Prognosis for Social Security worsens - Benefits could be cut in 2033 unless lawmakers come up with fix
23 April 2012
, by Jeffry Bartash - Washington (MarketWatch)http://www.marketwatch.com/story/prognosis-for-social-security-worsens-2012-04-23Social-Security benefits would have to be reduced a few years earlier than previously projected — in 2033 instead of 2036 — based on new estimates of the program’s finances
In their annual report, the trustees who oversee Social Security and Medicare blamed the poor U.S. economy for constraining the growth in taxes necessary to finance the nation’s two largest benefit programs.
They also cited demographic changes: longer lifespans of older Americans and lower birthrates.
That means there will be fewer younger workers in the future to help cover the benefits for people receiving Social Security or Medicare.
“Pressures on these programs are mounting — Americans are living longer and the number of retirees is growing,” said Timothy Geithner, the U.S. Treasury secretary.
The trustees once again urged Congress to take steps to shore up the programs before they hit a crisis point, although there’s no chance of that happening in a presidential election year.
“Both of these programs are on financially unsustainable paths,” said Robert Reischauer, former director of the Congressional Budget Office.
Budget experts say the government likely will have to raise the retirement age, increase taxes or cut benefits to restore the program’s finances to good health.
They expect Congress to take one or all of those steps before the programs near financial exhaustion.
Faster economic growth would also help. The current recovery is the slowest since the Great Depression, decreasing government tax revenue.
Social Security provides benefits to more than 54 million people, with the average payment ranging between $1,100 to $1,200 a month.
The elderly, disabled workers, and children or spouses of deceased recipients are the main beneficiaries.
“The longer Washington waits to address these challenges, the more difficult it will become for workers who are trying to plan for their future,” said Nancy LeaMond, executive vice president at AARP.
In the past few years, payments to the disabled have soared as people lost their jobs during the recession and applied for benefits.
Financing for that part of the Social Security fund will need to be addressed more quickly, the trustees said in a press conference Monday.
Another significant drain is the cost-of-living adjustment for this year. Social Security recipients got a much bigger increase — 3.6% instead of 0.7% as originally projected — because of higher inflation in 2011.
The prognosis for Medicare, meanwhile, was unchanged. The program, which covers about 50 million people, is expected to run out of money in 2024 if nothing is done.
Trustees emphasized that Americans won’t stop receiving benefits even if Congress fails to act. In 2034, for example, retired people would still receive 75% of their promised benefits under the latest projections.
Congress has taken steps before to extend the life of Medicare and Social Security, most famously in the bipartisan reforms of 1983.