Page 34 - Investment Advisor December 2022/January 2023

COVER STORY

Johnson said, but there are some com-
plicated considerations for individuals
to keep in mind.
For example, rising Social Security
income due to COLAs can affect
Medicare costs down the road. This is
because any increase in the income of
a Medicare beneficiary — whether due
to COLAs, earnings from jobs, retire-
ment savings or pensions — could poten-
tially affect what an individual pays in
Medicare premiums if income grows
over certain thresholds.
This “premium surprise” affects both
those with the highest incomes, as well
as those with the lowest incomes, just in
different ways, Johnson said.
Those who receive low-income assis-
tance for health care costs can be subject to “trims” in the Security’s cost has exceeded its non-interest income since 2010.
amount of assistance they receive through Medicare Savings The year when the combined trust fund reserves are project-
programs or Medicare Extra Help, or Medicaid. At the same ed to become depleted, if Congress does not act before then, is
time, increased incomes due the COLA can make older and 2035. This is one year later than the prior year’s projection. At
disabled beneficiaries ineligible for the level of benefits they that time, there would be sufficient income coming in to pay
currently receive when their income exceeds the limits. 80% of scheduled benefits, according to the latest report.
Higher income Medicare beneficiaries, on the other hand, In interviews and statements given about the report, Yellen
may pay more in Part B and Part D premiums if incomes tick said it will be vital for Congress to take steps in the next decade
higher than $97,000 for individuals or $194,00 for couples to put Social Security and Medicare on solid financial footing
filing jointly. A boost to income can push beneficiaries into for the long term.
higher premium brackets, Johnson warned.

Required minimum distributions were smaller in 2022 thanks
In June, The Board of Trustees of the Federal Old-Age and to updated Internal Revenue Service life expectancy tables
Survivors Insurance and Federal Disability Insurance Trust that took effect during the year. The life expectancy update
Funds filed their annual report to Congress regarding the for 2022 and beyond represents the first such modification in
financial health of the Social Security system. two decades.
At the time, Treasury Secretary Janet Yellen said the lat- The new tables can be found at the end of IRS Bulletin 2020-
est report shows an improvement in the financial position 49, which was published back in November 2020. Broadly
of Social Security and Medicare. Specifically, the combined speaking, overall life expectancy has increased in the updated
asset reserves of the Social Security Old-Age and Survivors tables. For example, the new table has a life expectancy at age
Insurance Trust Fund, which pays benefits to retirees, are pro- zero of 84.6 years, versus 82.4 years in the old table.
jected to become depleted in 2034. This increase means that RMDs are slightly lower for 2022
This is one year later than the prior year’s estimate, Yellen as a general matter, since individual retirement account with-
noted, with 77% of benefits payable at that time. drawals are expected to be spread out over a longer lifetime.
The separate Disability Insurance Trust Fund is not pro- With the updates, which will apply in 2023 and beyond,
jected to run out of assets within the trustees’ 75-year projec- there are still three mortality tables. One is for singles. The
tion period. In 2021, the fund was expected to go bust in 2057. second, referred to as the uniform lifetime table, applies for
According to the Trustees’ report, the asset reserves of the lifetime distributions to an employee in situations in which
combined OASI and DI Trust Funds declined by $56 billion in the employee’s surviving spouse is not the sole designated
2021 to a total of $2.852 trillion. beneficiary of a pension benefit. This table is also used if the
Moving forward, the total annual cost of the Social Security employee’s surviving spouse is the sole designated beneficiary Yellen: Ting Shen/Bloomberg
program is projected to exceed total annual income and remain but is not more than 10 years younger than the employee.
higher throughout the 75-year projection period. Total cost The third table, known as the joint and last survivor table, is
began to be higher than total income in 2021, while Social used for determining the joint and last survivor life expectancy

32 INVESTMENT ADVISOR DECEMBER 2022/JANUARY 2023 | ThinkAdvisor.com