Social Security and Medicare remain in dire straits, with the Social Security trust fund projected to be depleted in 17 years, by 2034, according to the just-released trustees’ reports to Congress.
The trustees’ report notes that the Disability Insurance (DI) program is in even more trouble, with DI Trust Fund asset reserves projected to become depleted in 2028, at which time continuing income to the DI Trust Fund would be sufficient to pay 93% of DI scheduled benefits.
“Legislative action is needed to address the DI program’s financial imbalance,” the report states.
When the Old-Age, Survivors and Disability Insurance (OASDI) program trust fund runs out in 2035, OASI income would be sufficient to pay 75% of OASI scheduled benefits.
“With many baby boomers already in retirement and only 17 years until insolvency, time is running out to make thoughtful reforms to the program,” the Committee for a Responsible Federal Budget said Thursday in response to the report. “Policymakers should act soon and put all options on the table to make Social Security solvent.”
Assuming continued reallocations, all Social Security beneficiaries — regardless of age or income — are projected to face a 23% benefit cut in 2034, when today’s 50-year-olds reach the normal retirement age and today’s youngest retirees turn 79, the Committee highlights. “Cuts would grow over time, reaching 27% by 2091.”
Social Security will pay out $27 billion more in benefits than it will generate in tax revenue this year, and cash-flow deficits over the next decade will total $1.4 trillion. Annual deficits will grow to 3.77% of payroll (1.36% of GDP) by 2037 and 4.48% of payroll (1.54% of GDP) by 2091, the report states.
Further, as the Committee for a Responsible Federal Budget notes, despite a temporary “reallocation” of payroll tax revenue, the Trustees project the Disability Insurance (SSDI) trust fund will run out of reserves by 2028.
The Committee points to a number of “smart reform options” that are available to both avert SSDI insolvency and improve the program for current and potential beneficiaries.
Medicare’s financing challenges “are different, but also serious,” the Bipartisan Policy Center stated in responding to the Trustees’ report.
The trustees’ Medicare report indicates that growing costs continue to strain Medicare’s Hospital Insurance (HI) trust fund, as well as the broader federal budget, BPC said.
The HI trust fund shows a substantial shortfall of 0.64% of taxable payroll, which would require immediate spending reductions of 14% to close in the absence of additional revenue.
“Medicare’s Supplementary Medical Insurance trust fund is balanced annually through general government revenues and premium assessments, so its cost growth is projected to place increasing pressure on government finances as well as on premium-paying beneficiaries, who cover roughly one-quarter of the costs,” BPC explained.
Senate Finance Committee Chairman Orrin Hatch, R-Utah, stated that the trustee reports “underscore what we already know: We must act to fix our entitlement programs and chart a course to put them back on strong fiscal footing.”
With a new administration in the White House, Hatch continued, “one that is committed to advancing a strong, pro-growth agenda, we have a real opportunity to come together and implement smart policies that will help ensure these programs are here for our children and grandchildren. Increased economic growth from tax reform, smarter regulation and other pro-growth initiatives will go a long way in helping shore up the financial conditions of the Social Security and Medicare trust funds.”
— Check out Baby Boomers Will Live Long But Might Not Prosper on ThinkAdvisor.