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Brett Arends’s ROI: Social Security’s trustees have both good and bad news about the program’s shaky finances

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Do you want the bad news or the good news first when it comes to Social Security and Medicare?

The trustees of the two giant federal programs—the cornerstone of America’s retirement system for tens of millions—published their latest financial reports Thursday.

The bad news is that the hole in Social Security’s accounts grew another $600 billion last year, taking its total to $20.4 trillion and the total for the two programs to $25.3 trillion, the highest on record. That’s the present value of the gap between the amount that Social Security and Medicare are expected to pay out over the next 75 years and the amount they are expected to bring in. These funding deficits are bigger than annual U.S. gross domestic product, and are not included in the official national debt figures.

The good news is that even though both programs are hurtling toward a day of reckoning when they will become technically insolvent, the economic recovery from the pandemic has actually pushed those fateful days back a bit in time.

Medicare’s trust is now expected to run out of money in 2028, the trustees report. A year ago they put the date at 2026. After this point the trust fund, which pays for Medicare Part A hospital care, will be able to pay only about 90% of its bills.

Meanwhile Social Security’s date of insolvency has been put back a year to 2035, at which point it is expected to be able to pay 80% of its bills.

The trustees say this limited good news is mainly due to the economic recovery from COVID, which has been “faster and stronger” than expected.

It’s a timely reminder that it isn’t all bad that the U.S. has produced so many jobs and they are paying so much, despite what people in Washington and on Wall Street seem to think.

Federal data show that the U.S. economy is already 14% bigger than it was before the pandemic struck, and has recovered the 26 million jobs lost.

The economic recovery has produced higher payroll taxes, as more people have more jobs and are earning more money — a good thing. But the resulting inflation is also subjecting more Social Security beneficiaries to tax on their benefits — not a good thing.

(The income tax thresholds on Social Security benefits were not indexed for inflation when they were introduced in the 1980s, a growing scandal that subjects more and more retirees to tax on their benefits.)

Meanwhile, rising interest rates also helped the economic outlook for the trusts, by lowering the present value of projected future deficits.

The projected “insolvency” dates for the programs should produce concern among all of us who expect to rely on these two programs, but probably not panic. At least, not yet. The dates are political more than anything else. They show when the programs’ financial crises will hit unless Congress does something first. Given the number of older people in America, how much we expect to rely on these two programs, and our willingness to vote, we should assume Congress will do something.

: Social Security can pay full benefits until 2035 before trust funds are depleted – one year later than expected – but time is still running out

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