GMR 187: The State of Social Security and Medicare
Every work has paid into or is currently still paying Social Security and Medicare taxes. We all hope to see those benefits come our way someday. In this episode, we discuss the current state of these programs, how this may impact you in the future, and what you can begin to do about it.
Social Security / Medicare
THE 2021 ANNUAL REPORT OF THE BOARD OF TRUSTEES OF THE FEDERAL OLD-AGE AND SURVIVORS INSURANCE AND FEDERAL DISABILITY INSURANCE TRUST FUNDS
https://www.ssa.gov/OACT/TR/2021/tr2021.pdf
The Old-Age, Survivors, and Disability Insurance (OASDI) program makes monthly income available to insured workers and their families at retirement, death, or disability
The Social Security Act established the Board of Trustees to oversee the financial operations of the OASI and DI Trust Funds.
The Social Security Act requires that the Board, among other duties, report annually to Congress on the actuarial status and financial operations of the OASI and DI Trust Funds.
Projections presented include the Trustees’ best estimates of the effects of the COVID-19 pandemic and the ensuing recession,
Employment, earnings, interest rates, and GDP dropped substantially in the second calendar quarter of 2020 and are assumed to rise gradually thereafter toward recovery by 2023, with the level of worker productivity and thus GDP assumed to be permanently lowered by 1 percent. In addition, the pandemic and recession are assumed to lead to elevated mortality rates over the period 2020 through 2023 and delays in births and immigration in the near term. Taken together, these data and assumptions cause the reserve depletion date for the combined OASI and DI Trust Funds under the intermediate assumptions to change from 2035, shown in the 2020 report, to 2034 for this report.
At the end of 2020, the OASDI program was providing benefit payments to about 65 million people: 49 million retired workers and dependents of retired workers, 6 million survivors of deceased workers, and 10 million disabled workers and dependents of disabled workers. During the year, an estimated 175 million people had earnings covered by Social Security and paid payroll taxes on those earnings.
Under the Trustees’ intermediate assumptions, Social Security’s total cost is projected to be higher than its total income in 2021 and all later years. Social Security’s cost has exceeded its non-interest income since 2010.
The reserves of the combined OASI and DI Trust Funds along with projected program income are sufficient to cover projected program cost over the next 10 years under the intermediate assumptions.
The combined reserves are projected to decrease from $2,908 billion at the beginning of 2021 to $1,336 billion at the end of 2030, reserves become depleted in 2034.
To illustrate the magnitude of the 75-year actuarial deficit, consider that for the combined OASI and DI Trust Funds to remain fully solvent throughout the 75-year projection period: (1) revenue would have to increase by an amount equivalent to an immediate and permanent payroll tax rate increase of 3.36 percentage points1 to 15.76 percent; (2) scheduled benefits would have to be reduced by an amount equivalent to an immediate and permanent reduction of about 21 percent applied to all current and future beneficiaries, or about 25 percent if the reductions were applied only to those who become initially eligible for benefits in 2021 or later; or (3) some combination of these approaches would have to be adopted.
If action is deferred until the combined trust fund reserves become depleted in 2034. The taxes would be even higher and the reduction in benefits higher as well.
The OASI Trust Fund reserves are projected to become depleted in 2033, at which time OASI income would be sufficient to pay 76 percent of OASI scheduled benefits.
The Trustees recommend that lawmakers address the projected trust fund shortfalls in a timely way in order to phase in necessary changes gradually and give workers and beneficiaries time to adjust to them. Implementing changes sooner rather than later would allow more generations to share in the needed revenue increases or reductions in scheduled benefits.
Proposed Solutions:
Start adding 1% to payroll taxes per year across two election cycles.
Delay benefits starting age, from 62 to 65 or 68
Reduce benefits to people’s current paychecks by 5% a year over two election cycles.
Watch system go bankrupt and have dramatic reduction… families learn to live together and take care of each other.
Privitize the management of funds, aim for higher rate of return.
https://www.ssa.gov/OACT/TRSUM/tr21summary.pdf
The Hospital Insurance (HI) Trust Fund, or Medicare Part A, which helps pay for services such as inpatient hospital care, will be able to pay scheduled benefits until 2026, the same year as reported last year. At that time, the fund’s reserves will become depleted and continuing total program income will be sufficient to pay 91 percent of total scheduled benefits.
The Supplemental Medical Insurance (SMI) Trust Fund has two accounts: Part B, which helps pay for services such as physician and outpatient hospital care, and Part D, which covers prescription drug benefits. SMI is adequately financed into the indefinite future because current law provides financing from general revenues and beneficiary premiums each year to meet the next year’s expected costs. Due to these funding provisions and the rapid growth of its costs, SMI will place steadily increasing demands on both taxpayers and beneficiaries.
Resources
GMR 69: Social Security is in Trouble, Are You? Part 1
GMR 70: Social Security is in Trouble, Are You? Part 2
GMR 71: Don't Plan on Social Security Being Your Only Retirement Income