Markus Andrews

If Social Security benefits were reduced or eliminated, Americans would need to double or triple their savings rate to retire with a sufficient nest egg.
Meanwhile, “the old-age poverty rate would soar,” said Richard Johnson, a senior fellow at the Urban Institute.
Social Security is the main source of income for Americans age 65 and older.

An activist at the offices of Rep. Michelle Park Steel in Cypress, California, on Feb. 24, 2023
Araya Doheny | Getty Images

Social Security is essential to older Americans’ financial security, yet there always seems to be a new headline about how the benefits are at risk.
Douglas Boneparth, a certified financial planner and president and founder of Bone Fide Wealth in New York, said clients ask him how they can prepare for their retirement if Social Security benefits are slashed — or even eliminated.

“We work with a relatively young clientele, and they aren’t too confident today’s system will be the one they inherit when they retire” Boneparth said. “They want to hedge their bets.”
CNBC asked Boneparth, a member of CNBC’s Advisor Council, if he could provide an example of how much more people would need to save if they have to fund their retirement with a smaller Social Security benefit, or none at all.

Workers would need to triple savings

CFP Clifford Cornell, an associate financial advisor at Bone Fide Wealth, provided a scenario of a 30-year-old woman who earns $75,000 a year and already has $20,000 saved for retirement. The woman plans to leave the workforce at age 65 and to spend about $40,000 a year in retirement. Her life expectancy is 90.
In order not to run out of money in retirement, she’d need to save $375 a month in her workplace 401(k) plan — if the Social Security program remains fully in place. Cornell assumed a 6% annual return before retirement and 4% after.
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If Social Security benefits were cut in half, she would need to save $750 a month to not run out of money in retirement, or double the amount based on a fully funded program.
If the program were completely done away with, she’d need to save $1,125 a month, or triple the amount.
Social Security is the main source of income for Americans age 65 and older. With the benefits, about 10% of older adults already live in poverty, according to the Center on Budget and Policy Priorities. The share of older people living in poverty would swell to nearly 40% without the benefits. The average retired worker receives about $1,840 a month.
“The old-age poverty rate would soar if Social Security benefits were cut,” said Richard Johnson, a senior fellow at the Urban Institute. “Millions of seniors would be unable to afford basic needs, like food, shelter and health care. Many seniors would have to turn to their children for financial help.”

The future of Social Security

The Social Security program has been weakened by a rise in people retiring and the fact that people are living longer. About 10,000 baby boomers retire every day on average. Since beneficiaries are living longer, the program has been paying recipients over a longer period of time. The share of workers paying into the system — via payroll taxes — has been falling relative to the number of beneficiaries, creating an imbalance.
As a result, without any action from lawmakers, the trust fund that supports Social Security benefits for retirees is estimated to run dry in 2033.
If the trust fund is depleted, it doesn’t mean benefits would go away entirely.
Workers would continue to pay Social Security payroll taxes, and those collected funds would still be payable to retirees. However, there would be cuts. About 77% of promised benefits would be payable if the trust fund runs out, according to the Social Security Administration.

Congress will almost surely tweak Social Security to fix the solvency problem.  
Potential fixes might include reducing benefits, delaying the “full retirement age,” raising taxes on benefits, increasing the financial penalties for claiming Social Security before full retirement age or a combination of these and other factors.
It’s likely to be a “last-second compromise” and “there are going to be losers,” said David Blanchett, head of retirement research at PGIM, the asset management arm of Prudential Financial, in September on “This week, your wallet,” an audio program produced by CNBC’s personal finance team.
Older people and current retirees likely won’t see a change to their benefits, Blanchett said. However, “I do believe younger Americans — if you’re maybe in your 40s — should count on a lower benefit,” he said.
— Additional reporting by CNBC’s Greg Iacurci. More

A funding shortfall may hit Medicare’s hospital insurance fund in less than a decade.
Democrats’ proposals call for raising taxes on the wealthy to solve that.

Zoran Zeremski | Istock | Getty Images

Retirees who rely on Medicare for health-care coverage may see those benefits diminish in as soon as eight years.
“It’s life and death for millions of older Americans,” Sen. Sheldon Whitehouse, D-R.I., said Wednesday during a Senate budget committee hearing.

The program’s hospital insurance trust fund, which pays for Medicare Part A benefits including inpatient hospital care, may pay 100% of benefits only through 2031, according to projections from Medicare’s trustees.
If nothing is done by that date, just 89% of total scheduled benefits will be payable.
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Social Security faces a similar dilemma, whereby the program’s combined funds face a 2034 depletion date, at which point just 80% of benefits may be paid.
When it comes to repairing the programs’ funds, lawmakers generally have two choices: raise taxes, cut benefits or a combination of both.

