Trustees Report: Medicare Trust Fund Gets 4 Year Reprieve, Social Security Depletion Date Stays at 2030

Category: Financial and taxes in retirement

July 28, 2014 — Every year the 6 Trustees of the Medicare and Social Security trust funds issue a Report on the state of these 2 popular programs. This year the big news is favorable for the Medicare program – the year in which its Trust Funds are exhausted has been pushed back 4 years – to 2030. The good news is attributed to lower than expected inpatient hospital utilization, among other reasons, and represents a big change since last year’s report.

Over in the world of Social Security the news is the same as last year – the combined Trust Fund for retirement and Disability depletion date remains unchanged at 2033.

Do 2030 and 2033 Mean Doomsday for Social Security and Medicare?
The short answer is no. Those are the dates that accumulated reserves are exhausted (currently they also produce interest income, which of course will stop when the money is gone). The Social Security program receives the majority of its funding, about 75%, from current payroll taxes. The problem has occurred mainly because huge numbers of baby boomers are beginning to draw retirement benefits, while a smaller pool of active workers is available to pay those taxes. In 2030 and 2033 the only source of funds will be payroll taxes, and if nothing else is done funding will only be available to pay 77% of promised SS benefits.

A Note About Your Benefits
A lot of people are under the mistaken impression that you have sort of a bank account with your SS and Medicare contributions in it. You don’t. What you do have is an account that tracks what you have paid in, which will determine what you ultimately receive. These programs are an inter-generational social contract – the benefits you pay when you are working go to workers who have already retired – and when you retire the next generation starts paying yours. So far, most people have received more than they actually put in. However if the program is not corrected soon, that might not be the case for the next generation.

The Trustees in their report urged action to correct these expected shortfalls. Here is part of their statement:
“For the past several years, the annual Trustees Reports have warned lawmakers and the public of the financing shortfalls facing the Social Security and Medicare programs, emphasizing that continued delay in legislating corrective measures is likely to make the challenge ever more difficult to resolve and result in undesirable consequences.”

What Can We Do?
The canary is singing in the mine but none of us seem to be listening. The recipients of these programs (that’s most of us) threaten our elected representatives if they dare to talk about making the slightest change in their benefits. Our elected officials don’t have the courage to make small tweaks now that could fix the problem. So here’s our opinion, for what it’s worth – encourage your elected representative to take some action on Social Security and Medicare now, before their indecision ruins your grand children’s future. It wouldn’t take much to insure that they get close to the same level of benefit that we are getting.

Comments?
We would love to hear your positive suggestions on how this crisis could be resolved. But please, don’t get into liberal vs. conservative type bashing, those type of comments will be removed.

For further reading:
The 2014 Social Security and Medicare Trustees Report
What You Think You Know About Social Security Could Hurt You (A Series)

Posted by Admin on July 28th, 2014

15 Comments »

  1. There is a very simple fix for the Social Security issue. Raise the amount of wages subject to tax. The cap is ridiculously low.

    There’s also a fix for Medicare. Allow the government to negotiate prescription prices. That’s what all the private insurance companies do.

    by Linda — July 29, 2014

  2. Linda, I agree with you! I worked for SSA for 39 years. People already pay the Medicare portion of the FICA tax on their entire earnings. Republicans insisted that drug company profits be protected when the Part D legislation was passed. It was later reported that some of the members of Congress and staff members drafting the legislation got 6-figure jobs with drug companies.

    Immigration reform that gave people already in the U.S. a path to citizenship would add new tax payers. Legal immigrants are already paying a lot of the FICA taxes being used to pay current beneficiaries.

    Before someone suggests that the minimum retirement age be raised, it was left at 62 because people in blue collar jobs often cannot continue after 62 physically. For example, I had an uncle with bad knees who led crews in a tree nursery business. He wouldn’t have qualified for disability benefits but he needed to retire at 62.

    by Jean — July 30, 2014

  3. I agree that we need to uncap the social security wages. That alone would solve the problem with the shortfall. Something definitely needs to be done or the program will go bankrupt. I know it would really hurt financially for me and my family to get by on 75% of my SS benefits. Reducing benefits for retirees is obviously not the answer. Removing the earnings cap as was done with Medicare is the only way to go.

    After working all of my life in the blue collar sector, I was at a point that the physical requirements were too much. I was not bad enough to qualify for disability, so, at 59 1/2, I started drawing on an IRA. I will finally reach age 62 this year and take my SS retirement. After working for 50 plus years, I feel like I have earned it.

    by Johnny — July 30, 2014

  4. Putting Americans to work would also contribute to SS and medicare funds. Stop out-sourcing would be a good start. Send illegal immigrants back to Mexico which would increase job opportunities for Americans. These illegals usually work for less wages that are paid in cash. No taxes withdrawn at all.
    There can be no economic recovery when fuel prices remain high which raises the cost of everything we buy. When I shop at Wally Word, I hear the comments of shoppers complaining of constantly increasing prices. Retirees and working people can no longer afford to live.

