Social Security Costs to Exceed Income in 2020, Trustees Say
Both Social Security and Medicare are on unstable financial footing, and lawmakers need to act sooner rather than later to shore up America’s bedrock retirement programs and phase in needed changes, the trustees of both programs said in reports released Monday.
Social Security is the government’s largest program, costing $853 billion last year, with another $147 billion for disability benefits. Medicare’s hospital, outpatient care, and prescription drug benefits totaled about $740 billion.
As things stand, the Social Security program’s costs will exceed its income sometime in 2020, forcing it to dip into its nearly $3 trillion trust fund to cover benefit payments, the reports said.
But that situation can’t be allowed to go on forever, the program’s trustees said. If reliance on the trust fund becomes the norm after next year, the reserves will be depleted by 2034, at which time beneficiaries will receive an immediate 23 percent cut.
Medicare is in even worse shape, its hospital insurance fund facing potential insolvency by 2026.
“Notwithstanding the assumption of a substantial slowdown of per capita health expenditure growth, the projections indicate that Medicare still faces a substantial financial shortfall that will need to be addressed by further legislation,” the trustees wrote.
The costs of both programs are projected to rise substantially over the next 16 years, as retiring baby boomers dramatically increase the number of beneficiaries and lower birth rates in the past few decades mean fewer people are paying into the systems.
As a share of gross domestic product, the annual cost of Social Security payments is expected to increase from 4.9 percent to about 5.9 percent in 2039.
As for Medicare, it is expected its cost will rise from about 3.7 percent of the nation’s gross domestic product to 5.7 percent by 2035.
This year, the combined cost of both programs is expected to come in at about 8.7 percent of the gross domestic product, and they are likely to rise to 11.6 percent by 2035.
Most of that anticipated increase will be due to Medicare, the trustee wrote.
Michael A. Peterson, CEO of the Peter G. Peterson Foundation, which advocates for sound national fiscal policies, said in a statement that “the latest trustees reports make clear that Social Security and Medicare beneficiaries face substantial cuts in the near future unless policymakers take action to make these vital programs solvent.
“According to the report, Social Security will pay out more than it takes in next year and every year going forward. That’s the definition of unsustainable,” Peterson continued. “Medicare is also on a disturbing path, as its hospital insurance program will become insolvent in just 7 years, which would jeopardize healthcare for 73 million Americans.
“Continuing to ignore alarming financial projections for critical programs is unacceptable,” he said.
Both programs will eventually need to be addressed to avert the automatic cuts and other unwelcome outcomes Peterson mentioned. However, potential fixes like delaying cost-of-living increases for Social Security, boosting payroll taxes or raising the Medicare retirement age are politically fraught.
They also would be going against the current political tide at a time when the Trump administration has declared that benefit cuts are off the table and several Democratic presidential candidates are calling for some variant of Medicare expansion.
But Peterson said this is no time to ignore issues that are so clearly at hand.
“To build the future Americans want and deserve, our elected leaders should take action on the many readily available solutions that can be phased in gradually and fairly to secure these programs for the long term,” he said.
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