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Forbes
7 days ago
- Business
- Forbes
How The 2025 Budget Act Accelerates Social Security's Insolvency
The Social Security actuary projects the 2025 budget law Congress passed in July will accelerate insolvency of the program's retirement trust fund from early 2033 to late 2032. That may seem like a modest change, but it has enormous political implications. It means the program will go insolvent during the term of the president who succeeds Donald Trump. That soon. And it means that, without congressional action, scheduled benefits would automatically be cut for all recipients by roughly one-fifth right in the midst of the 2032 election campaign. My Urban Institute colleagues Rich Johnson and Karen Smith estimate that once the trust fund becomes insolvent, monthly benefits for a median income retiree would drop by nearly $500 in 2022 dollars and 3.8 million more seniors would fall into poverty. Fortunately for both Social Security and Medicare finances, the budget bill did not repeal income taxes on Social Security benefits, despite the Administration's persistent claims. Without that revenue, their prospects would be much more dire. Taxing combined income But how did the budget bill weaken the trust fund's health? Bear with me. It is complicated. The Social Security trust fund is financed by payroll taxes, the interest it earns on the government bonds it purchases, and from that tax on Social Security benefits. Up to half of Social Security benefits are taxable for single filers with income between $25,000 to $34,000 and for joint filers making $32,000 to $44,000. Up to 85 percent of Social Security benefits are subject to income tax for single filers making at least $34,000 or joint filers making $44,000 or more. And here is the important part: Income for the purposes of this benefit tax is defined as 'combined income,' which includes half (or 85 percent) of your Social Security income plus Modified Adjusted Gross Income (MAGI), which is Adjusted Gross Income (AGI) plus tax-free bond interest and a few other relatively rare income sources. How the new law weakens Social Security The budget law reduces trust fund income because it reduces taxable income, pushes some people into lower tax brackets, and lowers marginal tax rates. Several provisions lower the tax rate on benefits. First, the new law extends the rate cuts and lower tax brackets created by the 2017 Tax Cuts and Jobs Act but were due to expire at the end of this year. Second, the budget law creates a temporary $6,000 senior deduction for taxpayers aged 65 or older. It phases out starting at $75,000 for singles and $150,000 for joint filers and is gone entirely at $175,000 for singles and $250,000 for couples. Combined, these provisions reduce the tax on Social Security benefits. In the short run, that helps some older adults, especially those making between about $80,000 and $130,000 annually. But in the long run, it could be very bad for Social Security recipients, both the 55 million getting benefits today and those working-age people who hope to receive promised benefits when they reach old age. Insolvency Social Security's actuaries estimate all the budget law's changes will drain nearly $170 billion from the Social Security trust fund between 2025 and 2034. And that will be enough to speed up the Old Age and Survivors Insurance fund's insolvency date into 2032. The projected insolvency date often fluctuates based on short-term economic trends. But three current factors could accelerate insolvency even more: President Trump's tariffs, which may already be slowing the economy; his efforts to deport masses of immigrants, who contribute to Social Security by paying payroll taxes even though undocumented immigrants cannot collect benefits; and the real possibility that Congress will extend the new senior deduction, which is due to expire in 2028. Benefit reductions would have severe consequences for older adults, especially those with low incomes. Ironically, many will get little or no benefit from the tax cuts. For example, a widow with income below $17,000 under the pre-July 4 law already owed no income tax for 2025. That higher senior deduction and continued rate cuts do her no good. But she will be harmed substantially to the degree these changes result in a quicker automatic across-the-board cut in Social Security. That income loss may be exacerbated by other Trump Administration initiatives that will increase Medicare costs or limit health care access. Most retirees deduct their Medicare premiums from their Social Security benefits and higher premiums or other health care costs will leave them with less money to pay daily expenses. For now, few politicians are willing to support the tax increases and benefit reductions that will be necessary to at least delay Social Security's pending insolvency. And President Trump insists he won't touch Social Security, though the budget law he pushed clearly did, and in the wrong direction. If the Social Security actuary is right, Trump's successor won't have the option to ignore Social Security. Unless the next president 'touches' it with substantial reforms, the retirement system will fall far short of paying promised benefits. At the very least, lawmakers could stop making matters worse.