“It’s simple arithmetic: Raise revenue or cut benefits,” Whitehouse said of preserving Medicare.
“If we abide by what seemed like a bipartisan commitment not to cut benefits,” Whitehouse said, referring to the president’s State of the Union address, “we must safeguard Medicare by raising revenue.”
President Joe Biden, in his address to Congress in February, prompted both sides of the aisle to agree to protect the safety net.

Whitehouse, along with Rep. Brendan Boyle, D-Pa., has proposed the Medicare and Social Security Fair Share Act, which would require taxpayers with more than $400,000 in income to contribute more money to both programs.
The additional revenue would extend the solvency of the hospital insurance trust fund through the 75-year projection period in the 2023 trustees report, the Centers for Medicare and Medicaid Services Office of the Actuary recently estimated.
Yet not all lawmakers are convinced it is the right solution.
“We’ve got to work in a bipartisan fashion and keep a range of options on the table,” Sen. Chuck Grassley, R-Iowa, said during the hearing.

How higher taxes may work

Whitehouse’s proposal calls for high earners to pay more into Medicare.
Currently, taxpayers with more than $250,000 in earned and investment income pay a 3.8% levy, known as the net investment income tax. The proposal calls for increasing that by 1.2% for incomes of more than $400,000.
The bill also calls for requiring those earning in excess of $400,000 to contribute to Medicare and Social Security on pass-through business income. Currently, pass-through business owners such as hedge funds and private equity funds may avoid Medicare and net investment income taxes by treating their earned income as distributed business profits.
Biden has also proposed raising the net investment income tax to 5% for earnings on more than $400,000 including pass-through business income.

President Joe Biden delivers remarks on Social Security and Medicare at the University of Tampa in Florida on Feb. 9, 2023.
Jonathan Ernst | Reuters

“The vast majority of Americans do, in fact, contribute to Medicare by taxes, either on income from their work or from their businesses,” said Chye-Ching Huang, executive director at the Tax Law Center at the New York University School of Law.
But wealthy filers may avoid those taxes by using a loophole that exempts income from pass-through entities used to own businesses.
“That invites hundreds of billions of dollars of wasteful tax avoidance,” Huang said. “Some of that tax avoidance gets so aggressive that it arguably becomes tax evasion because people are just not paying what they’re supposed to.”
Estimates have found closing the loophole may raise more than $300 billion, and 85% of that would come from people with incomes above $1 million per year, she said.

But the tax hikes in the proposal may have unintended consequences, Grassley argued.
The increased levies may affect not only high-income Americans, he said, particularly because the income thresholds will not be indexed for inflation. Ultimately, that may leave 25% of households affected by the end of the projection period, he said.
Instead, Grassley argued a better approach would be a bipartisan compromise.
“The truth is, taxes on the rich alone won’t save Medicare for our children and grandchildren,” Grassley said. More

Applying early may improve your odds of acceptance, but there are many factors to consider, especially when it comes to financial aid.
This year the delayed Free Application for Federal Student Aid makes it harder for students to determine what their price is likely to be if they get in. 
More often, it’s college-bound seniors with assistance from expert college counseling who are using early decision to better their chances of getting in, but there are other resources that can help.
Further, students can opt out of early decision if their offer falls short of their financial aid needs, experts say.

Key factors to consider before applying early

“A lot of people view early action or early decision as interchangeable,” said Eric Greenberg, president of Greenberg Educational Group, a New York-based consulting firm. However, “early action, in certain cases, makes no difference in admission.” Early decision, on the other hand, can “help leverage someone’s admissions chances.”
Despite the possibility of improving your odds of acceptance, there are other factors to consider, especially when it comes to financial aid.

With cost now the No. 1 factor when choosing a college for a lot of people, it’s usually the early bird who benefits, because some financial aid is awarded on a first-come, first-served basis, or from programs with limited funds. The earlier families apply, the better the chance to be in line for that aid, according to Rick Castellano, spokesman for Sallie Mae.
But pledging to one institution would mean forgoing the chance to compare different packages from other schools.

“You are committing to attend that school if they accept you, so you don’t get to shop around, you don’t get to see the offers from other schools or go back and negotiate based on other offers — that’s off the table if you apply early decision,” Vasconcelos said.
This year, there are additional challenges with a delayed Free Application for Federal Student Aid. For the 2024-2025 school year, the FAFSA filing season will open in December, two months later than in previous years.
“That puts students and their families in a bind,” said Robert Franek, editor-in-chief of The Princeton Review. “Almost certainly, every student who is applying early will not have the ability to file their FAFSA form, so they will be going through the process but not have this guidance when they are making their decisions.”
The net price calculators on college websites may also not be up to date with the FAFSA’s new formula, Vasconcelos added, which was the best tool families had to compare college costs and determine what their price is likely to be if they get in.