    by Rick Beckham — July 30, 2014

  5. Definitely uncap the social security wages. I remember when they would stop taking money our of my check for FICA every year. I wouldn’t have minded if they had kept taking it out. Why do people who earn more stop getting taxed? I’ve never understood that. Reducing benefits would be terribly hard on a lot of us. This is the only answer I see. That and making sure the money stays in the S
    ocial Security fund and isn’t borrowed from for other things.

    by erdocsmom — July 30, 2014

  6. Is SS given to all who qualify regardless of income in retirement? I see no néed for multi- millionaires, wealthy professional athletes, celebrities etc. to collect SS while others may have to live on a reduced amount due to economic difficulties with the program. As for me, because I am a retired teacher with a state retirement plan, all of the SS that I paid into the system while working other jobs before I began teaching and during summers is forfeited – the gov considers it a “windfall” for me to collect SS along with my small,state pension! Go figure! I paid in enough quarters but won’t see any benefits – even as a survivor if my husband predecessors me! nada! So of those folks filing, suspending, playing the SS game – you can thank me for joy gift of my benefits! It’s all a mess – let’s get this fixed!

    by SandyZ — July 30, 2014

  7. Removing the SS tax cap and/or eliminating payments to higher income people would not only not solve the financial crises SS is facing but would turn SS into a welfare program. SS was sold on the premise that it would function as a means to help people save for their retirement. Even as presently constituted, the SS tax payments of higher income people substantially subsidize SS payments to lower income people who receive proportionately more in SS payment than they pay in SS taxes – a fact that is not widely known.

    Removing the SS tax cap and/or eliminating payments to higher income people would reduce SS beneficiaries to the status of welfare recipients and substantially reduce the political support for the program. So, think twice before you support such schemes.

    Furthermore the trustee’s report on the financial health of the SS Trust Fund is deceptive. Unlike private pension plans, the so-called SS Trust fund consists solely of Special Treasury bonds which will require huge tax increases to pay off in order to maintain SS benefits long before the claimed date when the SS Trust Fund would be exhausted. In fact, SS is already paying out more than it takes in in revenues. The magnitude of the tax increases necessary to pay off those “trust fund” Treasury bonds is staggering – especially when interest rates return to more normal or even higher levels. The trustee of any private pension plan that was financed the way SS is would be in jail.

    SS must be dramatically reformed by requiring younger people to establish private pension saving programs and raising the retirement age. When SS was established, the average life expectancy was only about 67 whereas today people are living will into their 80’s. Additionally, declining birthrates mean that only 3 people are working & paying SS taxes for every recipient today. The system was not set up to handle such disparities.

    by Tony Conte — July 31, 2014

  8. Well said, Tony.

    by Sharon — August 1, 2014

  9. Sure, people “live a little longer” now but that does not necessarily mean they are able to continue working. For those who can, great, they can hold off on drawing it.

    by John H — August 2, 2014

  10. I am with you Tony. I remember years ago, a person I knew got a bonus at Christmas and their company gave half in Dec and half in Jan (for tax reasons). His FICA for the year was paid with that first check of the year. Imagine how much more he would have paid into the system with no earning cap. But remember he would get higher benefits. Still, I thinks uncapping should be instituted.

    Dialysis is also another hugh drain on SSI. Not sure of solutions there.

    by Elaine — August 2, 2014

  11. To Tony: I did not advocate REMOVING the Social Security tax cap. I advocated RAISING it to a more reasonable amount. I do not believe this makes Social Security a welfare program. I do not advocate for means testing for receiving Social Security benefits. Those who have paid in are entitled to receive the benefits since paying in was mandatory.

    by Linda — August 3, 2014

  12. 1. Life expectancy has increase substantially since SS was enacted not just a little. So SS has to pay benefits for far longer than was originally anticipated. More importantly the number of people working for every person collecting has declined by orders of magnitude. Soon there will be only 2 people working for every person collecting which is absolutely unsustainable in its current form.
    2. Raising the SS Tax Cap will not come close to solving the problem. There is some relationship between the amount paid into SS and benefits paid out. So raising the tax cap will mean paying higher benefits.

    The SS system has to change substantially. It simply cannot continue in its present unsustainable form.

    by Tony Conte — August 3, 2014

  13. Here is another source of information on this subject from AARP that contains some facts covered in this discussion :

    http://blog.aarp.org/2014/07/30/top-8-facts-you-need-to-know-about-the-2014-social-security-trustees-report/

    by John H — August 4, 2014

  14. The AARP www repeats the deceptive information that I have previously addressed and fails to answer the facts that I have pointed out concerning the unsustainable cost of paying the Treasury Bonds held in the so-called SS Trust Fund. The AARP is not a credible source of information since it is self-interested insurance company pressure group that has resisted almost every effort to reform SS.

    by Tony — August 5, 2014

  15. Retirees don’t have to join AARP any longer, there are competing groups that may better follow your line of thinking. You can search for alternatives online. I have heard of AMAC for example.

    by Caps — August 22, 2014

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