Yahoo
16-05-2025
- Business
- Yahoo
I've relied on Medicaid for years — but after inheriting $250K recently, I'm worried about losing my benefits
Imagine this scenario: Two decades ago, Kristin was driving home from a friend's house when she was struck by a drunk driver, who hit her car head-on. After surviving a coma and suffering a brain injury that made it impossible to work, she's been on Medicaid ever since. While she has enough money to get by — she has no debt and owns her house — she doesn't have much left over at the end of the month. That's why, when she found out she had inherited $250,000 from her best friend, she was incredibly grateful. But also a little worried. Thanks to Jeff Bezos, you can now become a landlord for as little as $100 — and no, you don't have to deal with tenants or fix freezers. Here's how I'm 49 years old and have nothing saved for retirement — what should I do? Don't panic. Here are 5 of the easiest ways you can catch up (and fast) Nervous about the stock market in 2025? Find out how you can access this $1B private real estate fund (with as little as $10) A large lump sum of cash would bump Kristin over the income eligibility limit for Medicaid, so she could lose her benefits. She's now worried about Medicaid's five-year Look-Back Rule, a period during which Medicaid can evaluate a recipient's financial history to ensure they're not artificially reducing their net worth. If so, a penalty period would apply. Not only is Kristin worried about losing her Medicaid coverage, she's also worried she might end up in violation of the Look-Back Rule and that a Medicaid lien would be placed on her property when she dies, so she wouldn't be able to pass on her remaining assets to her children. Are her concerns valid or are there ways to make the windfall work more in her favor? The Affordable Care Act determines income eligibility for Medicaid based on Modified Adjusted Gross Income (MAGI). To receive Medicaid, you can't exceed monthly income and asset limits, which differ by state. In most cases, a single senior applicant can't exceed $2,901 a month in income, according to the American Council on Aging (ACOA). 'In 2025, most states have an asset limit of $2,000 for an individual senior applicant and $3,000 for an elderly couple,' the ACOA writes. Some assets are exempt, such as the applicant's house, vehicle and personal belongings. Each state sets its own rules around how IRAs, 401(k)s and pensions are accounted for, too. An inheritance would count as income in the month it's received; in Kristin's case, it would push her way over the income limit for Medicaid benefits. The first thing Kristin should do is report the inheritance to her state Medicaid agency. 'Medicaid will view the inheritance either as income and/or assets, depending on when the inheritance was received and how long it has been since receipt,' the ACOA writes. But she should do it as soon as possible. 'While a Medicaid beneficiary generally has 10 calendar days to report the receipt of an inheritance, this timeframe could be shorter or longer, depending on the state,' the ACOA says. If you don't, and the inheritance disqualifies you from Medicaid, then you'd be responsible for reimbursing Medicaid for any benefits you received during that time. Each state has different rules, which can add to the confusion. A Medi-Cal recipient in California, for example, is allowed to gift an inheritance to a third party, so long as it's done in the same month it's received. The state also has no Look-Back Rule in place for assets transferred after Jan. 1, 2024. Read more: You're probably already overpaying for this 1 'must-have' expense — and thanks to Trump's tariffs, your monthly bill could soar even higher. Here's how 2 minutes can protect your wallet right now It's possible to 'spend down' your inheritance, too — so long as it doesn't violate the Look-Back Rule. 'If the money is spent in its entirety during the month of receipt and without violating Medicaid's Look-Back Rule, one will be eligible for Medicaid again the following month,' according to the ACOA. That might mean paying off debt, paying for long-term care, making home modifications or renovations for accessibility purposes or buying assets that are exempt from the asset limit, such as clothing or home appliances. You could even pre-pay funeral expenses through an Irrevocable Funeral Trust. There are also strategies that may allow someone to benefit from an inheritance without losing Medicaid. These include: Pooled Special Needs Trusts (SNTs): To get around the Look-Back Rule, Kristin could transfer the inheritance into a Pooled Special Needs Trust (SNT), which is typically run by a charitable or philanthropic organization (there are several hundred to choose from in the U.S.). These transfers are exempt from the Look-Back Rule since they no longer count toward the recipient's income or assets, according to the Brain Injury Association of America, but ensures they still have resources for long-term care. Medicaid-Compliant Annuities (MCAs): Buying an MCA means you give an insurance company a lump sum of cash, which is then converted into a steady income stream. When properly structured, it allows you to lower your countable assets so you don't lose Medicaid benefits — but not all states treat annuities the same way. Medicaid Asset Protection Trusts (MAPTs): Sometimes called a Medicaid Planning Trust or Medicaid Trust, a MAPT protects a Medicaid recipient by putting their excess assets into a trust. The recipient names a trustee and beneficiary who will inherit those assets. Since the recipient who created the trust no longer owns those assets, it won't count toward Medicaid's asset limit. A MAPT can also be used to protect assets for a recipient's children or other family members. For example, it can help to protect assets from Medicaid's Estate Recovery, where the agency tries to reimburse the cost of the recipient's care from their estate after they pass away. Before Kristin makes a decision, she may want to consult with an attorney. It's worth looking for an attorney who is a member of the National Elder Law Foundation or the National Academy of Elder Law Attorneys and is familiar with the challenges that older adults can face. Want an extra $1,300,000 when you retire? Dave Ramsey says this 7-step plan 'works every single time' to kill debt, get rich in America — and that 'anyone' can do it Rich, young Americans are ditching the stormy stock market — here are the alternative assets they're banking on instead Robert Kiyosaki warns of a 'Greater Depression' coming to the US — with millions of Americans going poor. But he says these 2 'easy-money' assets will bring in 'great wealth'. How to get in now Here are 5 'must have' items that Americans (almost) always overpay for — and very quickly regret. How many are hurting you? This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
Yahoo
16-05-2025
- Business
- Yahoo
I've relied on Medicaid for years — but after inheriting $250K recently, I'm worried about losing my benefits
Imagine this scenario: Two decades ago, Kristin was driving home from a friend's house when she was struck by a drunk driver, who hit her car head-on. After surviving a coma and suffering a brain injury that made it impossible to work, she's been on Medicaid ever since. While she has enough money to get by — she has no debt and owns her house — she doesn't have much left over at the end of the month. That's why, when she found out she had inherited $250,000 from her best friend, she was incredibly grateful. But also a little worried. Thanks to Jeff Bezos, you can now become a landlord for as little as $100 — and no, you don't have to deal with tenants or fix freezers. Here's how I'm 49 years old and have nothing saved for retirement — what should I do? Don't panic. Here are 5 of the easiest ways you can catch up (and fast) Nervous about the stock market in 2025? Find out how you can access this $1B private real estate fund (with as little as $10) A large lump sum of cash would bump Kristin over the income eligibility limit for Medicaid, so she could lose her benefits. She's now worried about Medicaid's five-year Look-Back Rule, a period during which Medicaid can evaluate a recipient's financial history to ensure they're not artificially reducing their net worth. If so, a penalty period would apply. Not only is Kristin worried about losing her Medicaid coverage, she's also worried she might end up in violation of the Look-Back Rule and that a Medicaid lien would be placed on her property when she dies, so she wouldn't be able to pass on her remaining assets to her children. Are her concerns valid or are there ways to make the windfall work more in her favor? The Affordable Care Act determines income eligibility for Medicaid based on Modified Adjusted Gross Income (MAGI). To receive Medicaid, you can't exceed monthly income and asset limits, which differ by state. In most cases, a single senior applicant can't exceed $2,901 a month in income, according to the American Council on Aging (ACOA). 