The Social Security Administration has been reporting for years that it’s running out of money for paying out Social Security checks as well as Medicare benefits. The latest report from the trustees of these programs says that, if things don’t change, the Social Security trust fund will be depleted by 2034, while the insolvency date for the Medicare Hospital Insurance fund is now set for 2026. How severe is this threat, and what can be done to stop it?
The consequences of an insolvency condition in Social Security or Medicare would result in cuts to benefits amounting to a reduction of almost one quarter starting in 2034 and 2026, respectively, and then things would just get worse after that. This is terrible news for those older folks who will be depending on the benefits to survive, especially after paying into the programs for years.
The way to prevent this problem is a matter of simple economics: spend less money, bring in more money, or both. These options, however, pose a political dilemma for lawmakers. Republicans don’t want to raise taxes and Democrats don’t want to reduce benefits. To avoid facing the problem head-on, lawmakers have been passing the buck for years without fundamentally changing anything. As each year passes, the problem only becomes more acute and difficult to treat.
Besides the two basic options of raising taxes and reducing benefits, some ground could be gained in other ways, but really, they’re all variations on these two basic options. For example, any tax or benefits changes could be temporary, aimed at addressing the trust fund shortfalls and then reverting back to current levels.
The current eligibility age for Social Security benefits at an unreduced rate is 65 to 67, a range that depends on the year of birth. If someone retires as early as 62, they’re still eligible, but their benefits would be reduced. The age for unreduced benefits could be increased to 68 or as high as 70. Such a change would cover less than one third of the budget shortfall, however.
Another approach is to increase worker and employer contributions. Statutes set by Social Security currently have workers and employers contributing 6.2%. If this amount were increased by 1.1 percent, to 7.3%, then the Social Security deficit would be covered.
The tragedy is that Social Security and Medicare shortfalls will affect the elderly and most vulnerable in our society. “The possibility of losing benefits needed to pay medical bills can be a truly terrifying experience,” says Laurence B. Green, a Pittsburgh social security lawyer.
As more and more of the boomer generation retires, and relatively fewer people join the workforce, Social Security as it is currently implemented simply cannot sustain itself. A mix of solutions is needed to address the Social Security deficit, and they need to come sooner than later. The longer politicians stall, the more painful it will be for future generations.