Yesterday, Social Security announced that the funds used to administer the Social Security and Medicare programs are expected to run out of money as early as 2033. This is three years sooner than projected in the same report a year ago.
The Social Security Board of Trustees prepares an annual report on the financial health of the Social Security trust funds. In the most recent report, the board stated that it expects the combined assets of the Old-Age and Survivors Insurance and Disability Insurance (OASDI) Trust Funds to be exhausted in 2033, three years sooner than projected last year.
Social Security is split into two funds – one for retirement and survivor benefits and one for disability. The retirement fund is projected to run out of money in 2035 while the disability fund is projected to run dry in 2016. Combined, the two funds will last until 2033. Medicare is expected to run out of money in 2024 (no change from last year’s report).
A slow economy and rising energy prices (both of which reduce the level of wages and thus the level of tax revenue collected to support these programs) in addition to the record number of baby boomers retiring are being blamed for the troubling news.
WASHINGTON — Social Security is rushing even faster toward insolvency, driven by retiring baby boomers, a weak economy and politicians’ reluctance to take painful action to fix the huge retirement and disability program.
The trust funds that support Social Security will run dry in 2033 – three years earlier than previously projected – the government said Monday.
While the figures above sound bad, it’s important to remember that Social Security is a pay as you go system, which means that even if the trust funds are depleted, tax revenue collected from current workers will still be enough to pay about 75% of the benefits.
Starting in 2010, the trust funds have been paying out more in benefits than they have been collecting in payroll taxes from current workers. The funds, however, will continue to grow until 2021 because they will earn interest on the Treasury bonds, however as the number of retirees outpaces the number of workers the trust fund will eventually be depleted.
The debate on how to save Social Security has been going on for years. Proposals being tossed around to help save Social Security include:
- Raising the full retirement age (currently at age 67 for people born in 1960 or later)
- Reducing annual increases for inflation (beneficiaries received an increase of 3.6 percent in 2012 and are estimated to receive a 1.8 percent increase in 2013)
- Limiting benefits for people who earn over a certain income level
- Raising the level of wages that Social Security taxes are paid on ($110,100 in 2012; the normal rate is 6.2%, however it has been reduced to 4.2% as part of the payroll tax holiday)
The Board of Trustees is urging Congress to take action to cut costs for administering Medicare and Social Security programs, but no progress is expected until after the election in November.
While most of the stories you’ll read on Social Security will be of “the sky is falling” variety, others say that the Social Security situation is not as bad as you may think. According to NOW President Terry O’Neill, “Social Security has an accumulated surplus of more than $2.7 trillion and can pay 100 percent of benefits for the next several decades”. NOW goes on to suggest in this article that “with a number of modest adjustments to Social Security’s financing, we can improve benefits and ensure adequate funds far into the future”.