Social Security Heading for Insolvency Even Faster

By: Stephen Ohlemacher and Ricardo Alonso-Zaldivar, AP
By: Stephen Ohlemacher and Ricardo Alonso-Zaldivar, AP

Washington, D.C. (AP) - Social Security is rushing even faster toward insolvency, driven by retiring baby boomers, a weak economy and politicians' reluctance to take painful action to fix the huge retirement and disability program.

The trust funds that support Social Security will run dry in 2033 - three years earlier than previously projected - the government said Monday.

There was no change in the year that Medicare's hospital insurance fund is projected to run out of money. It's still 2024. The program's trustees, however, said the pace of Medicare spending continues to accelerate. Congress enacted a 2 percent cut for Medicare last year, and that is the main reason the trust fund exhaustion date did not advance.

The trustees who oversee both programs say high energy prices are suppressing workers' wages, a trend they see continuing. They also expect people to work fewer hours than previously projected, even after the economy recovers. Both trends would lead to lower payroll tax receipts, which support both programs.

Unless Congress acts - and forcefully - payments to millions of Americans could be cut.

If the Social Security and Medicare funds ever become exhausted, the nation's two biggest benefit programs would collect only enough money in payroll taxes to pay partial benefits. Social Security could cover about 75 percent of benefits, the trustees said in their annual report. Medicare's giant hospital fund could pay 87 percent of costs.

"Lawmakers should not delay addressing the long-run financial challenges facing Social Security and Medicare," the trustees wrote. "If they take action sooner rather than later, more options and more time will be available to phase in changes so that the public has adequate time to prepare."

The trustees project that Social Security benefits will increase next year, though the increase could be small. They project a cost-of-living-adjustment, or COLA, of 1.8 percent for 2013; the actual amount won't be known until October.

Beneficiaries got a 3.6 percent increase this year, the first after two years without one.

More than 56 million retirees, disabled workers, spouses and children receive Social Security. The average retirement benefit is $1,232 a month; the average monthly benefit for disabled workers is $1,111.

About 50 million people are covered by Medicare, the medical insurance program for older Americans.

America's aging population - increased by millions of retiring baby boomers - is straining both Social Security and Medicare. Potential options to reduce Social Security costs include raising the full retirement age, which already is being gradually increased to 67, reducing annual benefit increases and limiting benefits for wealthier Americans.

Policymakers could also increase the amount of wages that are subject to Social Security taxes. Social Security is financed by a 6.2 percent tax on the first $110,100 in workers' wages. It is paid by both employers and workers. Congress temporarily reduced the tax on workers to 4.2 percent for 2011 and 2012, though the program's finances are being made whole through increased government borrowing.

The Medicare tax rate is 1.45 percent on all wages, paid by both employees and workers.

Social Security is split into two funds - one for retirement and survivor benefits and one for disability. The retirement fund is projected to run out of money in 2035 while the disability fund is projected to run dry in 2016. Combined, the two funds will last until 2033.

In the absence of a long-term solution, the trustees who oversee Social Security are urging Congress to shore up the disability system by reallocating money from the retirement program, just as lawmakers did in 1994.

Social Security's trust funds contain a total of $2.7 trillion. The money is invested in U.S. Treasury bonds. The government has used the cash to pay for other programs.

The trust funds have been paying out more in benefits than they have collected in payroll taxes since 2010. The funds, however, will continue to grow until 2021 because they will earn interest on the Treasury bonds, the trustees said.

Many advocates for seniors worry that Washington is too focused on benefit cuts as a way to shore up Social Security. They argue that the program's finances are not as dire as some policymakers contend.

"After 77 years and 13 recessions, Social Security continues to prove itself time and again as the most effective public program in our nation's history, keeping its promise to our seniors, disabled workers, widows and children," said Rep. Xavier Becerra, the top Democrat on the House Social Security Subcommittee.

Medicare is trickier to address because it has to contend with health care inflation, not just an aging population. Options include raising the eligibility age, cutting payments to service providers, shifting more costs to beneficiaries or even privatizing the program.

On Monday, Treasury Secretary Timothy Geithner called Social Security and Medicare the "twin pillars of retirement security in this country," and he declared, "It is critical that reforms are slowly phased in over time so current beneficiaries are not affected and future beneficiaries do not experience precipitous changes."

President Barack Obama's health care law is supposed to trim Medicare expenses by $500 billion, extending the life of the program. But some independent experts doubt the full savings will materialize, and even the administration concedes more cuts are needed. If Republicans succeed in repealing the law, they will have to come up with similar cuts of their own.

"The Affordable Care Act began this process with the most significant entitlement reform in decades," Geithner said, referring to the new health law.

Alternative cost projections prepared by the trustees' technical experts suggest the Medicare cuts in the health care law would be unsustainable, driving payment rates so low that 15 percent of hospitals, nursing homes and home health providers would be in the red by 2019.

