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Social Security’s combined trust funds will become depleted in 2034, one year earlier than expected, with 80% of benefits payable at that time.
Last year, the Social Security and Medicare Board of Trustees expected the cuts would begin in 2035.
Social Security has two programs, one for retirees and another that provides disability benefits. Although the two trust funds are legally separated entities, the trustees combine the two reserves to illustrate the actuarial status of the Social Security program as a whole and give a picture of its solvency.
Specifically, the reserves of the Old-Age and Survivors Insurance trust fund, which pays out benefits to retirees and survivors, will face insolvency in a decade. They are projected to become depleted in 2033, at which point beneficiaries of that program would get 77% of scheduled benefits. The disability insurance trust fund asset reserves are not projected to become depleted during the 75-year period ending in 2097.
The accelerated change in the Social Security depletion date was due, in part, to lower expectations for gross domestic product (GDP) and labor productivity, combined with higher inflation, administration officials said.
The report also looked at Medicare, including the Hospital Insurance trust fund that supports Medicare Part A, which pays for inpatient hospital care services. The expected depletion date for the Hospital Insurance trust fund, which serves Medicare Part A, is 2031, compared with an estimate of 2028 last year. The change was attributed to lower healthcare usage and higher payroll tax revenue, administration officials said.
The issue of Social Security has grabbed headlines in recent months following President Joe Biden’s State of the Union address, in which he vowed to protect Social Security and Medicare.
Enacting changes to the federal retirement program often is referred to as the “third rail of politics” because the issue is so politically charged. The White House is against cutting benefits and sees an increase in the retirement age as such a move.
A recent proposal from Sens. Elizabeth Warren, a Massachusetts Democrat, and Bernie Sanders, a Vermont independent who caucuses with the Democrats, seeks to shore up Social Security by raising the top rate of income tax by a third, and the top rate of capital-gains tax by more than a half.
Meanwhile, Sens. Angus King and Bill Cassidy, a Maine independent and a Republican from Louisiana, respectively, are among other senators exploring ways to shore up Social Security through means such as the creation of a sovereign-wealth fund, according to media reports.
The last major changes to bolster Social Security’s finances were made in 1983. Part of those changes included a gradual increase of the full retirement age to 67 from 65.
The Trustees recommended in the report that lawmakers address the projected trust fund shortfalls in a timely way to phase in necessary changes gradually and give workers and beneficiaries time to adjust to them.
“The Trustees continue to recommend that Congress address the projected trust fund shortfalls in a timely fashion to phase in necessary changes gradually,” said Kilolo Kijakazi, acting commissioner of Social Security. “Social Security will continue to play a critical role in the lives of 67 million beneficiaries and 180 million workers and their families during 2023. With informed discussion, creative thinking, and timely legislative action, Social Security can continue to protect future generations.”
“Not doing anything amounts to a cut in benefits,” said Mary Johnson, Social Security and Medicare policy analyst for advocacy group The Senior Citizens League. “It takes Congress a very long time to pass this sort of legislation. But there’s a deadline and Social Security is a very contentious issue. Failing to act will result in insolvency.”
Maya MacGuineas, president of the Committee for a Responsible Federal Budget, agreed, saying that with Social Security and Medicare rushing toward insolvency, “we only have a decade to secure these programs for America’s retirees. Yet many in Washington would rather weaponize these programs than save them.”
Alicia Munnell, director of the Center for Retirement Research at Boston College and a columnist at MarketWatch, has said that anything that involves raising the full retirement age for Social Security should be viewed as a benefit cut. “It’s particularly pernicious because it hurts the vulnerable. It’s a poor lever to use,” she said.
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