'In 2025, most states have an asset limit of $2,000 for an individual senior applicant and $3,000 for an elderly couple,' the ACOA writes. Some assets are exempt, such as the applicant's house, vehicle and personal belongings. Each state sets its own rules around how IRAs, 401(k)s and pensions are accounted for, too. An inheritance would count as income in the month it's received; in Kristin's case, it would push her way over the income limit for Medicaid benefits. The first thing Kristin should do is report the inheritance to her state Medicaid agency. 'Medicaid will view the inheritance either as income and/or assets, depending on when the inheritance was received and how long it has been since receipt,' the ACOA writes. But she should do it as soon as possible. 'While a Medicaid beneficiary generally has 10 calendar days to report the receipt of an inheritance, this timeframe could be shorter or longer, depending on the state,' the ACOA says. If you don't, and the inheritance disqualifies you from Medicaid, then you'd be responsible for reimbursing Medicaid for any benefits you received during that time. Each state has different rules, which can add to the confusion. A Medi-Cal recipient in California, for example, is allowed to gift an inheritance to a third party, so long as it's done in the same month it's received. The state also has no Look-Back Rule in place for assets transferred after Jan. 1, 2024. Read more: You're probably already overpaying for this 1 'must-have' expense — and thanks to Trump's tariffs, your monthly bill could soar even higher. Here's how 2 minutes can protect your wallet right now It's possible to 'spend down' your inheritance, too — so long as it doesn't violate the Look-Back Rule. 'If the money is spent in its entirety during the month of receipt and without violating Medicaid's Look-Back Rule, one will be eligible for Medicaid again the following month,' according to the ACOA. That might mean paying off debt, paying for long-term care, making home modifications or renovations for accessibility purposes or buying assets that are exempt from the asset limit, such as clothing or home appliances. You could even pre-pay funeral expenses through an Irrevocable Funeral Trust. There are also strategies that may allow someone to benefit from an inheritance without losing Medicaid. These include: Pooled Special Needs Trusts (SNTs): To get around the Look-Back Rule, Kristin could transfer the inheritance into a Pooled Special Needs Trust (SNT), which is typically run by a charitable or philanthropic organization (there are several hundred to choose from in the U.S.). These transfers are exempt from the Look-Back Rule since they no longer count toward the recipient's income or assets, according to the Brain Injury Association of America, but ensures they still have resources for long-term care. Medicaid-Compliant Annuities (MCAs): Buying an MCA means you give an insurance company a lump sum of cash, which is then converted into a steady income stream. When properly structured, it allows you to lower your countable assets so you don't lose Medicaid benefits — but not all states treat annuities the same way. Medicaid Asset Protection Trusts (MAPTs): Sometimes called a Medicaid Planning Trust or Medicaid Trust, a MAPT protects a Medicaid recipient by putting their excess assets into a trust. The recipient names a trustee and beneficiary who will inherit those assets. Since the recipient who created the trust no longer owns those assets, it won't count toward Medicaid's asset limit. A MAPT can also be used to protect assets for a recipient's children or other family members. For example, it can help to protect assets from Medicaid's Estate Recovery, where the agency tries to reimburse the cost of the recipient's care from their estate after they pass away. Before Kristin makes a decision, she may want to consult with an attorney. It's worth looking for an attorney who is a member of the National Elder Law Foundation or the National Academy of Elder Law Attorneys and is familiar with the challenges that older adults can face. Want an extra $1,300,000 when you retire? Dave Ramsey says this 7-step plan 'works every single time' to kill debt, get rich in America — and that 'anyone' can do it Rich, young Americans are ditching the stormy stock market — here are the alternative assets they're banking on instead Robert Kiyosaki warns of a 'Greater Depression' coming to the US — with millions of Americans going poor. But he says these 2 'easy-money' assets will bring in 'great wealth'. How to get in now Here are 5 'must have' items that Americans (almost) always overpay for — and very quickly regret. How many are hurting you? This article provides information only and should not be construed as advice. It is provided without warranty of any kind. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
