By Ryan Velez
In 2016, John Tucker wrote an article for Black Enterprise talking about the need for acquiring assets that produce cash flow, while simultaneously keeping your personal expenses low (or manageable) to where the cash flow from your assets can cover your personal expenses. Now, he revisits a debated topic stemming from this original one. Are Social Security and Medicare assets that fit under this umbrella, or closer to another form of taxation? Tucker sees them as assets, and like any assets, they need to be used correctly.
These are fueled by taxes, divided into two Social Security Trust Funds and two Medicare Trust Funds. This can vary, but both taxes on employers and employees and the self-employed fall under this umbrella. When you think of it in these terms, Social Security and Medicaid can be a great complement to your IRA and other retirement vehicles. Think of these as forced retirement, disability insurance, and health insurance plans that you are paying into. Just because it’s forced doesn’t mean that it can’t be a usable asset.
What is more concerning regarding these is the uncertainty if any of these programs will be around. A recent Social Security Trustees Report is showing that Social Security has nearly $3 trillion in reserves and might continue to run a surplus until 2019 (a surplus streak that’s been running since 1982). In 2020, estimates show that deficits could appear until around 2034. At this point, all surpluses could be depleted to the point where the program can only survive based on the amount of annual tax revenue that’s coming in. This wouldn’t be enough to cover all retirees.
Medicare is in a similar scenario. By 2029, a recent Medicare Trustees Report is showing that Medicare will be solid until 2029, when during said year it’s estimated that the fund will only be able to cover about 90% of claims.
Longer lifespans and more Baby Boomers looking to take advantage of these benefits are the primary factors behind this potential crunch. The first Millennials will begin filing for these programs in 2042, and it will take adjustments from the politicians in charge of these programs to make sure that there is even any money to get when that time comes.