Social Security is running out of money, but that’s even more of a concern for retirees


You work your entire career and eventually retire. After all, it’s time to enjoy your golden years. Life should go smoothly, right? This is an ideal plan. However, the reality is that things can and usually do get in the way.

Unfortunately, two major issues are heading towards a collision course with America’s seniors. Social Security money is running out. But there is an even more serious concern for retirees.

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Social Security’s ticking bomb

It’s no secret that Social Security is a dangerous bomb. The popular federal program has two separate trust funds – accounts at the U.S. Treasury. The Old-Age and Survivors Insurance (OASI) Trust Fund pays social security benefits for retired workers and their survivors. The Disability Insurance (DI) Trust Fund pays Social Security disability benefits. Both trust funds will soon be exhausted.

How soon? The nonpartisan Congressional Budget Office (CBO) estimates that the OASI Trust Fund will expire in 2032. CBO estimates that the DI Trust Fund will expire in 2052.

Although the two trust funds are separate accounts, Congress would dip into the DI Trust Fund to help pay retiree and survivor benefits if the OASI Trust Fund runs out of money. However, this won’t help much. If the two trust funds were combined, they would both run out of money in 2033.

The bottom line is that unless changes are made, Social Security benefits should be cut by 25% in 2034. Importantly, Social Security will not go bankrupt if the trust fund is exhausted. Ongoing payroll taxes will continue to provide about 75% of the benefits.

more pressing concerns

What could be more urgent than massive benefit cuts to every Social Security beneficiary just a decade away? There’s also a ticking bomb for Medicare — and there’s less time on its clock than Social Security.

The Medicare Board of Trustees estimates that the Hospital Insurance Trust Fund, which helps pay for Medicare Part A benefits, will be exhausted by 2031. And this reflects a better scenario. In 2022, the trustees predicted that the Medicare program would go bankrupt in 2028.

However, don’t expect the year to go back that far. The main reason for the change from 2028 to 2031 was the decline in overall health care spending on seniors during the COVID-19 pandemic and the recovery taking longer than anticipated.

Although the threat to Medicare is more urgent than that to Social Security, it is not as serious. When the Hospital Insurance Trust Fund runs out of money, Medicare Part A benefits will be cut by 11%. However, in 2047, the benefit cut will increase to 19%.

Medicare Part B, which covers outpatient services, and Medicare Part D, which covers prescription drugs, are not as blanket as Part A. Both of these programs have a separate trust fund (Supplemental Medical Insurance Trust Fund) that is funded primarily by premiums paid by enrollees and general revenues from federal income taxes and other sources.

What can be done?

There are three basic solutions to the problems facing Social Security and Medicare: increasing revenues, reducing spending, or a combination of the two. All of these options have advantages and disadvantages.

Raising payroll taxes that fund Social Security and Medicare would generate more revenue for the programs. So the payroll tax limit for Social Security would have to be increased or eliminated (there is no limit for Medicare). However, the downside of these steps is that at least some Americans will keep less of their wages.

The federal government could transfer more general revenues to help fund Medicare (and potentially do the same for Social Security). However, this would mean less money for other government priorities.

Reducing expenses can be accomplished in a number of ways. Social Security benefits may be reduced. Medicare reimbursements to health care providers may be reduced. Medicare beneficiaries may have to pay higher premiums or share more costs. The eligibility age for Social Security and Medicare may be increased. Any of these actions will cause financial pain for some Americans.

Politicians don’t want to provoke the anger of voters who will be negatively impacted by the solutions needed to fix Social Security and Medicare. However, change is likely to happen sooner or later, because the alternative to not solving problems is worse than the solutions that may be required.

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