We all have heard in the news that the nation's Social Security
trust fund is expected to be exhausted by the year 2040. Then we heard it
would be by the year 2037. This means that Social Security will have to pay
out more benefits than they will have revenue coming in. . A report by CNN
Money says that social Security will have sufficient resources to pay out
benefits at 100% until the year 2036
(http://money.cnn.com/2011/05/13/news/economy/social_security_medicare_trust
ees_report/index.htm to read full article). However the article says that
this will happen at least a year earlier than previously forecasted for
2037. So what this means is that if you plan to retire in 2036, your social
Security benefits may be dramatically reduced by 2037.
What Needs To Be Done?
The nation's economic recovery has been much slower than what
experts thought and our seniors are living a lot longer mostly due to
advancements in modern medicine. After 2036, the program will only be able
to pay up to 77% of promised benefits.
The article goes on to say that last year was the first time the
program took in less payroll tax revenue than it had benefits to pay out.
This means there are more people drawing Social Security benefits than there
are tax payers paying in to the system.
Presently, the program is making up the difference from the
interest paid to the program from the Social Security trust fund but this is
only a bandade solution that will not last.
The trust fund they're talking about only represents a $2.6
trillion in surplus revenue that has been paid into the program since 1983
but that surplus revenue has been tapped in to by the Government here and
there on other budgetary items over the years. In exchange, the Government
decided to issue non-marketable U.S. bonds to the trust fund. They are
basically "IOUs" that the Government has no way to pay back once the
Treasury decides to start redeeming them. They will either have to raise
taxes, cut spending or borrow more money. With the country already
operating in deficit, borrowing more money may not be in its best financial
interest.
What about Social Security Disability?
The financial outlook for Social Security Disability Benefits
also included in the Social Security trust fund is much worse than it is for
people retiring but most people wouldn't know it. The money set aside in
the trust fund to pay disability benefits to people who cannot work because
of a medical condition is projected to run out by the year 2018.
Treasury Secretary Tim Geithner strongly encouraged policy
makers to take steps that will help get the program back on track. He said
we should not wait for the Social Security trust fund to run out of money
before making the necessary adjustments that will protect our future and
present retirees. He further said that the longer we wait, the larger the
adjustments will have to be made in order to keep both programs funded.
What Can They Do?
One thing the Government can do is to consider how much of the
12.4% payroll tax rate on the first $106,800.00 of a worker's wages will
need to go up immediately to sustain the program for the next 75 years. The
trustees say that the current 12.4% tax rate will need to be raised to
14.62% in order to bring in the additional $6.5 trillion in current dollars
in revenue needed to pay all scheduled benefits through 2085.
What about Medicare?
Medicare part A, Medicare's hospital insurance program should be
able to pay out full benefits until 2024. The Trustees project this to be
five years earlier than they predicted this time last year. However, 2024,
is 8 years later than had been projected since Congress passed the new
health Care Reform Law, though the Program's Chief Actuary Richard Foster
says he is very skeptical about the report's assumptions that the new law
will be carried out exactly as written.
Some of his reasons for his skepticism are that the Trustee's
report assumes that scheduled reductions in Medicare doctor's fees are to
take place even though Congress will often override those deductions. This
means that the hospital trust fund will likely run out in 2025 and the
program will be only able to pay about 90% of those costs. By 2045 it will
drop down to 75% before gradually climbing back up. Which means to those of
you that are retiring or drawing disability that if something isn't done to
correct this, the difference in cost will be coming out of your pocket until
it climbs back up to 100% again. To fix this problem, the 1.45% Medicare
Payroll tax rate on all of the worker's wages will need to increase by just
less than 1 percentage point starting today.
In addition to Part A, the main Medicare benefit, there are
three supplementary programs. There is Part B for Doctor's bills, Part C
for supplementary health insurance and Part D for proscription drug
coverage. They are funded by general tax revenue and senior patient paid
premiums. Costs for these programs are projected to rise very rapidly,
which will add more financial pressure to our Federal budget and Senior
citizens.
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