At its present rate, Social Security will run out of money within 12 years. This is one year sooner than expected, according to a government report. If this happens, expect smaller retirement funds and higher health care costs for older Americans.
Social Security Will Run Out Of Money in 12 Years
The Treasury Department reported that the Old-Age and Survivors Insurance fund can only pay out scheduled benefits by 2033. This is one year sooner than expected. Meanwhile, the Disability Insurance Trust Fund can manage its payments until 2057.
However, a 2020 government report said that the DITF should have enough money to fund payments until 2066. The two funds are distinct as provided by law. When theoretically combined, the Treasury Department can only issue timely payments until 2034.
Increase in Deaths Kept Program Costs Lower
In addition, senior administration officials said that the increased death rate among retirement-age Americans helped lower Social Security costs at the moment. However, the long-term impact of the coronavirus pandemic remains unknown as costs and contributions return to normal.
The Treasury Department estimated the level of worker productivity during the pandemic. It assumed that the GDP would go down permanently by 1%. This is despite signs of an economic recovery.
However, COVID-19 caused many workers to retire much earlier than expected. As a result, the financial outlook for Social Security and Medicare remains discouraging. Both deteriorated over the past year as the pandemic shrank the labor force.
Medicare Projected To Deplete Its Funds by 2026
Meanwhile, the projections for Medicare remain the same. Unless something changes, the hospital insurance fund will run out of money by 2026.
By that time, doctors and medical centers will find it hard to collect their full compensation. Consequently, patients would need to shoulder any differences themselves.
In its materials released Tuesday, the Treasury department blamed COVID. “The finances of both programs have been significantly affected by the pandemic and the recession of 2020,” it said.
Lower employment, interest rates, earnings, and GDP, when combined with higher death rates, can impact Social Security programs.
Safeguard Social Security Programs
Treasury Secretary Janet Yellen thinks that US Social Security programs should remain free from interference. In her statement, she said that “Having strong Social Security and Medicare programs is essential in order to ensure a secure retirement for all Americans, especially for our most vulnerable populations.
The Biden-Harris Administration is committed to safeguarding these programs and ensuring they continue to deliver economic security and health care to older Americans.”
However, Yellen’s rhetoric cannot mask reality. Within the last two years, it started paying more than what it can collect. Social Security’s total monthly payments to retirees now exceed the income it takes in from current US workers.
At this point, only an act of Congress can possibly reverse the trend. Otherwise, Social Security law would have to reduce benefit checks by 20% for retirees. For many retired Americans, a 20% reduction could mean a fall into poverty.
Watch the Inside News video report that Social Security trust funds are now projected to run out of money sooner than expected:
What do you think should be done to address the problems of Social Security funding? What law should Congress enact to ensure continued delivery of Social Security benefits to the elderly?
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