Social Security and Medicare: What to know for retirement planning

If you’re worried Social Security and Medicare benefits will be reduced—or even eliminated—by the time you retire, you’re not alone. Reports of potential insolvency, tax hikes, and raised eligibility ages have generated controversy and confusion.¹

To better understand today’s retirement landscape, explore how Social Security and Medicare work, the issues they currently face, and proposals aimed at strengthening these programs. Plus find out about effective strategies for addressing your financial and medical needs during retirement without having to rely solely on either Social Security or Medicare.

What you’ll learn

• How retirement is changing
• What is Social Security and how does it work?
• Proposals to strengthen Social Security
• What is Medicare?
• What are your Medicare options?
• More retirement planning choices = more responsibility

How retirement is changing

Retirement today looks very different than it was for previous generations. People are living longer,² careers are less linear, and the responsibility for funding retirement has shifted more toward the individual. Because of these changes, retirement planning is something that needs attention earlier and more intentionally than ever before.

• Retirement in the future will cost significantly more. Healthcare expenses, inflation, and longer lifespans all mean that retirees may need their money to last 20 or 30 years, or even longer. What felt like a comfortable savings goal in the past may no longer be enough, which is why understanding future costs is a critical part of planning.
• Help is available but plan now. From professional guidance to government programs and educational resources, no one needs to face these decisions alone. However, timing matters. The earlier you start planning, the more options you typically have, and the more confident you can potentially feel about your retirement outlook.
• Understanding Social Security and Medicare benefits is an important part of your planning efforts. Social Security and Medicare are key pieces of the retirement puzzle, but they’re often misunderstood. Knowing when to claim benefits, how payments are calculated, and how Medicare coverage works can have a significant impact on your income and healthcare costs in retirement. Taking the time to understand these programs helps you make informed decisions and avoid costly surprises.

What is Social Security and how does it work?

Social Security is the general term that describes a number of related programs: retirement, disability, and dependent and survivor benefits. These programs provide limited financial assistance to workers and their families when their normal flow of income shrinks because of retirement, disability, or death.

According to the Social Security Administration, more than 68 million Americans received Social Security benefits in 2024.³ This group includes elderly retirees and their families, disabled workers and their families, and survivors of deceased workers.

Contrary to what many think, Social Security was not designed to meet all the financial needs that arise from a person’s old age, disability, or death. It is intended to serve as a supplement to private savings and privately funded retirement plans. In fact, Social Security benefits represent about 30% of the income of retired people,² according to the Social Security Administration.

So how does it work? Social Security is funded through mandatory contributions by us and by our employers. Employee contributions are recorded in the “Social Security taxes” box on pay stubs.⁴

The taxes are held by special trust funds established exclusively to pay Social Security (and Medicare) benefits and administrative expenses. Trust fund assets not needed to meet current costs are invested in special-issue U.S. government securities.

When can you claim Social Security benefits? You may begin to receive retirement benefits as early as age 62; however, if you choose to take benefits earlier than your full retirement age, you will have to take reduced benefits for the duration of your retirement.

What is the normal retirement age? Workers born in 1937 and earlier can receive full benefits at age 65. Those born from 1938 to 1942 can receive full benefits somewhere between 65 and 66, depending on the exact year of birth. Workers born from 1943 to 1954 are eligible for full benefits at age 66, and those born between 1955 and 1960 are eligible between the ages of 66 and 67. Workers born after 1960 must be 67 years old.

People who delay retirement beyond their normal retirement age receive a special increase in their benefits when they do retire. If you were born in 1943 or later and delay receiving your Social Security benefits at full retirement age, you can receive an 8% increase in benefits for each year you postpone retirement up to age 70.⁵

The exact amount of your benefit will depend on your earnings history. You should receive an estimate of this benefit—your Social Security Statement—when you reach age 60 or older and are not receiving Social Security benefits and have not set up a “My Social Security” account online at ssa.gov.

Proposals to strengthen Social Security

Currently, Social Security is facing challenges, including:

• Retiring Baby Boomer generation²
• People are living longer²
• Fewer workers paying into the system²
• By 2033, Social Security may not be able to meet all its obligations⁶

Because of these challenges and the size of Social Security, there are no shortage of proposals for “fixing” the system. Among the options discussed in recent years:

• Raising the retirement age to 70
• Cutting benefits for wealthier seniors
• Trimming cost-of-living adjustments
• Investing the Social Security trust funds in the stock market
• Diverting a portion of payroll taxes from retiree benefits to private accounts.

The proposals that call for either investing the Social Security trust funds in the stock market or allowing people to invest some or all their contributions in the various securities markets have generated the most controversy.

