Is Social Security going to run out?
Thanks to the economic impact of the Covid-19 pandemic last year, the Social Security trust fund will run out of money by 2034, according to an annual government report published Tuesday. That is one year sooner than was expected last year. Barron'sSocial Security to Run Out of Money Sooner Than Expected
When can you collect Social Security?
You can start your retirement benefit at any point from age 62 up until age 70, and your benefit will be higher the longer you delay starting it. This adjustment is usually permanent: it sets the base for the benefits you'll get for the rest of your life. ssa.govWhen to Start Receiving Retirement Benefits 2021
The Social Security trust fund most Americans rely on for their retirement will run out of money in 12 years, one year sooner than expected, according to an annual government report published Tuesday.
The outlook, aggravated by the Covid pandemic, also threatens to shrink retirement payments and increase health-care costs for older Americans.
The Treasury Department oversees two Social Security funds: The Old-Age and Survivors Insurance and the Disability Insurance Trust Funds. Those programs are designed to provide a source of income respectively to former workers who have retired at the end of their careers or to those who cannot work due to a disability.
Officials said that the Old-Age and Survivors trust fund is now able to pay scheduled benefits until 2033, one year earlier than reported last year. The Disability Insurance fund is estimated to be adequately funded through 2057, eight years earlier than in the report published in 2020.
Though the two funds are separate under law, the Treasury Department said the hypothetical combined funds would be able to pay scheduled benefits on a timely basis until 2034.
Senior administration officials said in a press briefing Tuesday afternoon that a spike in deaths among retirement-age Americans in 2020 helped keep the programs' costs lower than projected. They added that the ultimate, long-term impact of the coronavirus is less clear as costs and revenues return to their extended forecasts.
The Treasury Department said it estimates the level of worker productivity and thus GDP is assumed to be permanently lowered by 1% even as they are projected to resume their pre-pandemic trajectories.
Nevertheless, the financial outlook for Social Security and Medicare, two of the nation's preeminent safety net programs, has deteriorated over the past year as Covid hastened retirements and caused a contraction in the size of the U.S. labor force.
There was no change from last year's projection that the Medicare's hospital insurance fund would be depleted in 2026. At that point, doctors, hospitals and nursing homes would not receive their full compensation from Medicare and patients would likely bear the responsibility for any cuts to coverage.
"The finances of both programs have been significantly affected by the pandemic and the recession of 2020," the Treasury Department said in materials released Tuesday. The combined effects of a dive in employment, interest rates, earnings and GDP, as well as higher mortality for the next few years "all significantly impact the outlook of the programs."
In their entirety, the funds act as pillars upholding the retirement plans of tens of millions of Americans, current and future. Americans have for decades come to assume that the programs they spent years contributing to in payroll taxes would in turn provide for them.
The programs have become so popular that they are often dubbed the "third rail" of U.S. politics — simply too dangerous to touch. Treasury Secretary Janet Yellen struck that tone in a statement released Tuesday.
"Having strong Social Security and Medicare programs is essential in order to ensure a secure retirement for all Americans, especially for our most vulnerable populations," she said. "The Biden-Harris Administration is committed to safeguarding these programs and ensuring they continue to deliver economic security and health care to older Americans."
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But the future of that model is now in the middle of a slow-moving crisis: Within the past two years, the program has started to draw down its assets in order to pay retirees all benefits promised.
In other words, Social Security's costs in the form of monthly payments to retirees now exceed the income it takes in from U.S. workers. Projected to soon consistently operate in the red, the program's reserve fund would be depleted around 2033.
If Congress does not act by that time, Social Security law would cut benefit checks for retirees by about 20% across the board. For a demographic that has planned on those payments, and usually has few other avenues of income, a 20% reduction could prove disastrous and threaten to throw many Americans into poverty.
Social Security has long known it faces a simple math problem: With thousands of baby boomers retiring every day, there is an insufficient number of younger people entering the workforce to offset the cost.
To make matters worse, Americans' life expectancy is increasing and birth rates are declining.
By Social Security's estimates, the number of Americans 65 or older will increase to more than 79 million by 2035, up from the current 54 million, according to Census data. Meanwhile, the number of births in the U.S. declined last year by 4% from 2019, double the average annual rate of decline of 2% since 2014, the CDC said in May.
The U.S. birth rate is now so low that the nation is "below replacement levels," meaning more people die every day than are being born, the CDC said.
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01 September, 2021 - 03:10pm
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This can’t be true, Obama said he bent the cost curve. Along with keeping his pledge to not get us into anymore dumb wars and fixing the civil rights abuses of the Patriot Act.
Lol, well he did lie about it a whole lot.
Maybe he was too busy fixing the rise of the oceans to worry about medicare.
Hey, Martha’s Vineyard isn’t underwater yet, so yeah.
Why else would he be worried about it?
I believe most of the Reason staff weren’t even born when this article was written. I mean, typed on a Smith Corona.
