59% of respondents.

Asked to identify what they want to be remembered for, respondents overwhelmingly said it was the memories they shared with loved ones (70%) rather than the wealth they had accumulated (5%).

There were several surprises in the study, according to Kolluri, including the finding that two-thirds of respondents prefer to distribute on average 30% of their estate while they’re alive and an equal percentage believing in leaving a larger inheritance to the child who provides them care than the child who does not.

Another unexpected finding, according to Kolluri: 43% of respondents were concerned about not having an advocate to look after their best interests as they age.

Retirees and their families need to talk about these issues, said Kolluri, and 87% of respondents said it’s the responsibility of a parent to initiate these conversations.

“It’s critical that people take early and comprehensive steps to prepare essential documents,  communicate their preferences and shape the legacies they wish to leave behind,” said Lorna Sabbia, head of retirement and personal wealth solutions at Bank of America Merrill Lynch, in a statement.

Financial advisors can play a key role in helping clients have the necessarily conversations with family members and collect and store in a safe place the information and documents they will need.

“A well-prepared legacy could be one of the greatest final gifts for those you love,” Kolluri said.

This Merrill Lynch/Age Wave study is the fourth in a multi-year research series that examines five distinct life stages: early adulthood, parenting, caregiving, widowhood and end of life/legacy. In the latest study, 41% of respondents had less than $50,000 in investable assets; 10%, $50,000 to under $100,000; 22%, $100,000 to under $1 million; and 7%, $1 million or more. ‘Greg Says‘ believes all seniors should have a Will and an Advanced Directives document.  

See the following for more information: https://www.nia.nih.gov/health/advance-care-planning-healthcare-directivesand www.theconversationproject.org

U.S. Leads Health Care Spending Among Richer Nations, But Gets Less

Jan. 7, 2019 Health Day News

by Robert Preidt

Higher costs, not better patient care, explains why the United States spends much more on health care than other developed countries, a new study indicates.

U.S. health care spending was $9,892 per person in 2016. That was about 25 percent more than second-place Switzerland’s $7,919 and more than twice as high as Canada’s $4,753, researchers found.

It was also twice what Americans spent in 2000, and 145 percent higher than the Organization for Economic Cooperation and Development (OECD) median of $4,033. The OECD includes 34 countries.

“In spite of all the efforts in the U.S. to control health spending over the past 25 years, the story remains the same — the U.S. remains the most expensive because of the prices the U.S. pays for health services,” said study author Gerard Anderson. He’s a professor at Johns Hopkins Bloomberg School of Public Health in Baltimore.

“It’s not that we’re getting more; it’s that we’re paying much more,” Anderson said in a school news release.

Evaluating the drivers behind soaring U.S. spending, his team cited higher drug prices, higher salaries for doctors and nurses, higher hospital administration costs and higher prices for many medical services.

Despite those higher costs, Americans have less access to many health care services than residents of other OECD countries, according to the study.

In 2015, for example, there were 7.9 practicing nurses and 2.6 practicing physicians for every 1,000 Americans, compared to the OECD medians of 9.9 nurses and 3.2 physicians.

That year, the United States had only 7.5 new medical school graduates per 100,000 people compared to the OECD median of 12.1. And the nation had just 2.5 acute care hospital beds per 1,000 people compared to the OECD median of 3.4.

Yet the United States ranked second in the number of MRI machines per person and third in the number of CT scanners per person, suggesting relatively high use of these expensive resources. (Japan ranked first in both categories, but was one of the lowest overall health care spenders in the OECD in 2016).

Among the other findings:

• U.S. health spending outpaced that of the other OECD countries between 2000 and 2016 — growing an average of 2.8 percent a year compared with the OECD median annual increase of 2.6 percent.
• Inflation-adjusted spending on pharmaceuticals rose 3.8 percent annually in the United States versus an OECD median of 1.1 percent.
• In 2016, U.S. health care spending accounted for more than 17 percent of gross domestic product, compared with an OECD median of less than 9 percent.

The findings appear in the January issue of the journal Health Affairs.

At ‘Greg Says’ we believe that much more focus needs to be placed on the ever-increasing costs for basic healthcare services in the U.S. Comparing data from several other OECD countries with that of the U.S. indicates that more needs to be done regarding public policy to stem the growth of pricing for healthcare services in the U.S.