Social Security is not bankrupt. What we know about future benefits

A Social Security Administration office in San Francisco.

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A new report from Social Security trustees points to a slightly longer time horizon for the program’s trust funds.

But even with a new exhaust date of 2035 – a year later than expected last year – the program still faces a 75-year shortfall.

A one-year bump is a small change for a huge program that Alicia Munnell, director of Boston College’s Center for Retirement Research, compares to a big ocean liner. And time is running out for Congress to take action to reverse the direction it is currently heading.

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In 2035, only 80% of benefits will be payable, if no action is taken.

“We are entering this area where immediate action will be needed,” Munnell said.

In a new report, the Center for Retirement Research outlines some key program highlights based on this year’s trustee report.

Social Security is not bankrupt

Much of the deficit that social security faces today can be explained by changing demographics that have resulted in a gap between income and cost rates.

In 1964, women had an average of 3.2 children. In 1974, this figure fell to 1.8.

This has led to a reduction in the ratio of workers to retirees, in particular due to the size of the baby boomer population, which is estimated at around 73 million people. About 10,000 baby boomers turn 65 every day; by 2030, all baby boomers will be at least this age.

Also, people are living longer. Taken together, this has contributed to the program’s 75-year deficit.

Social Security trust funds help to mitigate this deficit. Their assets currently have about two years of benefits.

After changes to social security legislation in 1983, these assets had cash surpluses.

But that started to change in 2010, when the program’s cost rate began to exceed its revenue rate. At that time, the program began to draw on interest from trust funds to pay benefits.

In 2021, the government began to draw on trust funds in order to pay benefits, due to tax and interest shortfalls.

These withdrawals will continue until the current projected exhaustion date of 2035.

In the 1980s, the program was expected to last up to age 65 before the trust funds ran out. Today marks 13 years. For each passing year, a new year with a large negative balance is added.

Yet the program is not bankrupt.

Revenue from payroll taxes will continue to cover a significant portion of benefits even after the scheduled exhaustion dates, even if replacement rates are expected to decline.

Some congressional proposals seek to eliminate the 75-year-old deficit, including a bill recently introduced by Sens. 2100 Act proposed by Rep. John Larson, D-Conn., which would extend the solvency of the program into the next century.

Disability outlook is improving, but questions remain

A significant change in this year’s Trustees’ Report was the projections for the Social Security Disability Insurance Fund, which is not expected to be depleted in 75 years. In contrast, last year’s trustees’ report predicted an exhaust date of 2057 for this fund.

The number of disability program participants has skyrocketed over the past 35 years due to a combination of factors. Legislation passed in 1984 made these benefits more accessible by broadening the definition of disability and giving claimants and care providers more influence in the decision-making process. The baby boomer generation and women subsequently had higher incidence rates as a result of these changes.

However, fewer people are receiving disability benefits today than in 2014.

This may be due to several factors, according to the Center for Retirement Research, including the economic expansion of the Great Recession, easier access to medical care after the Affordable Care Act, a shift to less physical jobs and the shutdown certain social security services. field offices.

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In addition, new policies and procedures may have played a role in the decline, particularly changes to how administrative judges who adjudicate disability insurance claims process cases beginning in 2009, including included fewer cases per judge.

The percentage of applications approved fell to 49% in 2019 from 57% in 2009.

This lower approval rating may have been further complicated during the Covid-19 pandemic, when Social Security was forced to close its offices primarily in 2020 for in-person appointments. Offices reopened earlier this year.

“People who need benefits may not be getting them,” Munnell said.

Updated projections for the disability fund should help quell complaints that the program is being overwhelmed by recipients, she said.

“The debate hasn’t really been in tune with the facts for a while,” Munnell said.

Annual adjustments provide inflation protection

Retirees are often described as “living on fixed incomes”.

But that description is largely flawed, due to the fact that Social Security is a major source of income for retirees and those benefits see annual cost-of-living adjustments in line with inflation each year, according to Munnell.

A record 5.9% increase in benefits took effect in January. Admittedly, this is well below the consumer price index in the months that followed. This includes a 9.3% increase in May over the previous 12 months for a subset of the data used to calculate Social Security’s COLA each year, known as the Consumer Price Index for urban workers and office workers, or IPC-W.

The COLA for 2023 could be higher than 8%, due to the retrospective method of calculating the annual adjustment, which compares the third quarter of the current year to the third quarter of last year.

“Over the full cycle, this will fully offset inflation,” Munnell said.

Although there is some debate over whether another measure – the Consumer Price Index for the Elderly, or CPI-E – would better reflect the costs faced by retirees, both indices have experienced virtually identical average annual increases from 2002 to 2021, according to the Center for Retirement Research.

Medicare Part B premiums could change in 2023

Medicare Part B premiums, which cover outpatient physician and hospital services, increased 14.5% in 2022 to bring the standard monthly premium to $170.10.

Much of this increase was caused by the Alzheimer’s drug Aduhelm. However, the price of this drug was halved in December to about $28,200. The use of Aduhelm was also subsequently restricted to patients enrolled in clinical trials.

However, the Centers for Medicare and Medicaid Services determined it was too late to adjust premiums for 2022.

As a result, Part B premium increases for 2023 could be “quite small,” according to the Center for Retirement Research.

Notably, even with higher-than-normal premiums in 2022, beneficiaries should still have seen an upside from the above-average COLA. For example, a beneficiary receiving $1,600 per month would have had a COLA of $94. After paying $22 for their health insurance premiums, their net increase would be $72, or 4.5%.

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