Social Security Crisis Worsens

Category: Financial and taxes in retirement

April 24, 2012 — Update: Please see Jan. 2013 update to this article, “Social Security News Gets Worse“. The public trustees of Social Security delivered bad news to the country yesterday: the Social Security trust fund will not be able to pay 100% of promised benefits beginning in 2033, 3 years earlier than previously predicted. Piling it on, the trustees also predicted that the disability component of Social Security will run out of money 2 years earlier than previously thought (in 2016). Medicare’s trust funds had no change in the date of their expected exhaustion (2024), although the chief Medicare actuary, Richard S. Foster, that the projections in the report “are probably poor indicators of the future financial status of Medicare” (as based on current law).

Several factors combined to speed up the depletion of Social Security trust funds. For one, this year’s cost of living projections are higher than originally projected (3.6% vs. .7%). Workers’ earnings are growing slower than thought, while stubborn unemployment remains high.

It should be noted that Social Security was meant to be a pay as you go system – taxes paid into it from younger workers are meant to provide current payments for today’s retirees. The current problem is not only an economic one (lower earnings to be taxed), but more importantly a demographic one. The 76 million baby boomers outnumber those in comparable younger segments of the population, so the payments they are receiving overwhelm what is coming into the system.

2033 doesn’t mean the system will pay nothing
Retirees will still receive benefits beginning in 2033 because Social Security is pay as you go. The system will have enough money coming in to pay 75% of promised benefits – assuming Congress does not correct the problem.

Most experts believe that relatively minor tweaks to the program could repair it in time to keep most or all promised benefits. Those changes might include raising premiums and taxable thresholds, and/or delaying benefits by a few months. However, there is universal skepticism that Congress has the guts and/or the ability to compromise to make these repairs. We can only hope!

Medicare situation tricky too
Though there was no change in the estimate of when Medicare will exhaust its trust funds, many experts question the assumptions that led to that conclusion. For one, many doubt that the payments to doctors will really be cut by 31% beginning Jan. 31, as is stipulated in Affordable Care Act. Others question the health care productivity assumptions that are baked into the current estimate. Bad news: fixing Medicare will probably prove more complex and difficult than repairing Social Security.

Report from Social Security Trustees

Posted by John Brady on April 24th, 2012

2 Comments »

  1. […] Note:  As we wrote this the public trustees of the Social Security programs reported that its fiscal health has significantly worsened. See our companion story in our Blog, “Social Security Crisis Worsens“. […]

    by » What You Think You Know about Social Security Could Hurt You – Part 1 Topretirements — April 24, 2012

  2. Why does our government never fail to deliver the “bad news” on the health of the Social Security program and ALWAYS fails to own up to their persistent raiding of the SS trust fund? They should not be dumping this off on those of us who have faithfully worked our whole lives while they skimmed/stole the needed money from the SS fund, resulting in the current projected shortfall. It’s beyond insulting!

    by Dan Dawdy — April 26, 2012

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