If the school cannot meet the student’s needs, it can be possible to walk away from an early acceptance.

Eric Greenberg
president of Greenberg Educational Group

For students who apply early without this key piece of information, there is a concession: Some colleges may let you off the hook if your early decision offer falls short of your financial aid needs. (Typically, a “better” offer includes more grant and scholarship money and fewer loans.)
“If the school cannot meet the student’s needs, it can be possible to walk away from an early acceptance,” Greenberg said. “I think that’s very fair.”
Still, “very few people know it,” he added. “Just check with the admissions office or financial aid office for that application year — this allows many more people who don’t have the means to pay full tuition to get the benefit of early decision.”

Early applicants tend to be less ‘price sensitive’

More often, it’s college-bound seniors with assistance from expert college counseling who are using early decision to better their chances of getting in. That implies they have the means and access to navigate this route, Franek noted.
“Students who are applying early are likely not as price-sensitive,” he said.
Although most families do not have this same level of support, books, webinars and the online tools on studentaid.gov can help level the playing field. “Look for the free resources that are out there,” Vasconcelos said.

For colleges, early decision is a win-win

For schools, offering students an option to apply early has clear advantages.
For starters, increasing the likelihood that a student will say yes improves a college’s yield — or the percent of students who choose to enroll after being admitted — which is an important statistic for schools.
In addition, getting a head start on the makeup of the freshman class helps admissions officers balance out enrollment needs with financial aid requests.

Jeff Greenberg | Getty Images

More schools — especially selective private colleges — now offer an early application, and those institutions accept more students ahead of the regular decision deadline, Franek said.
Of the schools on The Princeton Review’s Best Colleges list, 282 out of the 389 have an early action or early decision option in the beginning of November. (Some schools also offer another option, called Early Decision II, which is due in January.)
At those schools, including Emory University, Colgate University, Swarthmore College, Tulane University, Middlebury College and Washington University in St. Louis, as many as 50% or 60% of the freshman class comes from the early application pool, Franek said, although it could be even more than that.
At Middlebury College in Vermont, for example, 69% of 2022′s freshman class was admitted early.

Other considerations before applying early

For students, applying early may leave less time to work on their application, compare different types of colleges, visit campuses and prep and sit for standardized tests.
Some high school seniors could benefit by spending more time choosing a school or bolstering their own candidacy through classwork or extracurricular activities, including sports, community service or clubs.
“The only reason not to apply early action is if you are really not ready,” Vasconcelos said. “If it means throwing together a haphazard application, then you might want to wait to give yourself time.”
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Like the saying goes, “You can’t take it with you.”
But while your Social Security benefits stop when you die, your surviving loved ones may still be able to claim checks on your record.
Here’s how your Social Security benefits may continue after your death.

Image Source | Vetta | Getty Images

Social Security retirement benefits provide guaranteed monthly income for the duration of your retirement.
But when you die, your checks stop coming.

“You only get Social Security while you’re alive,” said Bruce Tannahill, a director of estate and business planning with MassMutual.
Surveys show retirees are tempted to claim benefits as early as possible to get the most out of the program.
But financial advisors typically suggest the opposite — waiting to claim to get the biggest benefit. That way, you get the biggest monthly checks potentially available to you.
“People need to take into account how important Social Security is in their estate planning,” said Jim Blair, vice president of Premier Social Security Consulting and a former Social Security administrator.
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For example, if you claim retirement benefits at age 62, your benefits are reduced, and so are the survivor benefits that become available when you die, Blair said. If you wait to claim benefits until age 70, the maximum age until which you can delay monthly Social Security retirement checks and see your benefits increase, the survivor benefit is also increased.
What’s more, that added income may help you preserve other assets that you can leave behind.
“Your other wealth you can pass on to your spouse and other children and your loved ones,” Tannahill said.
There are some key takeaways to know about what happens to Social Security benefits in the event you or a loved one passes away.