The trustees conceded that their own Medicare projections could be too rosy. Based on current law, they assume cuts in payments to doctors that Congress routinely waives will actually take place. They also assume the health care law will squeeze the full amount of its cuts from the program.

"Medicare's actual future costs are highly uncertain and are likely to exceed those shown this report," the trustees said.

Republicans, including presidential candidate Mitt Romney, are proposing to overhaul Medicare by converting it into a system that mainly relies on private health insurance plans to cover future retirees. Beneficiaries would get a fixed payment from the government, with low-income seniors in poor health receiving more.

Obama says he wants to preserve the existing program and its federally guaranteed benefits. But in negotiations with congressional Republicans last year, he went further than most Democrats by signaling he was willing to raise the eligibility age by two years to 67. He's also willing to limit future increases in Medicare spending, a policy that prompts serious misgivings from groups such as AARP.

"Today's report reminds us that Medicare must be reformed and strengthened or it will soon collapse," said Lanhee Chen, Romney's policy director.

The trustees who oversee the programs are Geithner, Social Security Commissioner Michael J. Astrue, Labor Secretary Hilda Solis and Health and Human Services Secretary Kathleen Sebelius. There are also two public trustees, Charles Blahous and Robert Reischauer.

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  • by Not Suprised Location: In A Revelation on Apr 24, 2012 at 07:17 AM
    Any one that follows SS issues knows that Obama and his legislation enacted a Federal statute that allows State Governments the option to not match OPS and various other employees SS contributions per pay period. But rather mandate holding of SS contributions without any choice. SS contributions are allocated to a State retirement fund, where the money sits until the employee is fired or is able to gain career service status. The State is sure to balance it's budget on the people that need help the most. OPS make little to nothing, have no insurance coverage, live in fear for the jobs daily, but hey we have a retirement fund that we didn't want, can't afford, can't access and had no voice in where there hard earned pay goes. We will not have efficient SS benefits available if we become disabled and when we reach eligible age. Eligible and available benefits will next to nothing, because we are contributing towards are account. Why is the State so pro-active in setting up a retirement account when we don't even have basic health insurance to get us to retirement age. What a scam. Federal, State Legislatures should be ashamed for voting for this free pass on SS contributions versus our wellbeing. Taxation without representation. This is the same thing State government did by mandating 3% Tax from State Employees payroll, towards retirement Pensions. Some people don't even want to participate in State retirment systems, so therefor it is a tax. Wake-up Florida!
  • by Bettty on Apr 24, 2012 at 07:09 AM
    It's not the "baby boomers" breaking the bank of Soc Sec............. It's the government taking our Soc Sec $ and giving it to ILLEGALS, CUBANS, MEXICANS, MIDDLE EASTERNERS...and others. The government is using that money to fund these people...MILLIONS OF THEM!.... When immigration was under control, this was fine. But when immigration is OUT OF CONTROL, they need to take that $ out of some other budget, not something we have paid into all our lives. Why can't the congress step up and say the TRUTH? jANET NAPOLITANO now says anybody with relatives in the US CAN STAY! Well, that means more of our money will be going to them....they can't find jobs anymore than we can. STOP GIVING OUR $$ TO PEOPLE WHO HAVE NEVER PAID IN!
  • by Anonymous on Apr 24, 2012 at 06:33 AM
    Did you read and understand the article? The SS retirement and survivor fund can pay full benefits until 2035 if no changes are made to the retirement and survivor system. No money has been "stolen." Money has been used and replaced by Treasury bonds, which bear interest and are backed by the full faith and credit of the US government. China has loaned the US $1 trillion. In exchange China has received Treasury bonds, which pay interest and are backed by the full faith and credit of the US government.
  • by Anonymous on Apr 24, 2012 at 06:18 AM
    It will never be fixed. Conservatives want these programs eliminated as it would require a larger tax on the rich to keep them solvent. I`ve paid in since I was 18 and now in my late 50s I don`t see that I will get any benefit or if I do it will still be poverty level subsistance. Raise the payout and tax the rich.
  • by anon Location: tally on Apr 24, 2012 at 06:00 AM
    The news media will not tell you, but there are several hugh wastes of SS money. A man can have numerous wives over time, and all of them that were married to him for 10 years can draw SS on his account at the same time, even if he is drawing it. Also, when a married man retires and draws SS, his wife can darw 1/2 of his SS in addition to him getting his full SS even though she never worked and qualified for SS on her own. Only wealthy people can afford for the wife to stay home, and they are the ones who need SS the least. Then, if a woman divorces a man after 10 years of marriage, she can draw his SS amount (usually a higher amount) after he dies,even if she has remarried. Talk about waste. But you'll never hear this on the news because it's a giveaway to women.
  • by M on Apr 24, 2012 at 05:24 AM
    Get rid of social security and let my invest the money for my retirement. Right now I simply lose the money. I'm in my 30s, it won't be available when I retire because the system will have imploded. I can invest it better anyway.