• Proponents say that investing Social Security assets in the stock market would greatly enhance the program’s returns, thereby increasing its reserves and longevity. Despite the market crisis of 2008-2009, stocks historically have performed better than any other type of investment, although past performance cannot guarantee future results.
• Others say that the inherent market risk would rob some retirees of the very security that Social Security was created to provide.

Expect to hear a lot about these proposals in the months and years to come.

What is Medicare?

Medicare is a federal government program that helps older and some disabled Americans obtain and pay for medical care. Administered by the U.S. Department of Health and Human Services, Medicare is the nation’s largest health insurance program, which covered more than 66 million Americans in 2024.⁷

The program is divided into two components: Part A and Part B.

• Part A is called hospital insurance and covers most of the costs of a stay in the hospital, as well as some follow-up costs after time in the hospital. Part A pays for some other outpatient medical services, including some home health care. It covers none of the cost of prescription drugs. Under most circumstances, you do not have to pay a premium for Part A.
• Part B is medical insurance. This optional coverage is intended to help pay doctor’s bills for treatment in or out of the hospital. It also covers many other medical expenses you incur when you are not in the hospital, such as the costs of necessary medical equipment and tests. If you elect Part B, a monthly premium is automatically deducted from your Social Security check.⁸

What are your Medicare coverage options?

You have two options for Medicare coverage: the Original Medicare Plan and Medicare Advantage, a managed care plan. Each of these programs has pros and cons. To determine which program is right for your needs, call 1-800-MEDICARE (633-4227) or log on to medicare.gov. 

• With the Original Medicare Plan: You pay your Part B monthly premium and then pay for additional services as you use them. In 2026, the standard monthly premium is $202.90. Additionally, the Medicare Part B deductible is $283 in 2026. If your modified adjusted gross income as reported on your IRS tax return from two years ago (the most recent tax return information provided to Social Security by the IRS) is above a certain amount, you may pay more.⁷
• Medicare Advantage: An optional program available through private insurance companies, provides HMO-type coverage.
• Health savings accounts: Much like an IRA, health savings accounts allow account holders to select a variety of investments to suit their time horizon and risk tolerance. Also, the account balance can be maintained from one year to the next.⁹
• Medigap insurance: If you choose the Original Medicare Plan, you might also be interested in securing Medicare Supplement Insurance, or “Medigap” insurance. The term Medigap comes from the notion that these insurance policies will cover the gaps in Medicare payments. Medigap doesn’t fill in all the gaps, but it helps. Before you buy a Medigap insurance policy, consider not only the services covered but also the amount of benefits and the monthly cost of the policy. Also pay attention to how much premiums may rise in years to come.

More retirement planning choices = more responsibility

Fortunately, you have more choices than previous generations to help ensure a comfortable retirement. With these choices, however, comes responsibility: It’s up to you to determine whether you should contribute to a retirement plan, how much to save, and what investment options to choose.

Regardless of your age, investing for retirement should be among your top financial priorities. However, one of the greatest challenges for most people is realizing the need for a retirement investment program. Retirement income needs can differ significantly from person to person. Factors such as housing costs, healthcare expenses, travel plans, and other lifestyle choices can all influence how much income may be needed during retirement.

Since Social Security was never meant to be the sole means of support in retirement, you have other options for retirement savings. Fortunately, there are several tax-advantaged investment options for retirement savings, including a Traditional IRA or a Roth IRA.

• With a Traditional IRA your investment is potentially tax-deductible depending on your income level and participation in an employer-sponsored retirement plan. Earnings can grow and compound tax deferred.¹⁰ Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.
• A Roth IRA doesn’t allow for deductible contributions; however, any earnings grow tax deferred. The big payoff may come in retirement, when you can tap those earnings without paying federal income taxes, provided you’re age 59½ and have held the account for 5 years.¹¹ A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.

Most early withdrawals from IRAs are subject to a penalty tax. Because of the complexities involved with these retirement savings vehicles, you might want to consider using the services of a qualified financial professional to help you with your investment decisions.

Whatever your situation, keep the following in mind:

• Don’t expect Social Security and Medicare to cover all your retirement costs
• Stay up to date with Social Security and Medicare benefits
• Plan wisely

You could spend more than a third of your lifetime in retirement. Planning for your retirement so you don’t have to rely solely on the uncertain futures of Social Security and Medicare is time well spent.

Retirement planning support from Alliant Retirement and Investment Services (ARIS)

At Alliant Retirement and Investment Services, we work with clients to address the financial considerations that come with each stage of life, helping them evaluate their options and make informed decisions for the future.

Even incremental steps can help improve your overall retirement preparedness over time. For personalized advice, connect with an Alliant Retirement and Investment Services Financial Consultant to create a strategy tailored to your unique goals and circumstances. You can also watch the full webinar on this topic on YouTube - Alliant Retirement and Investment Services. You can also view all our investment services on our website Alliant Retirement and Investment Services.¹²