Medicare in Serious Trouble
In a mostly overlooked bit of news, the US Treasury published its required ‘health of Social Security and Medicare’ reports and the results, predictably, are not good. Before you move on, thinking this doesn’t affect you because you don’t use Social Security and/or Medicare, consider the implication - higher taxes.
According to the reports, Medicare is in far worse shape than Social Security, contrary to popular belief. This year, Medicare’s hospital insurance will begin paying out more in benefits than it takes in through taxes. I won’t recite all the dates and prognostications since they’re subject to assumptions and incite a lot of emotion all around. But this one fact can no longer be denied - Medicare is now spending more than it takes in.
In the short run, this will be largely ignored. Medium and long term, however, it can mean only one thing - higher taxes, reduced benefits or both. So if you think too much comes out of your paycheck in the form of taxes, you ain’t seen nothin’ yet.
These kind of macroeconomic issues are why I believe taxes will only increase in the future. For me, that belief affects how I invest and through what vehicle (e.g. an emphasis on Roths).
March 26th, 2008 at 9:28 am
In the news, I’ve only heard about Social Security…and I have to admit that I’ve planned my retirement savings without social security (and I have some of my investments in a roth ira), but excluding ss and medicare?! I don’t know if I could save enough!
March 26th, 2008 at 10:41 am
Don’t be surprised if the rules for Roth IRA’s are changed in the future so that the money you pull out will be taxed if you are considered “rich”. Don’t expect the definition of “rich” to be much over $30K/yr in income either.
March 26th, 2008 at 1:42 pm
Dave, I’ve been saying the same thing for a couple of years now. I fully expect something like what you describe to happen.
IRS: “You know how we told you Roths would be tax free on withdrawal. Well, about that…”
Me: “But, but, but”
IRS: “You can make the check out to Department of the Treasury”
April 6th, 2008 at 3:07 pm
I agree on both points. We are currently choosing to tax our children (and future selves) to pay for what we use today. Just like someone taking out a new credit card every other month to payoff the current bills this eventually catches up to you. There is very little doubt taxes will increase and benefits will be cut. As anyone struggling with the task of cleaning up credit card debt the longer you spend money you don’t have the harder it will be once you have to deal with the bad behavior you exhibited earlier. It really is amazing how we keep electing people that sacrifice our future to make payoffs to supports today.