    • reply
      by roger on Apr 24, 2012 at 06:01 AM in reply to M
      But socialism has taken over the country....and soon the gov will run out of others people money that is being used by democrats to buy votes...maybe some will understand now...anh, doubt it, many still want their free handouts.
      • reply
        by Right on Apr 24, 2012 at 07:54 AM in reply to roger
        Right, and conservatives weren't buying votes when they engaged in 2 unfunded wars and prescription medicine programs that just happened to bring trillions of dollars to the military-industrial complex and big-pharma, just to name a few. You bet they were, and they did it with other people's money to boot. Tell your lies elsewhere.
    • reply
      by Anonymous on Apr 24, 2012 at 06:59 AM in reply to M
      Sound good, but the issue is that there are those that will not be responsible and fund their own retirement., They will become a drain on society either way. At least with SS we can minimize the drain.
    • reply
      by Anonymous on Apr 24, 2012 at 07:02 AM in reply to M
      The point of Social Security is that you are insured and so are the rest of us, insured against you or anybody else making a mistake in thinking you can take care of yourself in your old age.
    • reply
      by Bettty on Apr 24, 2012 at 07:10 AM in reply to M
      But many people don't have the skills you do...and they need that money to survive.
    • reply
      by Youth must help Youth get off welfare! Drag on SS on Apr 24, 2012 at 08:54 AM in reply to M
      Make a difference "M" and be a postive role model to your age group by mentoring showing them that working for a living builds great character and high self esteem. Let them know it is shameful to live off hardworking taxpayers when they game the welfare system by having 4 or 5 kids out of wedlock all from different baby daddys. It did not help matters when Alaska's gov Sara Palin's teen daughter had a baby out of wedock and to top that, her opportunist Gov Mama manipulated the highest office of the State of Alaska by quitting as gov. while hiding scandel. Palin cashed in making mega bucks from her tv shows and book deals. I can beleive Fox news hired her but can't believe military hero Rep. John McCain picked Palin as his running mate in 08 Pres. primary. The woman has no shame and she is a disgrace to women. Yes, your SS benefits will continue to go into the pooper to welfare scammers who claim they are bipolar skits-so freaks (what is normal anyway?)and to loser parents who their babys daddy idenity, all getting fat monthly SS checks off your paycheck. Only you can change the lives of the medicaid scammers who are paying zero SS taxes and no income taxes to help those who do pay in. Vote the bums who are making it easier to qualify for medicaid federal assistance. Keep and vote in those candidates who make it harder to qualify for assistance and force the grandparents to pitch in more if their lazy children refuse to work to pay for their own kids.
  • by Ex LEO Location: Tally on Apr 24, 2012 at 05:22 AM
    If any of you legislaters read this all you have to do is raise the cap from $110,100.00 to $500,00.00 for witholding to social security or even better eliminate the cap altogether. Social security would be solvent until the world ends. Let the wealthy contribute a little more.
  • by Bubba on Apr 24, 2012 at 04:36 AM
    Blame the baby boomers for this one.
    • reply
      by Ex LEO on Apr 24, 2012 at 05:38 AM in reply to Bubba
      Not really. The blame rests with the legislaters who voted to raid Social Security for all the welfare programs. They need to eliminate the $110,100.00 cap on wages for contributions into Social Security and they will have all the money they need.
    • reply
      by Anonymous on Apr 24, 2012 at 07:35 AM in reply to Bubba
      Yeah, since we are the ones that funded it to begin with. So, now it's wrong for us to want what we paid into? Sorry, Sparky, it's not the baby boomers who are to blame. It's the idiots that we keep electing to Congress.
    • reply
      by Jones on Apr 24, 2012 at 07:57 AM in reply to Bubba
      Old people are costly to maintain and they provide very little benefits in return. The "ME" generation and their collective greed have mired the job markets as these throw-backs to the pre-industrial age insist on staying until they die. Soon enough we will be losing thousands of these worthless old people every day, soon enough their time will come.
      • reply
        by Anonymous on Apr 24, 2012 at 10:38 AM in reply to Jones
        Really, do you have parents jones, I feel sorry for them
  • by gaboy Location: ga on Apr 24, 2012 at 04:32 AM
    if they would quit stealing from the fund to pay other things the money would be there. stop welfare and all the other hand out programs there would be money there. stop paying for cell phones. its not hard to figure out
    • reply
      by Ex LEO on Apr 24, 2012 at 05:34 AM in reply to gaboy
      Or raise the cap on income from $110,100.00 to infinity and they would never run out of money. They could even expand all the welfare programs that Social Security is presendly being raided for.
  • by jack Location: Tallahassee on Apr 24, 2012 at 04:22 AM
    Just a matter of time before we see class warfare break out between the few that still have, and the many that have become dependent on the system.
    • reply
      by Ex LEO on Apr 24, 2012 at 05:42 AM in reply to jack
      In all reality Jack that happened 20 years ago. Now we need to fix it. We need to convince our Legislaters to eliminate the cap of $110,100.00 on wages for contributions into Social Security and they would have more money than thought possible.
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