The Social Security and Medicare Trustees released their annual reports on the state of the trust funds Thursday with no fanfare or advanced notice. The silent-but-deadly report shows that the Medicare Hospital Insurance trust fund will be insolvent by 2028 and the Social Security Old-Age and Survivors Insurance trust fund will run out of reserves by 2034.
The theoretically combined Social Security Old-Age, Survivors and Disability trust fund — the most common measure for gauging trust fund insolvency — will be exhausted in 2035, one year later than projected in last year’s report.
After the projected trust fund depletion in 2035, continuing income from payroll taxes would be sufficient to pay 80% of program costs, declining to 74% for 2096.
At the end of 2021, the Social Security program was providing monthly benefits to about 65 million people, including 56 million retirees, their families, and survivors and 9 million disability recipients. During 2021, 179 million workers paid $981 billion in payroll taxes.
Employees pay a 6.2% contribution from earnings up to a maximum of $147,000 in 2022, which their employers match. Self-employed workers pay both shares of the contribution of 12.4%.
But ongoing payroll taxes alone are no longer sufficient to pay all promised Social Security benefits. Consequently, the Social Security Administration has begun tapping the system’s reserve revenues, known as the trust funds, to supplement payments. With a 2021 annual deficit of $56.3 billion, the reserves the combined OASDI trust fund now stand at $2.852 trillion.
“The COVID-19 pandemic has had significant effects on Social Security finances in the near term, but the Trustees project little effect on the long-term actuarial status of the program,” according to a statement released with the annual report.
The economic recovery from the pandemic-induced 2020 recession has been stronger and faster than assumed in last year’s report, reducing the actuarial deficit for the combined trust fund over the next 75 years to 3.42% of taxable payroll, down from 3.54% reported last year.
Stated another way, it would require an immediate 3.42% increase in the combined portion of the FICA payroll taxes that fund Social Security benefits from 12.4% to 15.82% to bring the system’s finances into balance.
“Social Security is only 13 years from insolvency and Medicare is only six years,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget, said in a statement reacting to the release of the trustees’ report. “Policymakers need to get their heads out of the sand and stop pretending these vital programs’ funding issues will fix themselves.”
MacGuineas noted that today’s youngest retirees will be 68 years old when Medicare runs out of reserves and 75 years old when Social Security becomes insolvent. Workers under the age of 55 will retire into an insolvent system.
“At the time of Social Security insolvency, all beneficiaries will face a 20% cut in their benefits if we do nothing,” she warned. “If we wait until 2035, benefits would need to be cut by a quarter or taxes raised by a third and we wouldn’t be able to give workers and retirees time to adjust to this new reality.”
But it doesn’t have to be that way, she added. “We can start enacting thoughtful reforms that increase revenue, reduce spending, lower health care costs, stamp out today’s rampant inflation, help grow the economy, and secure our trust funds.”
“The looming insolvency and Medicare are problems we’ve known about for decades,” MacGuineas said. “It’s long past time to enact trust fund solutions that put these programs and our national debt on a more sustainable path.”
(Questions about new Social Security rules? Find the answers in Mary Beth Franklin’s new 2022 ebook at Maximizing Social Security Benefits)
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