The Reagan Administration reported today that the financial outlook for the Social Security trust fund had ”dramatically improved” in the last 12 months but that the Medicare trust fund was in a precarious position, facing insolvency around 1990.
Yes, but this time is different! That’s what the Democrats (and many Republicans) say as an excuse to keep kicking the can down the street.
Eventually they will run out of creative accounting tricks, and then we will be screwed. But as long as government pretends that money comes from nothing, we can keep pretending that there is no problem. I fear the day they reach into their bag of tricks and discover hyperinflation.
This time it is different — it’s much, much worse.
No worries; eliminate (not reduce) all cabinet level positions not specified in the US Constitution, and use those funds.
Can we just eliminate medicare then? It’s not specified in the US Constitution, and that would solve the problem.
Two possibilities, Biden and Congress raise the medicare payroll tax on people making less than $400k per year. Hmmm, right, not when the problem is five years out…
…or they let GOP do it and say they didn’t raise taxes.
Either way democrats are scumbags for ignoring problems and fucking them up worse.
Wag your finger all you want you senile old shitbag Biden, you fucked up.
>>Under President Barack Obama, at least, the interaction between entitlement financing and federal debt and deficits was a live issue.
everyone was full of shit but at least the lies were alive. also never start a sentence with Indeed.
Congress is insolvent today. The national debt is over 28 trillion dollars, and taxes barely bring in 5 trillion per year. The debt isn’t at “100% of GDP”, Congress has spent us into debt worth 6 years of income (to the government), income that is already spoken for.
Yeah, the entire government is insolvent. Why we’re picking on Medicare, I know not.
If you’re going to talk about income already spoken for, you should mention debt also spoken for. The total debt obligations bring the total well over 50 trillion, especially if you assume federal bailout of state pensions.
what program *does* pay “all of its bills”?
When you’re interred in a Chinese slave-labor camp, Medicare is going to be the least of your worries.
It’s not just fiscal mismanagement on the part of Medicare. Someone should take a look at the health industry’s pricing. When a hospital charges $10 for a single Tylenol, you know something stinks. Medical costs have to be trimmed. If they were even close to affordable, medical assistance programs wouldn’t be in such trouble.
Problem — Nobody cares about price (*free shit*) and competition is monopolized by regulation. It’s the failures of communism and socialism with a track record longer than the universe.
Obama and the Democrats fixed the healthcare system with the “Affordable Care Act” in 2010. Either this article is a farce or President Obama, Nancy Pelosi, Chuck Schumer and the Democrats fielded a bold-faced lie to Americans about their legislation. Which could it be? Isn’t perjury and malfeasance a crime?
How long until entitlement spending makes the US insolvent?
I think about negative 10 years
paying whatever it takes to help the elderly alive as long as possible is not a prudent use of resources, regardless of how uncomfortable that might make some people feel.
As someone staring down the barrel of this mess, I’d say get rid of the whole damn thing and let people but their own insurance if they want it, otherwise they can pay cash or rot. My Methodist upbringing however says that it’s probably right to take care of those who really can’t take care of themselves (not through failure to plan, but through mental or physical defect). But for the other 98% of the population: plan ahead, and don’t expect someone else to pay for your stuff.
We are all free to help all the people we want. Putting the State Apparatus in the middle of it is the worst thing you can do.
Then let it go the way of the dinosaurs.
It’s not discussed at all, as far as I have seen, because it is ghoulish, but COVID-19 deaths, which are more prevalent in the elderly, may relieve burdens on future entitlements:
i’ve thought about this but the impression i’ve gotten is that the fatalities are barely enough to make a blip.
I am not saying i want this (despite my previous comment about it being somewhat foolish to sink so many resources into keeping the very old alive), but it would really take like MILLIONS of prematurely dead boomers to really provide any financial relief on these programs.
When I was 15 (over 40 years ago), I ran across news stories on Soc Sec/Medicare’s financing woes. The prediction was that they’d go broke in about 50 years. I may not have been a math genius, but I could do 15 + 50 = 65. I figured either I was screwed or the adults would fix it.
That “go broke” date hasn’t changed much since then so I guess I’m screwed.
When my left-leaning friends ask me why I don’t trust government I respond “Social Security. The government has known for DECADES that it was going broke and has failed to fix it.”
They’re still whistling past the graveyard and the deadline is coming soon. The longer we wait, the worse the “solution” will be.
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01 September, 2021 - 03:10pm
FILE – In this Feb. 11, 2005 file photo, trays of printed social security checks wait to be mailed from the U.S. Treasury’s Financial Management services facility in Philadelphia. The financial impact of the coronavirus pandemic on Social Security and Medicare is front and center as the government releases its annual report on the state of the bedrock retirement programs on Tuesday, Aug. 31, 2021. (AP Photo/Bradley C. Bower, File)
WASHINGTON (AP) — The sharp shock of the coronavirus recession pushed Social Security a year closer to insolvency but left Medicare’s exhaustion date unchanged, the government reported Tuesday in a counterintuitive assessment that deepens the uncertainty around the nation’s bedrock retirement programs.
