Update on Social Security and Medicare

       The federal government has issued annual updates on the financial soundness of Social Security and Medicare, stating that each government benefit program will run out of money within the next 8 to 16 years or so. Here’s the latest news.

       For the first time since 1982 the Social Security program’s costs will exceed its income, requiring the use of funds from the program’s $3 trillion trust fund to cover the shortfall. This is happening 3 years earlier than was predicted at the time of last year’s report. The trust fund has grown to its current size in part because there has been more money collected than has been paid out. The excess funds have been added to the trust fund. That may be nearing an end.

       There are several causes for this. Certainly demographics plays a role. The population continues to age which means there are fewer people paying into Social Security and Medicare via payroll deductions from wages while at the same time there are more people applying for benefits and living longer while receiving those benefits. Last year there were 2.8 workers for every Social Security recipient. 10 years before that the ratio was 3.3 to 1.

While the Trump Administration has said that last year’s tax cuts will boost the economy and generate more money for both entitlement programs, so far revenue for these programs is actually down which has also contributed to the shortfall.

       Right now projections show Social Security’s trust fund being exhausted in 2034 and Medicare’s in 2026. So what does that actually mean? In the case of Social Security when the trust fund runs out then they will only be able to pay 75% of the all benefits due. In Medicare’s case when the funds run out only 91% of all costs can be covered.
Changes need to be made and have been talked about for a while but so far no action has been taken. Of course, these projections can and will change each year as new data is analyzed but it does appear that based on trends in population aging and slower economic growth we can expect the solvency of these important programs to continue to be in danger.

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