Social Security Fund to Run Out in 2035, Trustees Say
Copyright 2012 Bloomberg.
The Social Security program will exhaust its trust fund in 2035 and have to start reducing benefits to senior citizens unless Congress intervenes, its trustees said.
That is three years sooner than projected in 2011 for the retirement benefits program, which serves 44 million people, the trustees said in an annual report today. Social Security’s disability program, which aids 11 million Americans, will run through its trust fund in 2016, two years earlier than predicted. The report attributed the fiscal stress in part to the weak economy.
The combined Social Security trust funds would be depleted in 2033, three years earlier than projected. The giant retirement programs are straining the government’s finances, and what to do about them is a central issue in the election-year debate between Democrats and Republicans as President Barack Obama seeks a second term.
“Lawmakers should address the financial challenges facing Social Security and Medicare as soon as possible,” the report urged. “Taking action sooner rather than later will leave more options and more time available to phase in changes so that the public has adequate time to prepare.”
The main fund that supports the Medicare health-care program for the elderly will run dry in 2024, the report said.
House Republicans propose replacing Medicare with government subsidies to help seniors buy private insurance. Democrats and the Obama administration rejected that plan and want to find ways to shore up the program. Neither side has offered a plan for Social Security, which at a 2011 cost of $736 billion is the U.S. government’s largest single program.
Republican presidential candidate Mitt Romney proposes raising the Social Security retirement age for younger people and indexing benefit increases for higher-income retirees to inflation instead of wages. For Medicare, he endorsed the House Republicans’ plan.
The slow economy harms the programs because when unemployment rises, fewer Americans pay the payroll taxes that support Social Security and Medicare. At the same time, some people unable to find work apply for Social Security benefits earlier than they had planned, the trustees said.
The trustees are the secretaries of the departments of Treasury, Labor, and Health and Human Services; as well as the Social Security administrator and two public representatives.
Social Security has two parts: the old-age and survivors insurance program, which supports senior citizens, and the disability insurance program. Each has a trust fund financed primarily by a payroll tax that is split between workers and employers. Medicare is funded through a combination of payroll taxes, beneficiaries’ premiums and general tax revenue.
Congress cut the payroll tax for workers by 2 percentage points for 2011 and 2012 in an effort to stimulate the economy. The cost was added to the U.S. deficit.
The disability program took in $106 billion last year, while spending $132 billion, according to the report. At the end of the year, it had $154 billion left in its trust fund.