The new projections in the annual Social Security and Medicare trustees reports indicate that Social Security’s massive trust fund will be unable to pay full benefits in 2034 instead of last year’s estimated exhaustion date of 2035. For the first time in 39 years the cost of delivering benefits will exceed the program’s total income from payroll tax collections and interest during this year. From here on, Social Security will be tapping its savings to pay full benefits.
The depletion date for Medicare’s trust fund for inpatient care remained unchanged from last year, estimated in 2026.
In the 1980s, financial warnings about Social Security prompted then-President Ronald Reagan and lawmakers of both parties in Congress to collaborate on a long-term solvency plan, but such action is unlikely in today’s bitter political climate. Democrats who control the White House and Congress offered assurances they would protect both programs.
“The Biden-Harris administration is committed to safeguarding these programs and ensuring they continue to deliver economic security and health care to older Americans,” Treasury Secretary Janet Yellen said in a statement.
The latest estimates reflected the push and pull of many factors flowing from the pandemic, and the full impact may take years to sort out. The deep but relatively short recession slashed revenue from payroll taxes. But the death toll from COVID-19, concentrated among older people, reduced future Social Security benefit payouts. Hospitals were stressed by the influx of COVID patients, but Medicare didn’t have to pay for as many knee surgeries, colonoscopies and other more routine procedures. Birth rates and immigration, which tend to bolster the two programs, both fell.
For Social Security, the loss of payroll tax revenue outweighed any savings from what the program would have paid out to people whose lives were lost in the pandemic. The report noted that employment, earnings, interest rates and economic growth plummeted in the second quarter of 2020 after the pandemic hit the United States.
“The finances of both programs have been significantly affected by the pandemic and the recession of 2020,” the trustees said. But “given the unprecedented level of uncertainty” there was no consensus on what the long-lasting effects of the pandemic would be. A looming question for Medicare: Will the population of beneficiaries who survived the pandemic be healthier on the whole, or will a high number suffer from new conditions like long COVID?
Social Security pays benefits to more than 65 million Americans, mainly retirees but also disabled people and survivors of deceased workers. Medicare covers more than 60 million older and disabled people. Together, both programs account for more than 40% of the federal budget, and act as stabilizer not only for families, but for the national economy.
While long-term projections are sobering, in the short run there was some good news for Social Security recipients.
Government economic experts who prepared the Social Security report estimated recent increases in inflation mean the cost-of-living adjustment for 2022 will approach 6%, a whopping jump from the 1.3% COLA awarded for this year.
Some of that may go for higher Medicare costs. The Medicare “Part B” premium for outpatient coverage was projected to rise by $10 a month in 2022, to $158.50 under the report’s intermediate assumptions. The official number won’t be released until later this year.
Social Security and Medicare remain under intense financial pressure with the retirement of millions of baby boomers, who are living longer than previous generations.
When the Social Security trust fund is depleted the government will be able to pay 78% of scheduled benefits, the report said. When Medicare’s trust fund for inpatient care runs short, it will be able to pay only 91% of expected costs, mainly hospital bills.
Because reductions of that magnitude would cause a political uproar, it is likely that a future Congress would find ways to recover the lost benefits, either by hiking the payroll taxes paid by current workers or by increasing government borrowing to cover the shortfall. With Medicare, lawmakers could also raise premiums paid by beneficiaries.
It’s unclear how the Medicare projections will affect the debate on Capitol Hill about authorizing the program to negotiate prescription drug prices and then using projected savings to provide new Medicare coverage for dental, vision and hearing services. Republicans have argued that any savings should go to shore up the underlying program, not expand benefits.
The Medicare report steered clear of making any projections about the new Alzheimer’s drug, Aduhelm, which has a list price of $55,000. Most of the 6 million Americans dealing with Alzheimer’s are covered by the program, though not all would be candidates for the medication.
The trustees’ reports, which have been delayed for months, represent the government’s effort to assess the impact of last year’s pandemic and recession on Social Security and Medicare.
The U.S. economy lost a staggering 22.4 million jobs in March and April 2020 as the pandemic forced businesses to close or cut their hours and the economy went into recession.
But the recession turned out to be brief and hiring has bounced back as economic growth has resumed. Employers have brought back 16.7 million jobs since April 2020 but that gain still leaves the labor force 5.7 million jobs below where it was before the pandemic hit.
The trustees of Social Security and Medicare include the secretaries of Treasury, Health and Human Services, and Labor, as well as the Social Security commissioner. They are supposed to be joined by two “public trustees,” knowledgeable private citizens who act as the eyes and ears of taxpayers and beneficiaries. But those posts have been vacant since July 2015 — before the end of the Obama administration. And this year there’s no Social Security commissioner either, since President Joe Biden fired Andrew Saul, a holdover appointee from the Trump administration.
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