1. There is a one-time death payment

A one-time lump-sum death payment of $255 may be available, provided certain requirements are met.
For example, a surviving spouse may be eligible for the death payment if they were living with the person who passes away.
If the spouse was living apart from the deceased, but was receiving Social Security benefits based on their record, they may also be eligible for the $255 sum.
If there is no surviving spouse, children of the deceased may instead be eligible for the payment, so long as they qualify to receive benefits on their deceased parent’s record when they died.
The Social Security Administration should be notified as soon as possible when a beneficiary dies to cancel their benefits. Funeral homes often report a death to the agency. But it would be wise to also report it to the Social Security Administration, Blair said.

2. Benefits for the month of death must be returned

Though a one-time death payment may be available, any benefit payments received by the deceased in the month of death or after must be returned, according to the Social Security Administration.
However, how this rule is handled depends on the timing of the death.
Social Security checks are paid for the benefits earned the month before. The schedule of the monthly Social Security payments depends on a beneficiary’s date of birth, and mostly fall on either the second, third or fourth Wednesday.
If someone receives their monthly Social Security payment and then dies, the Social Security Administration may not take the money back, according to Blair.
But if instead the beneficiary dies and then receives their monthly Social Security check, it may have to be paid back, he said.
The Social Security Administration cautions against cashing any checks or keeping direct deposits received in the month of death or later.
If a deceased beneficiary was due a Social Security check or a Medicare premium refund when they died, a claim may be submitted to the Social Security Administration.

3. Surviving spouses, others may be entitled to benefits

Certain family members may be eligible to receive survivor benefits based on the deceased beneficiary’s earnings record starting as soon as the month they died, according to the Social Security Administration.
That may include a surviving spouse age 60 or older.
When both spouses have claimed Social Security benefits and one dies, the rule of thumb is the larger benefit continues and the smaller benefit goes away, according to Joe Elsasser, a certified financial planner and president of Covisum, a Social Security software claiming company.
But there can be pitfalls, particularly for couples who have been together for years but never married, he noted.

Some states will treat those unions as common law marriages, which are recognized by the Social Security Administration. However, other states may have no such arrangements, which means survivor benefits would not be available to the living partner should their significant other die.
In many cases, Elsasser said he would recommend those couples get married, particularly when one member of a couple has a very high Social Security benefit and the other doesn’t. Of course, marriage does not always make sense financially for all couples, he said.
Another pitfall may emerge for younger widows who remarry at age 59, for example.
“That could be a very bad thing, because it can prevent you from accessing the widow benefit under your ex,” Elsasser said.
If instead someone remarries after age 60, they are still entitled to a survivor benefit from a deceased spouse, according to Blair.
Others who may be eligible for benefits on a deceased beneficiary’s record include:

A surviving spouse 50 or older who has a disability
A surviving divorced spouse if they meet certain qualifications
A surviving spouse who is caring for a deceased’s child under age 16 or who has a disability
An unmarried child of the deceased who is under 18, or up to 19 if they are a full-time elementary or secondary school student, or age 18 and older with a disability that began before age 22.

“Divorced widow benefits are actually one of the most frequently missed benefits by people because they don’t know they’re available,” Elsasser said.
For example, if you’re 70 and were divorced 20 years ago, you may not know that your ex has died, nor think to check with the Social Security Administration to see if their benefit would be higher, he said.
Importantly, the Social Security Administration will not notify you those benefits are available, Elsasser said.
In certain circumstances, other family members may be eligible for survivor benefits, including adopted children, stepchildren, grandchildren or step-grandchildren.
Parents age 62 or older may also be eligible for benefits if they were a dependent of the deceased for at least half of their support.

A family maximum limits how much can be collected when there are multiple family members claiming on one record, such as a surviving mother and three children, according to Elsasser. However, this rarely affects retirees, because exes do not count as part of a family maximum, he noted.
Additionally, in some cases an earnings test threshold may offset the amount of benefits you receive if you also have earned income.

Important tips for survivors to keep in mind:

Claimants may want to file a restricted application. It is possible to claim a widow’s benefit while letting your own retirement benefit grow, or vice versa, according to Elsasser. For example, you may claim a widow’s benefit at 60, and then switch to your own retirement benefit at age 70.

Social Security can provide a “benefit matrix” comparing benefit options. The document may show you how your monthly benefit and your survivor benefits compare. “We always tell folks, if they’re looking to determine the best course of action between their own benefit and or a surviving spouse benefit, contact SSA and get the benefit matrix report that will give you the information you need to make a decision,” said Marc Kiner, president of Premier Social Security Consulting.

Social Security will not tell you what strategy will give you maximum lifetime benefits. While Social Security personnel may tell you how to get the highest benefit on the day you visit an office or call, they will not necessarily tell you how to get the maximum benefits over your lifetime, Elsasser said. Consequently, it is best to seek more personalized outside advice to identify the best strategy for your situation. More